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Registration No. 33-82658
811-08704
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. 9
GROUP VEL 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)
---
X on May 1, 1998 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a) (1)
---
on (date) pursuant to paragraph (a) (1) of Rule 485
---
this post-effective amendment designates a new effective
--- date for a previously filed post-effective amendment.
FLEXIBLE PREMIUM VARIABLE LIFE
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("1940
Act"), Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act"). The 24f-2 Notice
for the issuer's fiscal year ended December 31, 1997 was filed on or about March
30, 1998.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
1. . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . Cover Page
3. . . . . . . . . . . . Not Applicable
4. . . . . . . . . . . . Distribution
5. . . . . . . . . . . . The Company, The Group VEL Account
6. . . . . . . . . . . . The Group VEL Account
7. . . . . . . . . . . . Not Applicable
8. . . . . . . . . . . . Not Applicable
9. . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . Summary; Description of the Company, The Group VEL and
the Underlying Funds; The Certificate; Certificate
Termination and Reinstatement; Other Certificate
Provisions
11 . . . . . . . . . . . Summary; The Trust, Investment Objectives and Policies
12 . . . . . . . . . . . Summary; The Trust;
13 . . . . . . . . . . . Summary; The Trust; VIP; VIP II; T. Rowe Price; DGPF;
and INVESCO VIF; Investment Advisory Services to the
Trust; Investment Advisory Services to VIPF; Investment
Advisory Services to VIPF II; Investment Advisory
Services to T. Rowe Price; Investment Advisory Services
to DGPF; and Investment Advisory Services to INVESCO
VIF: Charges and Deductions
14 . . . . . . . . . . . Summary; Enrollment Form for a Certificate
15 . . . . . . . . . . . Summary; Enrollment Form for a Certificate; Premium
Payments; Allocation of Net Premiums
16 . . . . . . . . . . . The Group VEL Account; The Trust; VIP; VIP II; T. Rowe
Price; DGPF; and INVESCO VIF; Premium Payments;
Allocation of Net Premiums
17 . . . . . . . . . . . Summary; Surrender; Partial Withdrawal; Charges and
Deductions; Certificate Termination and Reinstatement
18 . . . . . . . . . . . The Group VEL Account; The Trust; VIP; VIP II; T. Rowe
Price; DGPF; and INVESCO VIF; Premium Payments
19 . . . . . . . . . . . Reports; Voting Rights
20 . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . Summary; Certificate Loans; Other Certificate
Provisions
22 . . . . . . . . . . . Other Certificate Provisions
23 . . . . . . . . . . . Not Required
24 . . . . . . . . . . . Other Certificate 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
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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; Certificate Value and Surrender Value
45 . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . Certificate Value and Surrender Value; Federal Tax
Considerations
47 . . . . . . . . . . . The Company
48 . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . The Group VEL Account
51 . . . . . . . . . . . Cover Page; Summary; Charges and Deductions; The
Certificate; Certificate Termination and Reinstatement;
Other Certificate Provisions
52 . . . . . . . . . . . Addition, Deletion or Substitution of Investments
53 . . . . . . . . . . . Federal Tax Considerations
54 . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . Not Applicable
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GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
This Prospectus describes certificates ("Certificate" or "Certificates") issued
under group flexible premium variable life insurance policies ("Policy" or
"Policies") offered by Allmerica Financial Life Insurance and Annuity Company
("Company") to eligible applicants ("Certificate Owners") who are members of a
non-qualified benefit plan having a minimum of five or more members, depending
on the group, and are Age 80 years old and under.
The Certificates permit you to allocate Net Premiums among up to 20 of 23
sub-accounts ("Sub-Accounts") of the Group VEL Account ("Separate Account"), a
separate account of the Company, and a fixed interest account ("General
Account") of the Company (together "Accounts"). Each Sub-Account invests its
assets in a corresponding investment portfolio of Allmerica Investment Trust
("Trust"), Fidelity Variable Insurance Products Fund ("Fidelity VIP"), Fidelity
Variable Insurance Products Fund II ("Fidelity VIP II"), T. Rowe Price
International Series, Inc. ("T. Rowe Price"), Delaware Group Premium Fund, Inc.
("DGPF"), INVESCO Variable Investment Funds, Inc. ("INVESCO VIF") and Morgan
Stanley Universal Funds, Inc. ("Morgan Stanley"). The following underlying funds
are available under the Certificates:
<TABLE>
<S> <C>
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 T. Rowe Price International Stock
Portfolio
Investment Grade Income Fund
Government Bond Fund INVESCO VIF*
Money Market Fund Total Return Fund
Industrial Income Fund
DGPF MORGAN STANLEY**
International Equity Series Fixed Income Portfolio
</TABLE>
(Certain Funds may not be available in all states)
*The Total Return Fund and the Industrial Income Fund of INVESCO VIF are
available only to employees of INVESCO and its affiliates.
**The Morgan Stanley Fixed Income Portfolio of Morgan Stanley is available only
to employees of Duke Energy Corporation and its affiliates.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, FIDELITY VARIABLE INSURANCE PRODUCTS FUND, FIDELITY
VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC.,
DELAWARE GROUP PREMIUM FUND, INC., INVESCO VARIABLE INVESTMENT FUNDS, INC. AND
MORGAN STANLEY UNIVERSAL FUNDS, 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 CERTIFICATES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE
CERTIFICATES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR CREDIT UNION. THE CERTIFICATES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER
FEDERAL AGENCY. INVESTMENTS IN THE CERTIFICATES ARE SUBJECT TO VARIOUS RISKS,
INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED MAY 1, 1998
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
<PAGE>
(Continued from cover page)
Within limits, you may choose the amount of initial premium desired and the
initial Death Benefit. You have the flexibility to vary the frequency and amount
of premium payments, subject to certain restrictions and conditions. You may
withdraw a portion of the Certificate's Surrender Value, or the Certificate may
be fully surrendered at any time, subject to certain limitations.
There is no guaranteed minimum Certificate Value. The value of a Certificate
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 Certificate Value will also be adjusted for other factors,
including the amount of charges imposed. The Certificate will remain in effect
so long as the Certificate Value less any outstanding Debt is sufficient to pay
certain monthly charges imposed in connection with the Certificate. The
Certificate Value may decrease to the point where the Certificate will lapse and
provide no further death benefit without additional premium payments.
If the Certificate 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 Death Benefit, less any
Debt, partial withdrawals, and any due and unpaid charges. After the Final
Premium Payment Date, the Death Proceeds equal the Surrender Value of the
Certificate. If the Guideline Premium Test is in effect (See "Election of Death
Benefit Options"), you may choose either Death Benefit Option 1 (the Death
Benefit is fixed in amount) or Death Benefit Option 2 (the Death Benefit
includes the Certificate Value in addition to a fixed insurance amount) and may
change between Death Benefit Option 1 and Option 2, subject to certain
conditions. If the Cash Value Accumulation Test is in effect, Death Benefit
Option 3 (the Death Benefit is fixed in amount) will apply. A Minimum Death
Benefit, equivalent to a percentage of the Certificate Value, will apply if
greater than the Death Benefit otherwise payable under Option 1, Option 2 or
Option 3.
In certain circumstances, a Certificate may be considered a "modified endowment
contract." Under the Internal Revenue Code ("Code"), any Certificate 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 OR CERTIFICATE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS......................................................................... 5
SUMMARY............................................................................... 8
PERFORMANCE INFORMATION............................................................... 16
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE UNDERLYING FUNDS............ 22
INVESTMENT OBJECTIVES AND POLICIES.................................................... 24
INVESTMENT ADVISORY SERVICES.......................................................... 26
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 29
VOTING RIGHTS......................................................................... 30
THE CERTIFICATE....................................................................... 30
Enrollment Form for a Certificate................................................... 30
Free-Look Period.................................................................... 31
Conversion Privileges............................................................... 32
Premium Payments.................................................................... 32
Allocation of Net Premiums.......................................................... 33
Transfer Privilege.................................................................. 33
Election of Death Benefit Options................................................... 34
Guideline Premium Test and Cash Value Accumulation Test............................. 34
Death Proceeds...................................................................... 35
Change in Death Benefit Option...................................................... 37
Change in Face Amount............................................................... 38
Certificate Value and Surrender Value............................................... 39
Payment Options..................................................................... 40
Optional Insurance Benefits......................................................... 40
Surrender........................................................................... 41
Paid-Up Insurance Option............................................................ 41
Partial Withdrawal.................................................................. 42
CHARGES AND DEDUCTIONS................................................................ 42
Premium Expense Charge.............................................................. 42
Monthly Deduction from Certificate Value............................................ 43
Charges Reflected in the Assets of the Separate Account............................. 45
Surrender Charge.................................................................... 46
Charges on Partial Withdrawal....................................................... 47
Transfer Charges.................................................................... 48
Charge for Change in Face Amount.................................................... 48
Other Administrative Charges........................................................ 48
CERTIFICATE LOANS..................................................................... 48
CERTIFICATE TERMINATION AND REINSTATEMENT............................................. 50
OTHER CERTIFICATE PROVISIONS.......................................................... 51
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY....................................... 53
DISTRIBUTION.......................................................................... 54
SERVICES.............................................................................. 54
REPORTS............................................................................... 54
LEGAL PROCEEDINGS..................................................................... 55
FURTHER INFORMATION................................................................... 55
INDEPENDENT ACCOUNTANTS............................................................... 55
FEDERAL TAX CONSIDERATIONS............................................................ 55
The Company and the Separate Account................................................ 55
Taxation of the Certificates........................................................ 56
Certificate Loans................................................................... 56
Modified Endowment Contracts........................................................ 57
MORE INFORMATION ABOUT THE GENERAL ACCOUNT............................................ 57
</TABLE>
3
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<TABLE>
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FINANCIAL STATEMENTS.................................................................. 58
APPENDIX A -- OPTIONAL BENEFITS....................................................... A-1
APPENDIX B -- PAYMENT OPTIONS......................................................... B-1
APPENDIX C -- ILLUSTRATIONS OF SUM INSURED, CERTIFICATE VALUES AND ACCUMULATED
PREMIUMS............................................................................. C-1
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES................................ D-1
</TABLE>
4
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SPECIAL TERMS
AGE: The Insured's age as of the nearest birthday measured from a Certificate
anniversary.
BENEFICIARY: The person(s) designated by the owner of the Certificate to receive
the insurance proceeds upon the death of the Insured.
CERTIFICATE CHANGE: Any change in the Face Amount, the addition or deletion of a
rider, or a change in the Death Benefit Option.
CERTIFICATE VALUE: The total amount available for investment under a Certificate
at any time. It is equal to the sum of (a) the value of the Units credited to a
Certificate in the Sub-Accounts, and (b) the accumulation in the General Account
credited to that Certificate.
COMPANY: Allmerica Financial Life Insurance and Annuity Company.
DATE OF ISSUE: The date set forth in the Certificate used to determine the
Monthly Processing Date, Certificate months, Certificate years, and Certificate
anniversaries.
DEATH BENEFIT: 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 Death Benefit
will depend on the Death Benefit Option chosen, but will always be at least
equal to the Face Amount.
DEATH PROCEEDS: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Death Benefit Option, 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
Certificate.
DEBT: All unpaid Certificate loans plus interest due or accrued on such loans.
DELIVERY RECEIPT: An acknowledgment, signed by the Certificate Owner and
returned to the Principal Office, that the Certificate Owner has received the
Certificate and the Notice of Withdrawal Rights.
EVIDENCE OF INSURABILITY: Information, satisfactory to the Company, that is used
to determine the Insured's Underwriting Class.
FACE AMOUNT: The amount of insurance coverage applied for. The Face Amount of
each Certificate is set forth in the specifications pages of the Certificate.
FINAL PREMIUM PAYMENT DATE: The Certificate 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 Certificate.
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 for the specified Death Benefit, 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, Smoker or Non-Smoker (Mortality Table B for unisex
Certificates), net investment earnings at an annual effective rate of 5%, and
fees and charges as set forth in the Certificate and any
5
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Certificate riders. The Death Benefit Option 1 Guideline Annual Premium is used
when calculating the maximum surrender charge.
INSURANCE AMOUNT AT RISK: The Death Benefit less the Certificate Value.
ISSUANCE AND ACCEPTANCE: The date the Company mails the Certificate if the
enrollment form is approved with no changes requiring your consent; otherwise,
the date the Company receives your written consent to any changes.
LOAN VALUE: The maximum amount that may be borrowed under the Certificate.
MINIMUM DEATH BENEFIT: The minimum Death Benefit required to qualify the
Certificate as "life insurance" under federal tax laws. The Minimum Death
Benefit varies by Age. It is calculated by multiplying the Certificate Value by
a percentage determined by the Insured's Age.
MONTHLY DEDUCTION: Charges deducted monthly from the Certificate Value prior to
the Final Premium Payment Date. The charges include the monthly cost of
insurance, the monthly cost of any benefits provided by rider, the monthly
Certificate administrative charge, the monthly Separate Account administrative
charge and the monthly mortality and expense risk charge.
MONTHLY DEDUCTION SUB-ACCOUNT: A Sub-Account of the Separate Account to which
the payor that you name under the Payor Option may allocate Net Premiums to pay
all or a portion of the insurance charges and administrative charges. The
Monthly Deduction Sub-Account is currently the Sub-Account which invests in the
Money Market Fund of Allmerica Investment Trust.
MONTHLY PROCESSING DATE: The date on which the Monthly Deduction is deducted
from Certificate Value.
NET PREMIUM: An amount equal to the premium less any premium expense charge.
PAID-UP INSURANCE: Life insurance coverage for the life of the Insured, with no
further premiums due.
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 Certificate
Value will be allocated. If you do not, the Company will allocate the deduction
or Certificate Value among the General Account and the Sub-Accounts, excluding
the Monthly Deduction Sub-Account, in the same proportion that the Certificate
Value in the General Account and the Certificate Value in each Sub-Account bear
to the total Certificate 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 subdivision of the Separate Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Fidelity Variable Insurance Products
Fund or the Fidelity Variable Insurance Products Fund II, the T. Rowe Price
International Stock Portfolio of T. Rowe Price International Series, Inc. or the
International Equity Series of the Delaware Group Premium Fund, Inc. The Total
Return Fund and the Industrial Income Fund of INVESCO VIF are available only to
employees of INVESCO Funds Group, Inc. and its affiliates. The Morgan Stanley
Universal Funds Inc. Fixed Income Portfolio is available only to employees of
Duke Energy Corporation and its affiliates.
6
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SURRENDER VALUE: The amount payable upon a full surrender of the Certificate. It
is the Certificate Value, less any Debt and any surrender charges.
UNDERLYING FUNDS ("FUNDS"): The Funds of Allmerica Investment Trust, the
Portfolios of Fidelity Variable Insurance Products Fund and Fidelity Variable
Insurance Products Fund II, the Portfolio of T. Rowe Price International Series,
Inc., the Series of Delaware Group Premium Fund, Inc., the Funds of INVESCO
Variable Investment Funds, Inc., and the Portfolio of Morgan Stanley Universal
Funds, Inc., which are available under the Certificates.
UNDERWRITING CLASS: The risk classification that the Company assigns the Insured
based on the information in the enrollment form and any other Evidence of
Insurability considered by the Company. The Insured's Underwriting Class will
affect the cost of insurance charge and the amount of premium required to keep
the Certificate in force.
UNIT: A measure of your interest in a Sub-Account.
VALUATION DATE: A day on which the net asset value of the shares of any of the
Underlying Funds is determined and Unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Certificate 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
materially affected.
VALUATION PERIOD: The interval between two consecutive Valuation Dates.
WRITTEN REQUEST: A request by the Certificate Owner in writing, satisfactory to
the Company.
YOU OR YOUR: The Certificate Owner, as shown in the enrollment form or the
latest change filed with the Company.
7
<PAGE>
SUMMARY
THE CERTIFICATE
The Certificate issued under a group flexible premium variable life policy
offered by this Prospectus allows you, subject to certain limitations, to make
premium payments in any amount and frequency. As long as the Certificate remains
in force, it will provide for:
- life insurance coverage on the named Insured;
- Certificate Value;
- surrender rights and partial withdrawal rights;
- loan privileges; and
- in some cases, additional insurance benefits available by rider for an
additional charge.
The Certificates provide Death Benefits, Certificate Values, and other features
traditionally associated with life insurance policies. The Certificates are
"variable" because, unlike the fixed benefits of ordinary whole life insurance,
the Certificate Value will, and under certain circumstances the Death Proceeds
may, increase or decrease depending on the investment experience of the
Sub-Accounts of the Separate Account. They are "flexible premium" Certificates,
because, unlike traditional insurance policies, there is no fixed schedule for
premium payments. Although you may establish a schedule of premium payments
("planned premium payments"), failure to make the planned premium payments will
not necessarily cause a Certificate to lapse, nor will making the planned
premium payments guarantee that a Certificate will remain in force. Thus, you
may, but are not required to, pay additional premiums.
The Certificate 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.
SURRENDER CHARGES
At any time that a Certificate is in effect, a Certificate Owner may elect to
surrender the Certificate and receive its Surrender Value. A surrender charge
may be calculated upon issuance of the Certificate and upon each increase in the
Face Amount. The surrender charge may be imposed, depending on the group to
which the Policy is issued, for up to 15 years from the Date of Issue or any
increase in the Face Amount and you request a full surrender or a decrease in
the Face Amount.
SURRENDER CHARGES FOR THE INITIAL FACE AMOUNT
The maximum surrender charge calculated upon issuance of the Certificate is
equal to the sum of (a) plus (b), where (a) is a deferred administrative charge
of up to $8.50 per thousand dollars of the initial Face Amount, and (b) is a
deferred sales charge of up to 50% (less any premium expense charge not
associated with state and local premium taxes) of premiums received up to the
Guideline Annual Premium, depending on the group to which the Policy is issued.
In accordance with limitations under state insurance regulations, the amount of
the maximum surrender charge will not exceed a specified amount per thousand
dollars of initial Face Amount, as indicated in APPENDIX C -- CALCULATION OF
MAXIMUM SURRENDER CHARGES. The maximum surrender charge remains level for up to
24 Certificate months, reduces uniformly each month for the balance of the
surrender charge period, and is zero thereafter. If you surrender the
Certificate during the first two 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 actual surrender charge imposed may
be less than the maximum. See THE CERTIFICATE -- "Surrender" and CHARGES AND
DEDUCTIONS -- "Surrender Charge."
8
<PAGE>
SURRENDER CHARGES FOR AN INCREASE IN FACE AMOUNT
A separate surrender charge may apply to and be calculated for each increase in
Face Amount. The maximum surrender charge for the increase is equal to the sum
of (a) plus (b), where (a) is a deferred administrative charge of up to $8.50
per thousand dollars of increase, and (b) is a deferred sales charge of up to
50% (less any premium expense charge not associated with state and local premium
taxes) of premiums associated with the increase, up to the Guideline Annual
Premium for the increase. In accordance with limitations under state insurance
regulations, the amount of the surrender charge will not exceed a specified
amount per thousand dollars of increase, as indicated in APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES.
This maximum surrender charge with respect to an increase remains level for up
to 24 Certificate months following the increase, reduces uniformly each month
for the balance of the surrender charge period, and is zero thereafter. During
the first two Certificate years following an increase in Face Amount, before
making premium payments associated with the increase in Face Amount which are at
least equal to one Guideline Annual Premium, the actual surrender charge with
respect to the increase may be less than the maximum. See THE CERTIFICATE --
"Surrender" and CHARGES AND DEDUCTIONS -- "Surrender Charge."
In the event of a decrease in the Face Amount, any surrender charge imposed is a
fraction of the charge that would apply to a full surrender of the Certificate.
See THE CERTIFICATE -- "Surrender" and CHARGES AND DEDUCTIONS -- "Surrender
Charge."
PREMIUM EXPENSE CHARGE
A charge may be deducted from each premium payment for state and local premium
taxes paid by the Company, to compensate the Company for federal taxes imposed
for deferred acquisition cost ("DAC") taxes, and for sales expenses related to
the Certificates. State premium taxes generally range from 0.75% to 5%, while
local premium taxes (if any) vary by jurisdiction within a state. The DAC tax
deduction may range from zero to 1% of premiums, depending on the group to which
the Policy is issued. The charge for distribution expenses may range from zero
to 10%. See CHARGES AND DEDUCTIONS -- "Premium Expense Charge."
MONTHLY DEDUCTIONS FROM CERTIFICATE VALUE
On the Date of Issue and each Monthly Processing Date thereafter prior to the
Final Premium Payment Date, certain charges ("Monthly Deductions") will be
deducted from the Certificate Value. The Monthly Deduction includes a charge for
cost of insurance, a charge for the cost of any additional benefits provided by
rider, and a charge for administrative expenses that may be up to $10, depending
on the group to which the Policy is issued. The Monthly Deduction may also
include a charge for Separate Account administrative expenses and a charge for
mortality and expense risks. The Separate administrative charge may continue for
up to 10 Certificate years and may be up to 0.25% of Certificate Value in each
Sub-Account, depending on the group to which the Policy was issued. The
mortality and expense risk charge may be up to 0.90% of Certificate Value in
each Sub-Account.
You may specify from which Sub-Account the cost of insurance charge, the charge
for Certificate administrative expenses and the charge for the cost of
additional benefits provided by rider will be deducted. If the Payor Provision
is in force, all cost of insurance charges and administrative charges will be
deducted from the Monthly Deduction Sub-Account. If no allocation is specified,
the Company will make a Pro-Rata Allocation.
The Separate Account administrative charge and the mortality and expense risk
charge are assessed against each Sub-Account that generates a charge. In the
event that a charge is greater than the value of the Sub-Account to which it
relates on a Monthly Processing Date, the unpaid balance will be totaled and the
Company will make a Pro-Rata Allocation.
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<PAGE>
Monthly Deductions are made on the Date of Issue and on each Monthly Processing
Date until the Final Premium Payment Date. No Monthly Deductions will be made on
or after the Final Premium Payment Date. See CHARGES AND DEDUCTIONS -- "Monthly
Deductions from Certificate Value."
TRANSACTION CHARGES
Each of the charges listed below is designed to reimburse the Company for
administrative costs incurred in the applicable transaction.
TRANSACTION CHARGE ON PARTIAL WITHDRAWALS
A transaction charge, which is up to the smaller of 2% of the amount withdrawn,
or $25, is assessed at the time of each partial withdrawal to reimburse the
Company for the cost of processing the withdrawal. In addition to the
transaction charge, a partial withdrawal charge may also be made under certain
circumstances. See CHARGES AND DEDUCTIONS -- "Charges on Partial Withdrawal."
CHARGE FOR CHANGE IN FACE AMOUNT
For each increase or decrease in the Face Amount, a charge of $2.50 per $1,000
of increase or decrease up to $40, may be deducted from the Certificate Value.
This charge is designed to reimburse the Company for underwriting and
administrative costs associated with the change. See THE CERTIFICATE -- "Change
In Face Amount" and CHARGES AND DEDUCTIONS -- "Charge for Change in Face
Amount."
TRANSFER CHARGE
The first twelve transfers of Certificate Value in a Certificate 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 CERTIFICATE -- "Transfer Privilege" and
CHARGES AND DEDUCTIONS -- "Transfer Charges."
OTHER ADMINISTRATIVE 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. See CHARGES AND DEDUCTIONS -- "Other Administrative
Charges."
CHARGES OF THE UNDERLYING INVESTMENT FUNDS
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Investment Funds. See "CHARGES AND
DEDUCTIONS -- "Charges Reflected in the Assets of the Separate Account." The
levels of fees and expenses vary among the Underlying Investment Funds.
CERTIFICATE VALUE AND SURRENDER VALUE
The Certificate Value is the total amount available for investment under a
Certificate at any time. It is the sum of the value of all Units in the
Sub-Accounts of the Separate Account and all accumulations in the General
Account of the Company credited to the Certificate. The Certificate Value
reflects the amount and frequency of Net Premiums paid, charges and deductions
imposed under the Certificate, interest credited to accumulations in the General
Account, investment performance of the Sub-Accounts to which Certificate Value
has been allocated, and partial withdrawals. The Certificate Value may be
relevant to the computation of the Death Proceeds. You bear the entire
investment risk for amounts allocated to the Separate Account. The Company does
not guarantee a minimum Certificate Value.
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The Surrender Value will be the Certificate Value, less any Debt and surrender
charges. The Surrender Value is relevant, for example, in the computation of the
amounts available upon partial withdrawals, Certificate loans or surrender.
DEATH PROCEEDS
The Certificate 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 Death Benefit, reduced by any
outstanding Debt, partial withdrawals, partial withdrawal charges, and any
Monthly Deductions due and not yet deducted through the Certificate month in
which the Insured dies. Three Death Benefit Options are available. Under Option
1 and Option 3, the Death Benefit is the greater of the Face Amount or the
applicable Minimum Death Benefit. Under Option 2, the Death Benefit is the
greater of the Face Amount plus the Certificate Value or the Minimum Death
Benefit. The Minimum Death Benefit is equivalent to a percentage (determined
each month based on the Insured's Age) of the Certificate Value. On or after the
Final Premium Payment Date, the Death Proceeds will equal the Surrender Value.
See THE CERTIFICATE -- "Death Proceeds."
The Death Proceeds under the Certificate may be received in a lump sum or under
one of the Payment Options the Company offers. See APPENDIX B -- PAYMENT
OPTIONS.
FLEXIBILITY TO ADJUST DEATH BENEFIT
Subject to certain limitations, you may adjust the Death Benefit, and thus the
Death Proceeds, at any time prior to the Final Premium Payment Date, by
increasing or decreasing the Face Amount of the Certificate. 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 Certificate Value is reduced by the amount of the
charge. See THE CERTIFICATE -- "Change in Face Amount."
The minimum increase in the Face Amount will vary by group, but will in no event
exceed $10,000. Any increase may also require additional Evidence of
Insurability. The increase is subject to a "free-look period" and, during the
first 24 months after the increase, to a conversion privilege. See THE
CERTIFICATE -- "Free-Look Period" and "Conversion Privileges."
You may, depending on the group to which the Policy is issued, have the
flexibility to add additional insurance benefits by rider. These may include the
Waiver of Premium Rider, Other Insured Rider, Children's Insurance Rider,
Accidental Death Benefit Rider, Option to Accelerate Benefits Rider and Exchange
Option Rider. See APPENDIX A -- OPTIONAL BENEFITS.
The cost of these optional insurance benefits will be deducted from the
Certificate Value as part of the Monthly Deduction. See CHARGES AND DEDUCTIONS
- -- "Monthly Deduction from Certificate Value."
CERTIFICATE ISSUANCE
At the time of enrollment, the proposed Insured will complete an enrollment form
which lists the proposed amount of insurance and indicates how much of that
insurance is considered eligible for simplified underwriting. If the eligibility
questions on the enrollment form are answered "No," the Company will provide
immediate coverage equal to the simplified underwriting amount. If the proposed
insured is in a standard premium class, any insurance in excess of the
simplified underwriting amount will begin on the date the enrollment form and
medical examination, if any, are completed. If the proposed Insured cannot
answer the eligibility questions "No," and if the proposed Insured is not a
standard risk, insurance coverage will begin only after the Company (1) approves
the enrollment form, (2) the Certificate is delivered and accepted, and (3) the
first premium is paid.
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<PAGE>
If any premiums are paid prior to the issuance of the Certificate, such premiums
will be held in the General Account. If your enrollment form is approved and the
Certificate 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 Company's Principal Office. IF A
CERTIFICATE IS NOT ISSUED AND ACCEPTED, THE INITIAL PREMIUMS WILL BE RETURNED TO
YOU WITHOUT INTEREST.
If your Certificate provides for a full refund of the initial payment under its
"Right-to-Examine Certificate" provision as required in your state, all
Certificate Value in the General Account that you initially designated to go to
the Sub-Accounts will be allocated to the Money Market Fund of the Trust upon
Issuance and Acceptance of the Certificate. All Certificate Value will be
allocated as you have chosen no later than the expiration of the period during
which you may exercise the "Right-to-Examine Certificate" provision.
ALLOCATION OF NET PREMIUMS
Net Premiums are the premiums paid less any premium expense charge. The
Certificate, together with its attached enrollment form, constitutes the entire
agreement between you and the Company. Net Premiums may be allocated to one or
more Sub-Accounts of the Separate Account, to the General Account, or to any
combination of Accounts. You bear the investment risk of Net Premiums allocated
to the Sub-Accounts. Allocations may be made to no more than 20 Sub-Accounts 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 CERTIFICATE -- "Allocation of
Net Premiums."
Premiums allocated to the 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.
INVESTMENT OPTIONS
The Certificates permit Net Premiums to be allocated either to the General
Account or to the Separate Account. The Separate Account is currently comprised
of 23 Sub-Accounts. Each Sub-Account invests exclusively in a corresponding
Underlying Fund of the Allmerica Investment Trust ("Trust") managed by Allmerica
Financial Investment Management Services, Inc. ("AFIMS"), of the Fidelity
Variable Insurance Products Fund ("Fidelity VIP") of the Fidelity Variable
Insurance Products Fund II ("Fidelity VIP II") managed by Fidelity Management,
of T. Rowe Price International Series, Inc. ("T. Rowe Price") managed by Rowe
Price-Fleming International, Inc., of the Delaware Group Premium Fund, Inc.
("DGPF") managed by Delaware International, of INVESCO Variable Investment
Funds, Inc. ("INVESCO VIF") managed by INVESCO, or of Morgan Stanley Universal
Funds, Inc. (Morgan Stanley), managed by Miller, Anderson and Sherrerd, LLP
("MAS"). INVESCO VIF is available only to employees of INVESCO and its
affiliates, and the Morgan Stanley Universal Funds, Inc. is available only to
employees of Duke Energy Corporation and its affiliates. In some states,
insurance regulations may restrict the availability of particular Underlying
Funds. The Certificates permit you to transfer Certificate Value among the
available Sub-Accounts and between the Sub-Accounts and the General Account,
subject to certain limitations described under THE CERTIFICATE -- "Transfer
Privilege."
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. For more information, see
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE UNDERLYING FUNDS.
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
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shows the expenses of the Underlying Funds for 1997. For more information
concerning fees and expenses, see the prospectuses of the Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER FUND
(AFTER ANY EXPENSES (AFTER ANY
VOLUNTARY APPLICABLE TOTAL FUND
UNDERLYING FUND WAIVER) REIMBURSEMENTS) EXPENSES
- --------------------------------------------------------------- ------------------ --------------------- ---------------
<S> <C> <C> <C>
Select Aggressive Growth Fund.................................. 0.89%* 0.09% 0.98%(1)(3)
Select Capital Appreciation Fund............................... 0.95%* 0.15% 1.10%(1)
Select Value Opportunity Fund.................................. 0.90%** 0.14% 1.04%(1)(3)
Select Emerging Markets Fund (@)............................... 1.35% 0.65% 2.00%(1)
Select International Equity Fund............................... 0.92%* 0.20% 1.12%(1)(3)
DGPF International Equity Series............................... 0.75%(4) 0.15% 0.90%(4)
Fidelity VIP Overseas Portfolio................................ 0.75% 0.17% 0.92%(2)
T. Rowe Price International Stock Portfolio.................... 1.05% 0.00% 1.05%
Select Growth Fund............................................. 0.85% 0.08% 0.93%(1)(3)
Select Strategic Growth Fund (@)............................... 0.85% 0.13% 0.98%(1)
Growth Fund.................................................... 0.46%* 0.06% 0.52%(1)(3)
Fidelity VIP Growth Portfolio.................................. 0.60% 0.09% 0.69%(2)
Equity Index Fund.............................................. 0.31% 0.13% 0.44%(1)
Select Growth and Income Fund.................................. 0.70%* 0.07% 0.77%(1)(3)
Fidelity VIP Equity-Income Portfolio........................... 0.50% 0.08% 0.58%(2)
Fidelity VIP II Asset Manager Portfolio........................ 0.55% 0.10% 0.65%(2)
Fidelity VIP High Income Portfolio............................. 0.59% 0.12% 0.71%
Investment Grade Income Fund................................... 0.44%* 0.10% 0.54%(1)
Government Bond Fund........................................... 0.50% 0.17% 0.67%(1)
Money Market Fund.............................................. 0.27% 0.08% 0.35%(1)
INVESCO VIF Industrial Income Fund............................. 0.75% 0.16% 0.91%(##)
INVESCO VIF Total Return Fund.................................. 0.75% 0.17% 0.92%(##)
Morgan Stanley Fixed Income Portfolio.......................... 0.40% 0.30% 0.70%(+)
</TABLE>
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fee ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
(@) 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 expense may be greater or
less than shown.
** The Select Value Opportunity Fund was formerly known as the "Small-Mid Cap
Value Fund." Effective April 1, 1997, the management fee rate of the former
Small-Mid Cap Value Fund was revised. In addition, effective April 1, 1997 and
until further notice, the management fee rate has been voluntarily limited to an
annual rate of 0.90% of average daily net assets, and total expenses are limited
to 1.25% of average daily net assets. The management fee ratio shown above for
the Select Value Opportunity Fund has been adjusted to assume that the revised
rate and the voluntarily limitations took effect on January 1, 1997. Without
these adjustments, the management fee ratio and the total fund expense ratio
would have been 0.95% and 1.09%, respectively. The management fee limitation may
be terminated at any time.
(1) Until further notice, AFIMS 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, 1.25%
for the Select Value Opportunity Fund, 1.20% for the Growth Fund and Select
Growth Fund, 1.10% for the Select Growth and Income, 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 these Funds of the Trust
were less than their respective expense limitations throughout 1997.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
the AFIMS has agreed to voluntarily waive its management
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<PAGE>
fee to the extent that expenses of the Select Emerging Markets Fund exceed 2.00%
of the Fund's average daily net assets, except that such waiver shall not exceed
the net amount of management fees earned by AFIMS from the Fund after
subtracting fees paid by AFIMS to a sub-adviser.
The declaration of a voluntary expense limitation in any year does not bind
AFIMS to declare future expense limitations with respect to these funds. These
limitations may be terminated at any time.
(2) 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 0.57% for Fidelity VIP Equity Income Portfolio, 0.67% for
Fidelity VIP Growth Portfolio, 0.90% for Fidelity VIP Overseas Portfolio and
0.64% for Fidelity VIP II Asset Manager Portfolio.
(3) These funds have entered into agreements with brokers whereby brokers rebate
a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expense ratios would have been 0.93% for the
Select Aggressive Growth Fund, 1.10% for the Select International Equity Fund,
0.91% for the Select Growth Fund, 0.50% for the Growth Fund, 0.98% for the
Select Value Opportunity Fund, and 0.74% for the Select Growth and Income Fund.
(4) Effective July 1, 1997, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.80% that expired on June 30, 1997. The new limitation will be in effect
through October 31, 1998. The fee ratios shown above have been adjusted to
assume that the new voluntarily limitation took effect on January 1, 1997. In
1997, the actual ratio of total annual expenses of the International Equity
Series was 0.85%, and the actual management fee ratio was 0.70%.
(##) Various expenses of the Industrial Income Fund and Total Return Fund were
voluntarily absorbed by INVESCO in 1997. If such expenses had not been
voluntarily absorbed, the total operating expenses ratios would have been 0.97%
and 1.10%, respectively.
(+) MAS has voluntarily agreed to waive its management fees and to reimburse the
Fixed Income Portfolio if processing of such fees would cause the total annual
operating expense of the portfolio to exceed 0.70% of average daily net assets.
This fee waiver is voluntary and may be terminated by MAS at any time without
notice.
FREE-LOOK PERIOD
The Certificate provides for an initial Free-Look Period. You may cancel the
Certificate by mailing or delivering it to the Principal Office or to an agent
of the Company on or before the latest of (a) 45 days after the enrollment form
for the Certificate is signed, (b) 10 days after you receive the Certificate, or
(c) 10 days (20 or 30 days if required in your state) after the Company mails or
personally delivers a Notice of Withdrawal Rights to you.
If your Certificate provides for a full refund of the initial premium under its
"Right-to-Examine Certificate" provision as required in your state, your refund
will be the greater of (a) your entire premium, or (b) the Certificate Value
plus deductions under the Certificate, or by the Underlying Funds for taxes,
charges or fees. If your Certificate does not provide for a full refund of the
initial premium, you will receive the Certificate Value in the Separate Account,
plus premiums paid, including fees and charges, minus the amounts allocated to
the Separate Account, plus the fees and charges imposed on amounts in the
Separate Account. After an increase in The Face Amount, a right to cancel the
increase also applies. See THE CERTIFICATE -- "Free-Look Period."
CONVERSION PRIVILEGES
During the first 24 Certificate months after the Date of Issue, subject to
certain restrictions, you may convert this Certificate to a flexible premium
fixed adjustable life insurance Certificate by simultaneously transferring all
accumulated value in the Sub-Accounts to the General Account and instructing the
Company to
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<PAGE>
allocate all future premiums to the General Account. A similar conversion
privilege is in effect for 24 Certificate 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 Certificate to
you. The new Certificate will have the same face amount, issue Age, Date of
Issue, and risk classifications as the original Certificate. See THE CERTIFICATE
- -- "Conversion Privileges."
PARTIAL WITHDRAWAL
After the first Certificate year, you may make partial withdrawals in a minimum
amount of $500 from the Certificate Value. Under Option 1 or Option 3, 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 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 partial withdrawal charge may also be
imposed upon a partial withdrawal. Generally, amounts withdrawn during each
Certificate year in excess of 10% of the Certificate Value ("excess withdrawal")
are subject to the partial withdrawal charge. The partial withdrawal charge is
equal to 5% of the excess withdrawal up to the surrender 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 Certificate's outstanding
surrender charge will be reduced by the amount of the partial withdrawal charge
deducted. See THE CERTIFICATE -- "Partial Withdrawal" and CHARGES AND DEDUCTIONS
- -- "Charges on Partial Withdrawal."
LOAN PRIVILEGE
You may borrow against the Certificate Value. The total amount you may borrow is
the Loan Value. Loan Value in the first Certificate year is 75% of an amount
equal to Certificate Value less surrender charge, Monthly Deductions, and
interest on the Certificate loan to the end of the Certificate year. Thereafter,
Loan Value is 90% of an amount equal to Certificate Value less the surrender
charge.
Certificate 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, Certificate Value equal to the Certificate loan will be transferred from
the appropriate Sub-Accounts to the General Account, and will earn monthly
interest at an effective annual rate of at least 6%. Therefore, a Certificate
loan may have a permanent impact on the Certificate Value even though it is
eventually repaid. Although the loan amount is a part of the Certificate Value,
the Death Proceeds will be reduced by the amount of outstanding Debt at the time
of death.
Certificate loans will bear interest at a fixed rate of 8% per year, due and
payable in arrears at the end of each Certificate year. If interest is not paid
when due, it will be added to the loan balance. Certificate 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 "CERTIFICATE LOANS."
PREFERRED LOAN OPTION
A preferred loan option is available under the Certificates. 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 certificate anniversary
Certificate 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%. Our
current practice is to credit a rate of interest equal to the rate being charged
for the preferred loan.
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<PAGE>
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.
CERTIFICATE LAPSE AND REINSTATEMENT
Failure to make premium payments will not cause a Certificate 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 the Certificate Value. A
62-day grace period applies to each situation. Subject to certain conditions
(including Evidence of Insurability showing that the Insured is insurable
according to the Company's underwriting rules and the payment of sufficient
premium), the Certificate may be reinstated at any time within three years after
the expiration of the grace period and prior to the Final Premium Payment Date.
See CERTIFICATE TERMINATION AND REINSTATEMENT.
TAX TREATMENT
The Certificate is generally 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, you will be taxed on the Certificate
Value withdrawn from the Certificate 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 Certificate 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 Certificate. Death Proceeds under the Certificate are excludable from the
gross income of the Beneficiary, but in some circumstances the Death Proceeds or
the Certificate Value may be subject to federal estate tax. See FEDERAL TAX
CONSIDERATIONS -- "Taxation of the Certificates."
The Certificate offered by this Prospectus may be considered a "modified
endowment contract" if it fails a "seven-pay" test. A Certificate fails to
satisfy the seven-pay test if the cumulative premiums paid under the Certificate
at any time during the first seven Certificate years, or within seven years of a
material change in the Certificate, exceeds the sum of the net level premiums
that would have been paid, had the Certificate provided for paid-up future
benefits after the payment of seven level premiums. If the Certificate is
considered a modified endowment contract, all distributions (including
Certificate loans, partial withdrawals, 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 FEDERAL TAX CONSIDERATIONS -- "Modified Endowment
Contracts."
The Certificate summarizes the provisions of the group Policy under which it is
issued, which has the purpose of providing insurance protection for the
Beneficiary named therein. References to Certificate rights and features are
intended to represent a Certificate Owner's rights and benefits under the group
Policy. This Summary is intended to provide only a very brief overview of the
more significant aspects of the Certificate. Further detail is provided in this
Prospectus, the Certificate and the group Policy. No claim is made that the
Certificate is in any way similar or comparable to a systematic investment plan
of a mutual fund.
PERFORMANCE INFORMATION
The Certificates were first offered to the public in 1995. However, the Company
may advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Sub-Accounts have been in existence
(Tables I[A] and I[B]), and based on the periods that the Underlying Funds have
been in existence (Tables II[A] and II[B]). The results for any period prior to
the Certificates being offered will be calculated as if the Certificates 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" Certificate that is surrendered at the end of the applicable
period. For more information on charges under the Certificates, see CHARGES AND
DEDUCTIONS.
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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 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: (1) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other unmanaged
indices so that investors may compare results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (2) other groups of variable 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 (3)
the Consumer Price Index (a measure for inflation) to assess the real rate of
return from an investment. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
At times, the Company may also advertise the ratings and other information
assigned to it be 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 Certificate
Owners and prospective Certificate Owners 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 invest ment scenarios, financial management and tax
and retirement planning, and investment alternatives to certificates of deposit
and other financial instruments.
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TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF THE SUB-ACCOUNTS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE CERTIFICATE
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 Certificate charges (including surrender
charges) for a representative Certificate. It is assumed that the Insured is
male, Age 36, standard (non-smoker) Premium Class, that the Face Amount of the
Certificate is $250,000, that an annual premium payment of $3,000 (approximately
one Guideline Annual Premium) was made at the beginning of each Certificate
year, that ALL premiums were allocated to EACH Sub-Account individually, and
that there was a full surrender of the Certificate at the end of the applicable
period.
<TABLE>
<CAPTION>
TEN YEARS
FOR YEAR OR SINCE
ENDED FIVE INCEPTION
UNDERLYING FUNDS 12/31/97 YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select Aggressive Growth Fund -97.09% N/A -3.84%
Select Capital Appreciation Fund -100.00% N/A -4.62%
Select Value Opportunity Fund -91.46% N/A -3.22%
T. Rowe Price International Stock Portfolio -100.00% N/A -52.29%
Fidelity VIP Overseas Portfolio -100.00% N/A -16.93%
Select International Equity Fund -100.00% N/A -13.90%
DGPF International Equity Series -100.00% N/A -71.01%
Fidelity VIP Growth Portfolio -92.71% N/A -3.55%
Select Growth Fund -83.01% N/A 1.25%
Select Strategic Growth Fund N/A N/A N/A
Growth Fund -91.20% N/A -2.51%
Equity Index Fund -84.52% N/A 2.13%
Fidelity VIP Equity-Income Portfolio -88.47% N/A -3.76%
Select Growth and Income Fund -93.61% N/A -2.67%
Fidelity VIP II Asset Manager Portfolio -95.32% N/A -10.12%
Fidelity VIP High Income Portfolio -98.05% N/A -12.49%
Investment Grade Income Fund -100.00% N/A -20.75%
Government Bond Fund -100.00% N/A -23.08%
Money Market Fund -100.00% N/A -25.16%
INVESCO VIF Industrial Income Fund -88.41% N/A -57.69%
INVESCO VIF Total Return Fund -93.24% N/A -63.16%
</TABLE>
The inception dates for the Sub-Accounts are: 5/1/95 for Growth, for Investment
Grade Income, for Money Market, for Equity Index, for Government Bond, for
Select Aggressive Growth, for Select Growth, for Select Growth and Income, for
Select Value Opportunity, for Select International Equity, for Fidelity VIP
Equity-Income, for Fidelity VIP Growth, for Fidelity VIP High Income, for
Fidelity VIP Overseas and for Fidelity VIP II Asset Manager; 5/3/95 for the
Select Capital Appreciation Fund; 7/2/96 for DGPF International Equity; 2/12/96
for the T. Rowe Price International Stock; and 7/2/96 for INVESCO VIF Industrial
Income and for INVESCO VIF Total Return. The Select Emerging Markets Fund and
the Select Strategic Growth Fund commenced operations in February 1998.
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.
18
<PAGE>
TABLE I(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF THE SUB-ACCOUNTS
EXCLUDING MONTHLY CERTIFICATE 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 CERTIFICATE 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
Certificate year and that ALL premiums were allocated to EACH Sub-Account
individually.
<TABLE>
<CAPTION>
TEN YEARS
FOR YEAR OR SINCE
ENDED FIVE INCEPTION
UNDERLYING FUNDS 12/31/97 YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select Aggressive Growth Fund 17.94% N/A 22.62%
Select Capital Appreciation Fund 13.54% N/A 22.09%
Select Value Opportunity Fund 24.04% N/A 23.16%
T. Rowe Price International Stock Portfolio 2.42% N/A 6.99%
Fidelity VIP Overseas Portfolio 10.83% N/A 11.41%
Select International Equity Fund 3.97% N/A 13.97%
DGPF International Equity Series 5.91% N/A 10.12%
Fidelity VIP Growth Portfolio 22.68% N/A 22.87%
Select Growth Fund 33.19% N/A 27.08%
Select Strategic Growth Fund N/A N/A N/A
Growth Fund 24.32% N/A 23.78%
Equity Index Fund 31.55% N/A 27.85%
Fidelity VIP Equity-Income Portfolio 27.28% N/A 22.69%
Select Growth and Income Fund 21.71% N/A 23.64%
Fidelity VIP II Asset Manager Portfolio 19.86% N/A 17.19%
Fidelity VIP High Income Portfolio 16.90% N/A 15.17%
Investment Grade Income Fund 8.74% N/A 8.22%
Government Bond Fund 6.38% N/A 6.30%
Money Market Fund 4.78% N/A 4.60%
INVESCO VIF Industrial Income Fund 27.34% N/A 24.09%
INVESCO VIF Total Return Fund 22.11% N/A 19.09%
</TABLE>
The inception dates for the Sub-Accounts are: 5/1/95 for Growth, for Investment
Grade Income, for Money Market, for Equity Index, for Government Bond, for
Select Aggressive Growth, for Select Growth, for Select Growth and Income, for
Select Value Opportunity, for Select International Equity, for Fidelity VIP
Equity-Income, for Fidelity VIP Growth, for Fidelity VIP High Income, for
Fidelity VIP Overseas and for Fidelity VIP II Asset Manager; 5/3/95 for the
Select Capital Appreciation Fund; 7/2/96 for DGPF International Equity; 2/12/96
for the T. Rowe Price International Stock; 7/2/96 for INVESCO VIF Industrial
Income and for INVESCO VIF Total Return. The Select Emerging Markets Fund and
the Select Strategic Growth Fund commenced operations in February 1998.
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.
19
<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 CERTIFICATE
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 Certificate charges
(including surrender charges) for a representative Certificate. It is assumed
that the Insured is male (unisex rates), Age 36, standard (nonsmoker) Premium
Class, that the Face Amount of the Certificate is $250,000, that an annual
premium payment of $3,000 (approximately one Guideline Annual Premium) was made
at the beginning of each Certificate year, that ALL premiums were allocated to
EACH Sub-Account individually, and that there was a full surrender of the
Certificate at the end of the applicable period.
<TABLE>
<CAPTION>
TEN YEARS
FOR YEAR OR SINCE
ENDED FIVE INCEPTION
UNDERLYING FUNDS 12/31/97 YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select Aggressive Growth Fund -97.09% 11.26% 14.29%
Select Capital Appreciation Fund -100.00% N/A -4.18%
Select Value Opportunity Fund -91.46% N/A 10.28%
T. Rowe Price International Stock Portfolio -100.00% N/A -3.43%
Fidelity VIP Overseas Portfolio -100.00% 8.59% 6.20%
Select International Equity Fund -100.00% N/A -0.92%
DGPF International Equity Series -100.00% 6.12% 5.88%
Fidelity VIP Growth Portfolio -92.71% 12.46% 13.93%
Select Growth Fund -83.01% 9.62% 11.09%
Select Strategic Growth Fund N/A N/A N/A
Growth Fund -91.20% 10.83% 13.85%
Equity Index Fund -84.52% 13.99% 15.51%
Fidelity VIP Equity-Income Portfolio -88.47% 14.62% 13.45%
Select Growth and Income Fund -93.61% 11.03% 10.08%
Fidelity VIP II Asset Manager Portfolio -95.32% 7.45% 8.90%
Fidelity VIP High Income Portfolio -98.05% 8.38% 9.46%
Investment Grade Income Fund -100.00% 1.98% 5.76%
Government Bond Fund -100.00% 0.43% 2.16%
Money Market Fund -100.00% -0.82% 2.27%
INVESCO VIF Industrial Income Fund -88.41% N/A 9.89%
INVESCO VIF Total Return Fund -93.24% N/A 3.96%
</TABLE>
The inception dates for the Underlying Funds are: 4/29/85 for Growth, Investment
Grade Income and Money Market; 9/28/90 for Equity Index; 8/26/91 for Government
Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and Select Growth and
Income; 4/30/93 for Select Value Opportunity; 5/02/94 for Select International
Equity; 4/28/95 for the Select Capital Appreciation; 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; 3/31/94 for the T. Rowe Price
International Stock; 8/10/94 for INVESCO VIF Industrial Income; and 6/2/94 for
INVESCO VIF Total Return. The Select Emerging Markets Fund and the Select
Strategic Growth Fund commenced operations in February 1998.
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 II(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF THE UNDERLYING FUNDS
EXCLUDING MONTHLY CERTIFICATE 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 CERTIFICATE
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
Certificate year and that ALL premiums were allocated to EACH Sub-Account
individually.
<TABLE>
<CAPTION>
TEN YEARS
FOR YEAR OR SINCE
ENDED FIVE INCEPTION
UNDERLYING FUNDS 12/31/97 YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select Aggressive Growth Fund 17.94% 16.04% 18.79%
Select Capital Appreciation Fund 13.54% N/A 22.09%
Select Value Opportunity Fund 24.04% N/A 16.17%
T. Rowe Price International Stock Portfolio 2.42% N/A 7.37%
Fidelity VIP Overseas Portfolio 10.83% 13.38% 8.91%
Select International Equity Fund 3.97% N/A 10.42%
DGPF International Equity Series 5.91% 10.92% 10.57%
Fidelity VIP Growth Portfolio 22.68% 17.23% 16.43%
Select Growth Fund 33.19% 14.40% 15.61%
Select Strategic Growth Fund N/A N/A N/A
Growth Fund 24.32% 15.61% 16.36%
Equity Index Fund 31.55% 18.76% 18.90%
Fidelity VIP Equity-Income Portfolio 27.28% 19.38% 15.96%
Select Growth and Income Fund 21.71% 15.81% 14.61%
Fidelity VIP II Asset Manager Portfolio 19.86% 12.24% 12.00%
Fidelity VIP High Income Portfolio 16.90% 13.17% 12.07%
Investment Grade Income Fund 8.74% 6.81% 8.48%
Government Bond Fund 6.38% 5.27% 6.19%
Money Market Fund 4.78% 4.03% 5.11%
INVESCO VIF Industrial Income Fund 27.34% N/A 22.59%
INVESCO VIF Total Return Fund 22.11% N/A 15.63%
</TABLE>
The inception dates for the Underlying Funds are: 4/29/85 for Growth, Investment
Grade Income and Money Market; 9/28/90 for Equity Index; 8/26/91 for Government
Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and Select Growth and
Income; 4/30/93 for Select Value Opportunity; 5/02/94 for Select International
Equity; 4/28/95 for the Select Capital Appreciation; 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; 3/31/94 for the T. Rowe Price
International Stock; 8/10/94 for INVESCO VIF Industrial Income; and 6/2/94 for
INVESCO VIF Total Return. The Select Emerging Markets Fund and the Select
Strategic Growth Fund commenced operations in February 1998.
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>
DESCRIPTION OF THE COMPANY, THE SEPARATE 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 ("Principal Office"). Prior to
October 1, 1995, the Company was known as SMA Life Assurance Company. As of
December 31, 1997, the Company had over $9.4 billion in assets. 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. The Company is an indirectly
wholly owned subsidiary of First Allmerica Financial Life Insurance Company
("First Allmerica"), formerly State Mutual Life Assurance Company of America,
440 Lincoln Street, Worcester, Massachusetts. First Allmerica, organized under
the laws of Massachusetts in 1844, is the fifth oldest life insurance company in
America.
The Company is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 22, 1993. The Separate 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
Separate Account or the Company by the SEC.
The assets used to fund the variable portion of the Certificates are set aside
in the Separate Account and are kept separate and apart from the general assets
of the Company. Under Delaware law, assets equal to the reserves and other
liabilities of the Separate Account may not be charged with any liabilities
arising out of any other business of the Company. The Separate Account currently
has 23 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
investment portfolio ("Underlying Fund") of the Allmerica Investment Trust, the
Fidelity Variable Insurance Products Fund, the Fidelity Variable Insurance
Products Fund II, T. Rowe Price International Series, Inc., the Delaware Group
Premium Fund, Inc., the INVESCO Variable Investment Fund, Inc., or the Morgan
Stanley Universal Funds, Inc.
ALLMERICA INVESTMENT TRUST
Allmerica Investment Trust, formerly SMA 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.
22
<PAGE>
The Trust was established as a Massachusetts business trust on October 11, 1984
for the purpose of providing a vehicle for the investment of assets of various
separate accounts established by First Allmerica, the Company, or other
affiliated insurance companies. Thirteen investment portfolios of the Trust
("Funds") are available under the Certificates, each issuing a series of shares:
Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select Value
Opportunity Fund, 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. The assets of each Fund are held
separate from the assets of the other Funds. Each Fund operates as a separate
investment vehicle and the income or losses of one Fund generally have no effect
on the investment performance of another Fund. Shares of the Trust are not
offered to the general public but solely to such separate accounts.
AFIMS 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 Funds. See INVESTMENT ADVISORY SERVICES.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity Variable Insurance Products Fund ("Fidelity VIP"), managed by Fidelity
Management & Research Company ("FMR"), is an open-end, diversified, management
investment company organized as a Massachusetts business trust on November 13,
1981, and is registered with the SEC under the 1940 Act. Four of its investment
portfolios are available under the Certificates: the 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. FMR 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. FMR 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. The
Portfolios of Fidelity VIP, as part of their operating expenses, pay an
investment management fee to FMR. See "Investment Advisory Services to Fidelity
VIP and Fidelity VIP II Funds."
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity Variable Insurance Products Fund II ("Fidelity VIP II"), managed by FMR
(see "Investment Advisory Services to Fidelity VIP and Fidelity VIP II Funds"),
is an open-end, diversified, management investment company organized as a
Massachusetts business trust on March 21, 1988 and registered with the SEC under
the 1940 Act. One of its investment portfolios is available under the
Certificates: 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") (see "Investment Advisory
Services to T. Rowe Price"), is an open-end, diversified, management investment
company organized as a Maryland corporation in 1994 and registered with the SEC
under the 1940 Act. One of its investment portfolios is available under the
Certificates: the T. Rowe Price International Stock Portfolio.
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. DGPF
was established to provide a vehicle for the investment of assets of various
separate accounts supporting variable insurance policies. One investment
23
<PAGE>
portfolio is available under the Certificates: the International Equity Series
("Series"). The investment adviser for the International Equity Series is
Delaware International Advisers Ltd. ("Delaware International"). See "Investment
Advisory Services to DGPF."
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. ("INVESCO VIF") is an open-end,
diversified, management investment company that was organized as a Maryland
corporation on August 19, 1993, and is registered with the SEC under the 1940
Act. INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser of the
Industrial Income Fund and the Total Return Fund, the only Funds of INVESCO VIF
that are available under the Certificates. These two Funds are available only to
employees of INVESCO and its affiliates.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Universal Funds, Inc. ("Morgan Stanley") is an open-end,
management investment company that was organized as a Maryland corporation, and
is registered with the SEC under the 1940 Act. Miller Anderson & Sherrerd, LLP
("MAS") is the investment adviser for the Morgan Stanley Fixed Income Portfolio.
The Morgan Stanley Fixed Income Portfolio is the only portfolio of Morgan
Stanley Universal Funds, Inc. that is available under the Certificates. This
Portfolio is available only to employees of Duke Energy Corporation and its
affiliates.
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 -- 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 -- 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 -- 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 -- seeks long-term growth of capital by investing
in the world's emerging markets.
SELECT INTERNATIONAL EQUITY FUND -- 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 -- 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.
24
<PAGE>
FIDELITY VIP OVERSEAS PORTFOLIO -- 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 -- seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
SELECT GROWTH FUND -- 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 -- seeks long-term growth of capital by investing
primarily in common stocks of established companies.
GROWTH FUND -- 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 -- 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 -- 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 S&P 500.
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 -- 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
"Risks of Lower-Rated Debt Securities" in the Fidelity VIP prospectus.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- seeks high total return with reduced
risk over the long term by allocating its assets among domestic and foreign
stocks, bonds and short-term money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- 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 -- 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 -- 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.
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MONEY MARKET FUND -- 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.
THE FOLLOWING FUNDS OF INVESCO VARIABLE INVESTMENT FUNDS, INC. ARE AVAILABLE
ONLY TO EMPLOYEES OF INVESCO AND ITS AFFILIATES:
INVESCO VIF INDUSTRIAL INCOME FUND -- seeks the best possible current income
while following sound investment practices. Capital growth potential is an
additional but secondary consideration in the selection of portfolio securities.
The Fund seeks to achieve its objective by investing in securities which will
provide a relatively high yield and stable return and which, over a period of
years, may also provide capital appreciation.
INVESCO VIF TOTAL RETURN FUND -- seeks a high total return on investment through
capital appreciation and current income by investing in a combination of equity
securities (consisting of common stocks and, to a lesser degree, securities
convertible into common stock) and fixed income securities.
THE FOLLOWING PORTFOLIO OF MORGAN STANLEY UNIVERSAL FUNDS, INC. IS AVAILABLE
ONLY TO EMPLOYEES OF DUKE ENERGY CORPORATION AND ITS AFFILIATES:
FIXED INCOME PORTFOLIO -- seeks above-average return over a market cycle of
three to five years by investing primarily in a diversified portfolio of U.S.
Governments and Agencies, Corporate Bonds, Mortgage-Backed Securities, Foreign
Bonds and other Fixed-Income Securities and Derivatives as further described in
the Morgan Stanley Universal Funds, Inc. prospectus. The Portfolio's average
weighted maturity will ordinarily exceed five years, and will usually be between
five and fifteen years.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE UNDERLYING FUNDS 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 Certificate Value in that Sub-Account, the
Company will transfer it without charge on written request by you to another
Sub-Account or to the General Account. The Company must receive your Written
Request within sixty (60) days of the later of (1) the effective date of such
change in the investment policy, or (2) the receipt of the notice of your right
to transfer. You may then change your premium and deduction allocation
percentages.
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 Trust has entered into a Management Agreement with AFIMS,
an indirect wholly owned subsidiary of First Allmerica, to handle the day-to-day
affairs of the Trust. AFIMS, subject to review by the Trustees, is responsible
for the general management of the Funds. AFIMS 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 AFIMS.
Other than the expenses specifically assumed by AFIMS 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 affiliated with
AFIMS, expenses for proxies, prospectuses, and reports to shareholders, and
other expenses.
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Pursuant to the Management Agreement with the Trust, AFIMS 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.
For providing its services under the Management Agreement, AFIMS will receive a
fee, computed daily at an annual rate based on the average daily net asset value
of each Fund as follows:
<TABLE>
<S> <C> <C>
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation First $100 million
Fund 1.00%
Next $150 million 0.90%
Over $250 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 First $100 million
Fund 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Growth Fund * 0.85%
Select Strategic Growth Fund * 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Over $500 million 0.65%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
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<PAGE>
* For the Select Emerging Markets Fund, the Select Growth Fund, the Select
Strategic Growth Fund, and the Government Bond Fund, the investment management
fee does not vary according to the level of assets in the Fund. AFIMS fee
computed for each Fund will be paid from the assets of such Fund. AFIMS 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 concerning additional expenses paid by the Funds,
and paid to the Sub-Advisers, and should be read in conjunction with this
Prospectus.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II FUNDS
For managing investments and business affairs, each Portfolio pays a monthly fee
to FMR. The prospectuses of Fidelity VIP and Fidelity VIP II contain additional
information concerning the Portfolios, including information concerning
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 FMR 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 FMR. 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 Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP Overseas and
the Fidelity VIP II Asset Manager Portfolios' fee rates are each made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. 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, 0.45% for the
Fidelity VIP Overseas Portfolio and 0.25% for the Fidelity VIP II Asset
Manager 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 of as high as 0.82%
of its average net assets. The Fidelity VIP Equity-Income Portfolio may have a
fee of as high as 0.72% of its average net assets. The Fidelity VIP Growth
Portfolio may have a fee of as high as 0.82% of its average net assets. The
Fidelity VIP Overseas Portfolio may have a fee of as high as 0.97% of its
average net assets. The Fidelity VIP II Asset Manager Portfolio may have a fee
of as high as 0.77% of its average net assets. The actual fee rate may be less
depending on the total assets in the funds advised by FMR.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE
The Investment Adviser for the T. Rowe Price 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 $30 billion under management in its offices in
Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires. 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.
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<PAGE>
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.
INVESTMENT ADVISORY SERVICES TO INVESCO VIF
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for INVESCO VIF,
and is primarily responsible for providing various investment management
administration services and supervising daily business affairs. The Industrial
Income Fund and the Total Return Fund each pay INVESCO a monthly fee equal to
0.75% annually of the first $500 million of the Fund's average daily net assets;
0.65% of the next $500 million of the Fund's average net assets and 0.55% of the
Fund's average net assets in excess of $1 billion. The prospectus of INVESCO VIF
contains additional information concerning other expenses paid by the Funds.
INVESTMENT ADVISORY SERVICES TO MORGAN STANLEY
Miller Anderson & Sherrerd, LLP ("MAS") is the investment adviser for the Morgan
Stanley Fixed Income Portfolio. MAS makes the Portfolio's day-to-day investment
decisions, arranges for the execution of Portfolio transactions, and generally
manages the Portfolio's investments. MAS is entitled to receive a management fee
from the Morgan Stanley Fixed Income Portfolio, payable quarterly, at an annual
rate of 0.40% of the first $500 million of the Portfolio's average daily net
assets; 0.35% from $500 million to $1 billion of the Portfolio's average daily
net assets and 0.30% of the Portfolio's net assets in excess of $1 billion.
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 Separate 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 Certificate interest in a Sub-Account without
notice to the Certificate Owner and prior approval of the SEC and state
insurance authorities, to the extent required by the 1940 Act or other
applicable law. The Separate Account may, to the extent permitted by law,
purchase other securities for other certificates or permit a conversion between
certificates upon request by a Certificate Owner.
The Company also reserves the right to establish additional Sub-Accounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Fund, or in shares of another investment company having a specified
investment objective.
Subject to applicable law and any required SEC approval, the Company may, in its
sole discretion, establish new Sub-Accounts or eliminate one or more
Sub-Accounts if marketing needs, tax considerations or investment conditions
warrant. Any new Sub-Accounts may be made available to existing Certificate
Owners on a basis to be determined by the Company.
Shares of the Funds of the Trust are also 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, the Series of DGPF, the Funds of INVESCO VIF and the
Portfolio of Morgan Stanley are also issued to variable annuity and variable
life separate accounts of other unaffiliated insurance companies ("mixed and
shared funding"). It is conceivable that in the future such mixed funding or
shared funding may be disadvantageous for variable life contract owners or
variable annuity contract owners. Although the Company and the Underlying
Investment Companies do not currently foresee any such disadvantages to either
variable life insurance contract owners or variable annuity contract owners, the
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<PAGE>
Company and the respective Trustees intend to monitor events in order to
identify any material conflicts between such contract owners and to determine
what action, if any, should be taken in response thereto. If the Trustees were
to conclude that separate funds should be established for variable life and
variable annuity separate accounts, the Company will bear the attendant
expenses.
If any of these substitutions or changes are made, the Company may, by
appropriate endorsement change, the Certificate to reflect the substitution or
change and will notify Certificate Owners of all such changes. If the Company
deems it to be in the best interest of Certificate Owners, and subject to any
approvals that may be required under applicable law, the Separate Account or any
Sub-Accounts may be operated as a management company under the 1940 Act, may be
deregistered under the 1940 Act if registration is no longer required, or may be
combined with other Sub-Accounts or other separate accounts of the Company.
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 Certificate
Owners with Certificate 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 Certificates, 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 received from all persons with an interest in such Sub-Account
furnishing instructions to the Company. The Company will also vote shares held
in the Separate Account that it owns and which are not attributable to
Certificates in the same proportion.
The number of votes which a Certificate Owner 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 Certificate Owner's Certificate
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 subclassification 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 Certificate Owners 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 Certificate Owners.
THE CERTIFICATE
ENROLLMENT FORM FOR A CERTIFICATE
Upon receipt at its Principal Office of a completed enrollment form from a
prospective Certificate Owner, the Company will follow certain insurance
underwriting procedures designed to determine whether the proposed Insured is
insurable. This process may involve such verification procedures as medical
examinations and may require that further information be provided by the
proposed Certificate Owner before a determination of insurability can be made. A
Certificate cannot be issued until this underwriting procedure has been
completed. The Company reserves the right to reject an enrollment form which
does not meet the Company's underwriting guidelines, but in underwriting
insurance, the Company shall comply with all applicable federal and state
prohibitions concerning unfair discrimination.
30
<PAGE>
At the time of enrollment, the proposed insured will complete an enrollment
form, which lists the proposed amount of insurance and indicates how much of
that insurance is considered eligible for simplified underwriting. If the
eligibility questions on the enrollment form are answered "No," the Company will
provide immediate coverage equal to the simplified underwriting amount. If the
proposed insured is in a standard premium class, any insurance in excess of the
simplified underwriting amount will begin on the date the enrollment form and
medical examinations, if any, are completed. If the proposed insured cannot
answer the eligibility questions "No," and if the proposed insured is not a
standard risk, insurance coverage will begin only after the Company (1) approves
the enrollment form, (2) the Certificate is delivered and accepted, and (3) the
first premium is paid.
Pending completion of insurance underwriting and Certificate issuance
procedures, any initial premiums will be held in the General Account. If the
enrollment form is approved and the Certificate is issued and accepted, the
initial premium held in the General Account will be credited with interest not
later than the date of receipt of the premium at the Principal Office. IF THE
CERTIFICATE IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED TO YOU WITHOUT
INTEREST.
If the Certificate provides for a full refund of the initial payment under its
"Right-to-Examine Certificate" provision as required in your state, all
Certificate Value in the General Account that you initially designated to go to
the Sub-Accounts will be transferred to the Sub-Account investing in the Money
Market Fund of the Trust upon Issuance and Acceptance of the Certificate. All
Certificate Value will be allocated as you have chosen not later than the
expiration of the period during which you may exercise the "Right-to-Examine
Certificate" provision. If the "Payor Provision" is in effect, (see CERTIFICATE
TERMINATION AND REINSTATEMENT -- "Payor Provisions"), Payor premiums which are
not "excess premiums" will be transferred to the Monthly Deduction Sub-Account
not later than three days after underwriting approval of the Certificate.
FREE-LOOK PERIOD
The Certificate provides for an initial Free-Look Period. You may cancel the
Certificate by mailing or delivering it to the Principal Office or to an agent
of the Company on or before the latest of (a) 45 days after the enrollment form
for the Certificate is signed, (b) 10 days (20 or 30 days if required in your
state) after you receive the Certificate, or (c) 10 days after the Company mails
or personally delivers a Notice of Withdrawal Rights to you.
When you return the Certificate, the Company will, within seven days, mail a
refund. (The refund of any premium paid by check may be delayed until the check
has cleared your bank.) If the Certificate provides for a full refund of the
initial premium under its "Right-to-Examine Certificate" provision as required
in your state, your refund will be the greater of (a) your entire premium, or
(b) the Certificate Value plus deductions under the Certificate or by the
Underlying Funds for taxes, charges or fees. If the Certificate does not provide
for a full refund of the initial premium, you will receive the Certificate Value
in the Separate Account, plus premiums paid, including fees and charges, minus
the amounts allocated to the Separate Account, plus the fees and charges imposed
on amounts in the Separate Account.
After an increase in the Face Amount, a right to cancel the increase also
applies. 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 (a) 45 days after the enrollment form for the increase is
signed, (b) 10 days after you receive the new specifications pages issued for
the increase, or (c) 10 days (20 or 30 days if required in your state) after the
Company mails or delivers a Notice of Withdrawal Rights to you. Upon canceling
the increase, you will receive a credit to the Certificate 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 will also waive any
surrender charge calculated for the increase.
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<PAGE>
CONVERSION PRIVILEGES
Once during the first 24 months after the Date of Issue or after the effective
date of an increase in Face Amount, while the Certificate is in force, you may
convert your Certificate 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 Certificate Value in the Separate 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 Certificate Value in the Separate 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, 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 risk classification as
the original Certificate.
PREMIUM PAYMENTS
Premium Payments are payable to the Company, and may be mailed to the Principal
Office or paid through an authorized agent of the Company. All premium payments
after the initial premium payment are credited to the Separate Account or
General Account as of date of receipt at the Principal Office.
You may establish a schedule of planned premiums which will be billed by the
Company at regular intervals. Failure to pay planned premiums, however, will not
itself cause the Certificate to lapse. You may also 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. Therefore, unlike conventional insurance policies, a
Certificate does not obligate you to pay premiums in accordance with a rigid and
inflexible premium schedule.
You may also elect to pay premiums by means of a monthly automatic payment
("MAP") procedure. Under a MAP procedure, amounts will be deducted from your
checking account each month, generally on the Monthly Processing Date, and
applied as a premium under the Certificate. The minimum payment permitted under
MAP is $50.
Premiums are not limited as to frequency and number. However, no premium payment
may be less than $100 without the Company's consent. Moreover, premium payments
must be sufficient to cover the next Monthly Deduction plus loan interest
accrued, or the Certificate may lapse. See CERTIFICATE TERMINATION AND
REINSTATEMENT.
In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the Certificate, if 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
Death Benefit Option. If a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company will only accept
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 Internal Revenue Service ("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 Certificate during a
Certificate year. See CERTIFICATE TERMINATION AND REINSTATEMENT.
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<PAGE>
ALLOCATION OF NET PREMIUMS
The Net Premium equals the premium paid less any premium expense charge. In the
enrollment form for the Certificate, you indicate the initial allocation of Net
Premiums among the General Account and the Sub-Accounts of the Separate Account.
You may allocate premiums to one or more Sub-Accounts, but may not have
Certificate Value in more than twenty 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%. You may change the allocation of future Net
Premiums at any time pursuant to written or telephone request. If allocation
changes by telephone are elected by the Certificate Owner, a properly completed
authorization form must be on file before telephone requests will be honored.
The policy of the Company and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
requirements that callers on behalf of a Certificate Owner identify themselves
by name and identify the Certificate Owner by name, date of birth and social
security number. All transfer instructions by telephone are tape recorded. An
allocation change will be effective as of the date of receipt of the notice at
the Principal Office. No charge is currently imposed for changing premium
allocation instructions. The Company reserves the right to impose such a charge
in the future, but guarantees that the charge will not exceed $25.
The Certificate 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. Certificate Owners should periodically review their
allocations of premiums and Certificate 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
Certificate Value among the Sub-Accounts or between a Sub-Account and the
General Account. However, the Certificate Value held in the General Account to
secure a Certificate loan may not be transferred.
All requests for transfers must be made to the Principal Office. The amount
transferred will be based on the Certificate Value in the Accounts next computed
after receipt of the transfer order. The Company will make transfers pursuant to
written or telephone requests. As discussed in THE CERTIFICATE -- "Allocation of
Net Premiums," a properly completed authorization form must be on file at the
Principal Office before telephone requests will be honored.
Transfers involving the General Account are currently permitted only if:
(a) There has been at least a ninety (90) day period since the last transfer
from the General Account; and
(b) 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
Certificate.
These rules are subject to change by the Company.
DOLLAR COST AVERAGING AND AUTOMATIC REBALANCING OPTIONS
You may have automatic transfers of at least $100 each made on a periodic basis
(a) 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 ("Dollar Cost
Averaging Option"), or (b) to automatically reallocate Certificate value among
the Sub-Accounts ("Automatic Rebalancing Option"). Automatic transfers may be
made on a monthly, bimonthly, quarterly, semiannual or annual schedule.
Generally, all transfers will be processed on the 15th of each scheduled month.
However, if the 15th is not a business day or is the Monthly Processing 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 LIMITATIONS
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Sub-Account following a transfer from that Sub-Account, (3) the
minimum period of time between transfers involving the General Account, and (4)
the maximum amount that may be transferred each time from the General Account.
The first twelve transfers in a Certificate year will be free of any charge.
Thereafter, a $10 transfer charge will be deducted from the amount transferred
for each transfer in that Certificate 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 twelve free transfers allowed in
each Certificate 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, Certificate
loan or material change in investment policy will not count towards the twelve
free transfers.
ELECTION OF DEATH BENEFIT OPTIONS
Federal tax law requires a minimum death benefit in relation to cash value for a
Certificate to qualify as life insurance. Under current federal tax law, either
the Guideline Premium test or the Cash Value Accumulation test can be used to
determine if the Certificate complies with the definition of "life insurance" in
Section 7702 of the Code. At the time of application, the Employer may elect
either of the tests.
The Guideline Premium Test limits the amount of premiums payable under a
Certificate to a certain amount for an insured of a particular age and sex.
Under the Guideline Premium test, the Certificate Owner may choose between Death
Benefit Option 1 and Option 2, as described below. After issuance of the
Certificate, the Certificate Owner may change the selection from Option 1 to
Option 2 or vice versa. The Cash Value Accumulation Test requires that the Death
Benefit must be sufficient so that the cash Surrender Value, as defined in
Section 7702, does not at any time exceed the net single premium required to
fund the future benefits under the Certificate. If the Cash Value Accumulation
test is chosen by the employer, ONLY Death Benefit Option 3 will apply. Death
Benefits Option 1 and Option 2 are NOT available under the Cash Value
Accumulation test.
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST
There are two main differences between the Guideline Premium test and the Cash
Value Accumulation test. First, the Guideline Premium test limits the amount of
premium that may be paid into a Certificate, while no such limits apply under
the Cash Value Accumulation test. Second, the factors that determine the minimum
Death Benefit relative to the Certificate Value are different. Required
increases in the minimum Death Benefit due to growth in Certificate Value will
generally be greater under the Cash Value Accumulation test than under the
Guideline Premium test. APPLICANTS FOR A POLICY SHOULD CONSULT A QUALIFIED TAX
ADVISER IN CHOOSING A DEATH BENEFIT ELECTION.
OPTION 1 -- LEVEL DEATH BENEFIT
Under Option 1, the Death Benefit is equal to the greater of the Face Amount or
the Minimum Death Benefit, as set forth in the table below. Under Option 1, the
Death Benefit will remain level unless the Minimum Death Benefit is greater than
the Face Amount, in which case the Death Benefit will vary as the Certificate
Value varies. Option 1 will offer the best opportunity for the Certificate Value
under a Certificate to increase without increasing the Death Benefit as quickly
as it might under the other options. The Death Benefit will never go below the
Face Amount.
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OPTION 2 -- ADJUSTABLE DEATH BENEFIT
Under Option 2, the Death Benefit is equal to the greater of the Face Amount
plus the Certificate Value or the Minimum Death Benefit, as set forth in the
table below. The Death Benefit will therefore vary as the Certificate Value
changes, but will never be less than the Face Amount. Option 2 will offer the
best opportunity for the Certificate Owner who would like to have an increasing
Death Benefit as early as possible. The Death Benefit will increase whenever
there is an increase in the Certificate Value, and will decrease whenever there
is a decrease in the Certificate Value, but will never go below the Face Amount.
OPTION 3 - LEVEL DEATH BENEFIT WITH CASH VALUE ACCUMULATION TEST
Under Option 3, the Death Benefit will equal the Face Amount, unless the
Certificate Value, multiplied by the applicable Option 3 Death Benefit Factor,
results in a higher Death Benefit. A complete list of Option 3 Death Benefit
Factors is set forth in the Certificate. The applicable Death Benefit Factor
depends upon the sex, risk classification, and then-attained age of the Insured.
The Death Benefit Factor decreases slightly from year to year as the attained
age of the Insured increases. Option 3 will offer the best opportunity for the
Certificate Owner who is looking for an increasing death benefit in later
Certificate years and/or would like to fund the Certificate at the "seven-pay"
limit for the full seven years. When the Certificate Value multiplied by the
applicable Death Benefit Factor exceeds the Face Amount, the Death Benefit will
increase whenever there is an increase in the Certificate Value, and will
decrease whenever there is a decrease in the Certificate Value, but will never
go below the Face Amount. OPTION 3 MAY NOT BE AVAILABLE IN ALL STATES.
DEATH PROCEEDS
As long as the Certificate remains in force (see CERTIFICATE TERMINATION AND
REINSTATEMENT), the Company will, upon due proof of the Insured's death, pay the
Death Proceeds of the Certificate to the named Beneficiary. The Company will
normally 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 CERTIFICATE PROVISIONS -- "Postponement of Payments." The Death
Proceeds may be received by the Beneficiary in a lump sum or under one or more
of the payment options the Company offers. See APPENDIX B -- PAYMENT OPTIONS.
The Death Proceeds payable depend on the current Face Amount and the Death
Benefit Option that is in effect on the date of death. Prior to the Final
Premium Payment Date, the Death Proceeds are: (a) the Death Benefit provided
under Option 1, Option 2, or Option 3, whichever is in effect on the date of
death; plus (b) any additional insurance on the Insured's life that is provided
by rider; minus (c) any outstanding Debt, any partial withdrawals and partial
withdrawal charges, and any Monthly Deductions due and unpaid through the
Certificate month in which the Insured dies. After the Final Premium Payment
Date, the Death Proceeds equal the Surrender Value of the Certificate. 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.
MORE INFORMATION ABOUT DEATH BENEFIT OPTIONS 1 AND 2
If the Guideline Premium Test is chosen by the Employer, the Certificate Owner
may choose between Death Benefit Option 1 or Option 2. The Certificate Owner may
designate the desired Death Benefit Option in the enrollment form, and may
change the option once per Certificate year by Written Request. There is no
charge for a change in option.
MINIMUM DEATH BENEFIT UNDER OPTION 1 AND OPTION 2
The Minimum Death Benefit under Option 1 or Option 2 is equal to a percentage of
the Certificate Value as set forth below. The Minimum Death Benefit is
determined in accordance with the Code regulations to ensure that the
Certificate qualifies as a life insurance contract and that the insurance
proceeds may be excluded from the gross income of the Beneficiary.
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MINIMUM DEATH BENEFIT TABLE
(Option 1 and Option 2)
<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Certificate Value
- ------------------------------------------------------------- -----------------
<S> <C>
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%
</TABLE>
For the Ages not listed, the progression between the listed Ages is linear.
For any Face Amount, the amount of the Death Benefit and thus the Death Proceeds
will be greater under Option 2 than under Option 1, since the Certificate Value
is added to the specified Face Amount and included in the Death Proceeds only
under Option 2. However, the cost of insurance included in the Monthly Deduction
will be greater, and thus the rate at which Certificate Value will accumulate
will be slower, under Option 2 than under Option 1. See CHARGES AND DEDUCTIONS
- -- "Monthly Deduction from Certificate Value."
If you desire to have premium payments and investment performance reflected in
the amount of the Death Benefit, you should choose Option 2. If you desire
premium payments and investment performance reflected to the maximum extent in
the Certificate Value, you should select Option 1.
ILLUSTRATION OF OPTION 1
For purposes of this illustration, assume that the Insured is under the Age of
40, and that there is no outstanding Debt. Under Option 1, a Certificate with a
$50,000 Face Amount will generally have a Death Benefit equal to $50,000.
However, because the Death Benefit must be equal to or greater than 250% of
Certificate Value, if at any time the Certificate Value exceeds $20,000, the
Death Benefit will exceed the $50,000 Face Amount. In this example, each
additional dollar of Certificate Value above $20,000 will increase the Death
Benefit by $2.50. For example, a Certificate with a Certificate Value of $35,000
will have a Minimum Death Benefit of $87,500 ($35,000 X 2.50); Certificate Value
of $40,000 will produce a Minimum Death Benefit of $100,000 ($40,000 X 2.50);
and Certificate Value of $50,000 will produce a Minimum Death Benefit of
$125,000 ($50,000 X 2.50).
Similarly, so long as Certificate Value exceeds $20,000, each dollar taken out
of Certificate Value will reduce the Death Benefit by $2.50. If, for example,
the Certificate Value is reduced from $25,000 to $20,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $62,500 to $50,000. If at any time, however, the Certificate
Value multiplied by the applicable percentage is less than the Face Amount, the
Death Benefit will equal the Face Amount of the Certificate.
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 Death Benefit would not
exceed the $50,000 Face Amount unless the Certificate Value exceeded $27,027
(rather than $20,000), and each dollar then added to or taken from Certificate
Value would change the Death Benefit by $1.85.
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ILLUSTRATION OF OPTION 2
For purposes of this illustration, assume that the Insured is under the Age of
40 and that there is no outstanding Debt.
Under Option 2, a Certificate with a Face Amount of $50,000 will generally
produce a Death Benefit of $50,000 plus Certificate Value. For example, a
Certificate with Certificate Value of $5,000 will produce a Death Benefit of
$55,000 ($50,000 + $5,000); Certificate Value of $10,000 will produce a Death
Benefit of $60,000 ($50,000 + $10,000); Certificate Value of $25,000 will
produce a Death Benefit of $75,000 ($50,000 + $25,000). However, the Death
Benefit must be at least 250% of the Certificate Value. Therefore, if the
Certificate Value is greater than $33,333, 250% of that amount will be the Death
Benefit, which will be greater than the Face Amount plus Certificate Value. In
this example, each additional dollar of Certificate Value above $33,333 will
increase the Death Benefit by $2.50. For example, if the Certificate Value is
$35,000, the Minimum Death Benefit will be $87,500 ($35,000 X 2.50); Certificate
Value of $40,000 will produce a Minimum Death Benefit of $100,000 ($40,000 X
2.50); and Certificate Value of $50,000 will produce a Minimum Death Benefit of
$125,000 ($50,000 X 2.50).
Similarly, if Certificate Value exceeds $33,333, each dollar taken out of
Certificate Value will reduce the Death Benefit by $2.50. If, for example, the
Certificate Value is reduced from $45,000 to $40,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $112,500 to $100,000. If at any time, however, Certificate Value
multiplied by the applicable percentage is less than the Face Amount plus
Certificate Value, then the Death Benefit will be the current Face Amount plus
Certificate Value.
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were 50, the Death Benefit must be at least
1.85 times the Certificate Value. The amount of the Death Benefit would be the
sum of the Certificate Value plus $50,000 unless the Certificate Value exceeded
$58,824 (rather than $33,333). Each dollar added to or subtracted from the
Certificate would change the Death Benefit by $1.85.
The Death Benefit under Option 2 will always be the greater of the Face Amount
plus Certificate Value or the Certificate Value multiplied by the applicable
percentage.
CHANGE IN DEATH BENEFIT OPTION
Generally, if Death Benefit Option 1 or Option 2 is in effect, the Death Benefit
Option in effect may be changed once each Certificate year by sending a Written
Request for change to the Principal Office. The effective date of any such
change will be the Monthly Processing Date on or following the date of receipt
of the request. No charges will be imposed on changes in Death Benefit Options.
IF OPTION 3 IS IN EFFECT, YOU MAY NOT CHANGE TO EITHER OPTION 1 OR OPTION 2.
If the Death Benefit Option is changed from Option 2 to Option 1, the Face
Amount will be increased to equal the Death Benefit 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 Certificate Value on the date of
the change). The amount of the Death Benefit will not be altered at the time of
the change. However, the change in option will affect the determination of the
Death Benefit from that point on, since the Certificate Value will no longer be
added to the Face Amount in determining the Death Benefit. The Death Benefit
will equal the new Face Amount (or, if higher, the Minimum Death Benefit). The
cost of insurance may be higher or lower than it otherwise would have been since
any increases or decreases in Certificate Value will, respectively, reduce or
increase the Insurance Amount at Risk under Option 1. Assuming a positive net
investment return with respect to any amounts in the Separate Account, changing
the Death Benefit 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. If the Death Benefit Option is changed from Option 1 to Option
2, the Face Amount will be decreased to equal the Death
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<PAGE>
Benefit less the Certificate Value on the effective date of the change. This
change may not be made if it would result in a Face Amount less than $40,000. A
change from Option 1 to Option 2 will not alter the amount of the Death Benefit
at the time of the change, but will affect the determination of the Death
Benefit from that point on. Because the Certificate Value will be added to the
new specified Face Amount, the Death Benefit will vary with the Certificate
Value. Thus, under Option 2, the Insurance Amount at Risk will always equal the
Face Amount unless the Minimum Death Benefit is in effect. The cost of insurance
may also be higher or lower than it otherwise would have been without the change
in Death Benefit Option. See CHARGES AND DEDUCTIONS -- "Monthly Deduction from
Certificate Value."
A change in Death Benefit Option may result in total premiums paid exceeding the
then current maximum premium limitation determined by Internal Revenue Service
Rules. In such event, the Company will pay the excess to the Certificate Owner.
See THE CERTIFICATE -- "Premium Payments."
CHANGE IN FACE AMOUNT
Subject to certain limitations, you may increase or decrease the specified Face
Amount of a Certificate 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 Processing 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
Along with the Written Request for an increase, you must submit satisfactory
Evidence of Insurability. The consent of the Insured is also required whenever
the Face Amount is increased. A request for an increase in the Face Amount may
not be less than an amount determined by the Company. This amount varies by
group but in no event will this amount exceed $10,000. You may not increase the
Face Amount after the Insured reaches Age 80. An increase must be accompanied by
an additional premium if the Certificate Value is less than $50 plus an amount
equal to the sum of two Monthly Deductions. On the effective date of each
increase in the Face Amount, a transaction charge of $2.50 per $1,000 of
increase up to $40, will be deducted from the Certificate Value for
administrative costs. The effective date of the increase will be the first
Monthly Processing Date on or following the date all of the conditions for the
increase are met.
An increase in the Face Amount will generally affect the Insurance Amount at
Risk, and may affect the portion of the Insurance Amount at Risk included in
various Underwriting Classes (if more than one Underwriting Class applies), both
of which may affect the monthly cost of insurance charges. A surrender charge
will also be calculated for the increase. See CHARGES AND DEDUCTIONS -- "Monthly
Deduction from Certificate Value" and "Surrender Charge."
After increasing the Face Amount, you will have the right (1) during a Free-Look
Period, to have the increase cancelled and the charges which would not have been
deducted but for the increase will be credited to the Certificate, and (2)
during the first 24 months following the increase, to transfer any or all
Certificate Value to the General Account free of charge. See THE CERTIFICATE --
"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
The minimum amount for a decrease in the Face Amount is $10,000. By current
Company practice, the Face Amount in force after any decrease may not be less
than $50,000. If, following a decrease in the Face Amount, the Certificate would
not comply with the maximum premium limitation applicable under the IRS rules,
the decrease may be limited or Certificate Value may be returned to the
Certificate Owner (at your election) to the extent necessary to meet the
requirements. A return of Certificate Value may result in tax liability to you.
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<PAGE>
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 Underwriting
Classes, both of which may affect a Certificate Owner's monthly cost of
insurance charges. See CHARGES AND DEDUCTIONS -- "Monthly Deduction from
Certificate 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: (a) the Face
Amount provided by the most recent increase; (b) the next most recent increases
successively; and (c) the initial Face Amount. This order will also be used to
determine whether a surrender charge will be deducted and in what amount. If the
Face Amount is decreased while the Payor Provisions apply (see CERTIFICATE
TERMINATION AND REINSTATEMENT -- "Termination"), the above order may be modified
to determine the cost of insurance charge. You may then reduce or eliminate any
Face Amount for which you are paying the insurance charges, on a
last-in/first-out basis, before you reduce or eliminate amounts of insurance
which are paid by the Payor.
If you request a decrease in the Face Amount, the amount of any surrender charge
deducted will reduce the current Certificate Value. On the effective date of
each decrease in the Face Amount, a transaction charge of $2.50 per $1,000 of
decrease, up to a maximum of $40, will be deducted from the Certificate Value
for administrative costs. You may specify one Sub-Account from which the
transaction charge and, if applicable, any surrender charge will be deducted. If
you do not specify a Sub-Account, the Company will make a Pro-Rata Allocation.
The current surrender charge will be reduced by the amount of any surrender
charge deducted. See CHARGES AND DEDUCTIONS -- "Surrender Charge."
CERTIFICATE VALUE AND SURRENDER VALUE
The Certificate Value is the total amount available for investment and is equal
to the sum of the accumulation in the General Account and the value of the Units
in the Sub-Accounts. The Certificate Value is used in determining the Surrender
Value (the Certificate Value less any Debt and any surrender charge). See THE
CERTIFICATE -- "Surrender." There is no guaranteed minimum Certificate Value.
Because Certificate Value on any date depends upon a number of variables, it
cannot be predetermined.
Certificate Value and Surrender Value will reflect 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 Certificate.
CALCULATION OF CERTIFICATE VALUE
The Certificate Value is determined on the Date of Issue and on each Valuation
Date. On the Date of Issue, the Certificate 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 Separate Account; see THE
CERTIFICATE -- "Enrollment Form for a Certificate") less any Monthly Deductions
due. On each Valuation Date after the Date of Issue the Certificate Value will
be:
(1) the sum of the values in each of the Sub-Accounts on the Valuation Date,
determined for each Sub-Account by multiplying the value of a Unit in that
Sub-Account on that date by the number of such Units allocated to the
Certificate; PLUS
(2) the value in the General Account (including any amounts transferred to the
General Account with respect to a loan).
Thus, the Certificate Value is determined by multiplying the number of Units in
each Sub-Account by their value on the particular Valuation Date, adding the
products, and adding accumulations in the General Account, if any.
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<PAGE>
THE UNIT
You allocate the Net Premiums among the Sub-Accounts. Allocations to the
Sub-Accounts are credited to the Certificate in the form of Units. Units are
credited separately for each Sub-Account.
The number of Units of each Sub-Account credited to the Certificate is equal to
the portion of the Net Premium allocated to the Sub-Account, divided by the
dollar value of the applicable Unit as of the Valuation Date the payment is
received at the Principal Office. The number of Units will remain fixed unless
changed by a subsequent split of Unit value, transfer, partial withdrawal or
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 Units equal in value to the amount deducted.
The dollar value of a 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 a Unit was set at $1.00
on the first Valuation Date for each Sub-Account. The dollar value of a Unit on
a given Valuation Date is determined by multiplying the dollar value of the
corresponding 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 Separate 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), 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; and
(b) is the value of that Sub-Account's assets at the beginning of the Valuation
Period.
The net investment factor may be greater or less than one. Therefore, the value
of a Unit may increase or decrease. You bear the investment risk. Subject to
applicable state and federal laws, the Company reserves the right to change the
methodology used to determine the net investment factor.
Allocations to the General Account are not converted into Units, but are
credited interest at a rate periodically set by the Company. See MORE
INFORMATION ABOUT THE GENERAL ACCOUNT.
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 payment options then offered by the
Company. These payment options are also available at the Final Premium Payment
Date and if the Certificate is surrendered. If no election is made, the Company
will pay the Death Proceeds in a single sum. See APPENDIX B -- PAYMENT OPTIONS.
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 Certificate by
rider. The cost of any optional insurance benefits will be deducted as part of
the Monthly Deduction. See CHARGES AND DEDUCTIONS -- "Monthly Deduction from
Certificate Value."
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SURRENDER
You may at any time surrender the Certificate and receive its Surrender Value.
The Surrender Value is the Certificate Value, less Debt and applicable surrender
charges. The Surrender Value will be calculated as of the Valuation Date on
which a Written Request for surrender and the Certificate are received at the
Principal Office. A surrender charge may be deducted when a Certificate is
surrendered if less than 15 full Certificate years have elapsed from the Date of
Issue of the Certificate or from the effective date of any increase in the Face
Amount. See CHARGES AND DEDUCTIONS -- "Surrender Charge."
The proceeds on surrender may be paid in a lump sum or under one of the payment
options the Company offers. See APPENDIX B -- PAYMENT OPTIONS. The Company will
normally 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 CERTIFICATE PROVISIONS -- "Postponement of
Payments."
For important tax considerations which may result from surrender see FEDERAL TAX
CONSIDERATIONS.
PAID-UP INSURANCE OPTION
On Written Request, you may elect life insurance coverage, usually for a reduced
amount, for the life of the Insured with no further premiums due. The Paid-Up
Insurance will be the amount that the Surrender Value can purchase for a net
single premium at the Insured's Age and Underwriting Class on the date this
option is elected. If the Surrender Value exceeds the net single premium, we
will pay the excess to you. The net single premium is based on the Commissioners
1980 Standard Ordinary Mortality Tables, Smoker or Non-Smoker (Table B for
unisex certificates) 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
CERTIFICATE OWNER RIGHTS AND BENEFITS WILL BE AFFECTED:
- As described above, the Paid-Up Insurance benefit will be computed
differently from the net Death Benefit and the Death Benefit options will
not apply.
- We will not allow transfers of Certificate Value from the General Account
back to the Separate Account.
- You may not make further payments.
- You may not increase or decrease the Face Amount or make partial
withdrawals.
- Riders will continue only with our consent.
You may, after electing Paid-Up Insurance, surrender the Certificate for its net
cash value. The guaranteed cash value is the net single premium for the Paid-Up
Insurance at the Insured's attained Age. The net cash value is the cash value
less any outstanding Debt. We will transfer the Certificate Value in the
Separate Account to the General Account on the date we receive Written Request
to elect the option.
On election of Paid-Up Insurance, the Certificate often will become a modified
endowment contract. If a Certificate becomes a modified endowment contract,
Certificate loans, partial withdrawals or surrender will receive unfavorable
federal tax treatment. See FEDERAL TAX CONSIDERATIONS -- "Modified Endowment
Contracts."
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PARTIAL WITHDRAWAL
Any time after the first Certificate year, you may withdraw a portion of the
Surrender Value of the Certificate, 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 or Option 3, 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 partial withdrawal from a Sub-Account will result in the cancellation of the
number of 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." The Company will normally 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 CERTIFICATE PROVISIONS -- "Postponement of
Payments." For important tax consequences which may result from partial
withdrawals, see FEDERAL TAX CONSIDERATIONS.
CHARGES AND DEDUCTIONS
Charges will be deducted to compensate the Company for providing the insurance
benefits set forth in the Certificate and any additional benefits added by
rider, providing servicing, incurring distribution expenses, and assuming
certain risks in connection with the Certificates. Certain of the charges
described below may be reduced for Certificates issued in connection with a
specific group under a non-qualified benefit plan. Charges and deductions may
vary based on criteria, for example, such as the purpose for which the
Certificates are purchased, the size of the benefit plan and the expected number
of participants, the underwriting characteristics of the group, the levels and
types of administrative services provided to the benefit plan and participants,
and anticipated aggregate premium payments. From time to time the Company may
modify both the amounts and criteria for reductions, which will not be unfairly
discriminatory against any person.
PREMIUM EXPENSE CHARGE
A charge may be deducted from each premium payment for state and local premium
taxes paid by the Company. State premium taxes generally range from 0.75% to 5%,
while local premium taxes (if any) vary by jurisdiction within a state. The
Company guarantees that the charge for premium taxes will not exceed 10%. The
premium tax charge may change when either the applicable jurisdiction changes or
the tax rate within the applicable jurisdiction changes. The Company should be
notified of any change in address of the Insured as soon as possible.
Additional charges are made to compensate the Company for federal taxes imposed
for deferred acquisition cost ("DAC") taxes and for distribution expenses
related to the Certificates. The DAC tax deduction may range from zero to 1% of
premiums, depending on the group to which the Policy is issued. The charge for
distribution expenses may range from zero to 10%. The distribution charge may
vary, depending upon such factors, for example, as the type of the benefit plan,
average number of participants, average Face Amount of the Certificates,
anticipated average annual premiums, and the actual distribution expenses
incurred by the Company.
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MONTHLY DEDUCTION FROM CERTIFICATE VALUE
On the Date of Issue and each Monthly Processing Date thereafter prior to the
Final Premium Payment Date, certain charges ("Monthly Deduction") will be
deducted from the Certificate Value. The Monthly Deduction includes a charge for
cost of insurance, a charge for the cost of any additional benefits provided by
rider and a charge for Certificate administrative expenses that may be up to
$10, depending on the group to which the Policy is issued. The Monthly Deduction
may also include a charge for Separate Account administrative expenses and a
charge for mortality and expense risks. The Separate Account administrative
charge may continue for up to 10 Certificate years and may be up to 0.25% of
Certificate Value in each Sub-Account, depending on the group to which the
Policy was issued. The mortality and expense risk charge may be up to 0.90% of
Certificate Value in each Sub-Account. The Monthly Deduction on or following the
effective date of a requested change in the Face Amount will also include a
charge of $2.50 per $1,000 of increase or decrease, to a maximum of $40, for
administrative costs associated with the change. See THE CERTIFICATE -- "Charge
for Change in Face Amount."
You may specify from which Sub-Account the cost of insurance charge, the charge
for Certificate administrative expenses and the charge for the cost of
additional benefits provided by rider will be deducted. If the Payor Provision
is in force, all cost of insurance charges and administrative charges will be
deducted from the Monthly Deduction Sub-Account. If no allocation is specified,
the Company will make a Pro-Rata Allocation.
The Separate Account administrative charge and the mortality and expense risk
charge are assessed against each Sub-Account that generates a charge. In the
event that a charge is greater than the value of the Sub-Account to which it
relates on a Monthly Processing Date, the Company will make a Pro-Rata
Allocation of the unpaid balance.
Monthly Deductions are made on the Date of Issue and on each Monthly Processing
Date until the Final Premium Payment Date. 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 and for each
subsequent increase in the Face Amount. Because the cost of insurance depends
upon a number of variables, it can vary from month to month and from group to
group.
CALCULATION OF THE CHARGE
If Death Benefit Option 2 is in effect, the monthly cost of insurance charge for
the initial Face Amount will equal the applicable cost of insurance rate
multiplied by the initial Face Amount. If Death Benefit Option 1 or Option 3 is
in effect, however, the applicable cost of insurance rate will be multiplied by
the initial Face Amount less the Certificate Value (minus charges for rider
benefits) at the beginning of the Certificate month. Thus, the cost of insurance
charge may be greater if Death Benefit Option 2 is in effect than if Death
Benefit Option 1 or Option 3 is in effect, assuming the same Face Amount in each
case and assuming that the Minimum Death Benefit is not in effect.
In other words, since the Death Benefit under Option 1 or Option 3 remains
constant while the Death Benefit under Option 2 varies with the Certificate
Value, any Certificate Value increases will reduce the insurance charge under
Option 1 or Option 3, but not under Option 2.
If Death Benefit Option 2 is in effect, the monthly insurance charge for each
increase in the Face Amount (other than an increase caused by a change in Death
Benefit Option) will be equal to the cost of insurance rate applicable to that
increase multiplied by the increase in the Face Amount. If Death Benefit Option
1 or Option 3 is in effect, the applicable cost of insurance rate will be
multiplied by the increase in the Face
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Amount reduced by any Certificate Value (minus rider charges) in excess of the
initial Face Amount at the beginning of the Certificate month.
If the Minimum Death Benefit is in effect under any Option, a monthly cost of
insurance charge will also be calculated for that portion of the Death Benefit
which exceeds the current Face Amount. This charge will be calculated by:
- multiplying the cost of insurance rate applicable to the initial Face
Amount times the Minimum Death Benefit (Certificate Value times the
applicable percentage), MINUS
- the greater of the Face Amount or the Certificate Value under Death
Benefit Option 1 or Option 3,
or
- the Face Amount plus the Certificate Value under Death Benefit Option
2.
When the Minimum Death Benefit is in effect, the cost of insurance charge for
the initial Face Amount and for any increases will be calculated as set forth in
the preceding two paragraphs.
The monthly cost of insurance charge will also be adjusted for any decreases in
the Face Amount. See THE CERTIFICATE -- "Change in Face Amount: Decreases."
COST OF INSURANCE RATES
This Certificate is sold to eligible individuals who are members of a
non-qualified benefit plan having a minimum, depending on the group, of five or
more members. A portion of the initial Face Amount may be issued on a guaranteed
or simplified underwriting basis. The amount of this portion will be determined
for each group, and may vary based on characteristics within the group.
The determination of the Underwriting Class for the guaranteed or simplified
issue portion will, in part, be based on the type of group; the number of
persons eligible to participate in the plan; expected percentage of eligible
persons participating in the plan; and the amount of guaranteed or simplified
underwriting insurance to be issued. Larger groups, higher participation rates
and occupations with historically favorable mortality rates will generally
result in the individuals within that group being placed in a more favorable
Underwriting Class.
Cost of insurance rates are based on a blended unisex rate table, Age and
Underwriting Class of the Insured at the Date of Issue, the effective date of an
increase or date of rider, as applicable, the amount of premiums paid less any
debt and any partial withdrawals and withdrawal charges. For those Certificates
issued on a unisex basis, sex-distinct rates do not apply. The cost of insurance
rates are determined at the beginning of each Certificate 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 Certificate. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Tables (Mortality Table B, Smoker, Non-smoker or
Uni-smoker, for unisex Certificates) and the Insured's Age. The tables used for
this purpose may set forth different mortality estimates for smokers and
non-smokers. Any change in the cost of insurance rates will apply to all persons
of the same insuring Age and Underwriting Class whose Certificates have been in
force for the same length of time.
The Underwriting Class of an Insured will affect the cost of insurance rates.
The Company currently places Insureds into preferred Underwriting Classes,
standard Underwriting Classes and substandard Underwriting Classes. In an
otherwise identical Certificate, an Insured in the preferred Underwriting Class
will have a lower cost of insurance than an Insured in a standard Underwriting
Class who, in turn, will have a lower cost of insurance than an Insured in a
substandard Underwriting Class with a higher mortality risk. The Underwriting
Classes may be divided into two categories or aggregated: 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
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the same Underwriting Class. Any Insured with an Age at issuance under 18 will
be classified initially as regular, unless 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 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
Underwriting 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 Underwriting Class previously applicable. On the other hand, if the
Insured's Underwriting Class improves on an increase, the lower cost of
insurance rate generally will apply to the entire Insurance Amount at Risk.
MONTHLY CERTIFICATE ADMINISTRATIVE CHARGE
Prior to the Final Premium Payment Date, a monthly Certificate administrative
charge of up to $10 per month, depending on the group to which the Policy was
issued, will be deducted from the Certificate Value. This charge will be used to
compensate the Company for expenses incurred in the administration of the
Certificate, and will compensate the Company for first-year underwriting and
other start-up expenses incurred in connection with the Certificate. These
expenses include the cost of processing enrollment forms, conducting medical
examinations, determining insurability and the Insured's Underwriting Class, and
establishing Certificate records. The Company does not expect to derive a profit
from these charges.
MONTHLY SEPARATE ACCOUNT ADMINISTRATIVE CHARGE
The Company can make an administrative charge on an annual basis of up to 0.25%
of the Certificate Value in each Sub-Account. The duration of this charge can be
for up to 10 years. This charge is designed to reimburse the Company for the
costs of administering the Separate Account and Sub-Accounts. The charge is not
expected to be a source of profit. The administrative expenses assumed by the
Company in connection with the Separate Account and 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.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE
The Company can make a mortality and expense risk charge on an annual basis of
up to 0.90% of the Certificate 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 Certificates. The total charges may be different between
groups and increased or decreased within a group, subject to compliance with
applicable state and federal requirements, but 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 will, therefore, pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the
Certificates will exceed the amounts realized from the administrative charges
provided in the Certificates. 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.
CHARGES REFLECTED IN THE ASSETS OF THE SEPARATE ACCOUNT
Because the Sub-Accounts purchase shares of the Underlying Investment Companies,
the value of the Units of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Underlying Investment Companies. The
prospectuses and Statements of Additional Information of the Trust, Fidelity
VIP,
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Fidelity VIP II, T. Rowe Price, DGPF, INVESCO VIF and Morgan Stanley contain
additional information concerning such fees and expenses.
No charges are currently 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 Certificate Value in the Sub-Accounts.
SURRENDER CHARGE
The Certificate may provide for a contingent surrender charge. A separate
surrender charge, described in more detail below, may be calculated upon the
issuance of the Certificate and for each increase 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
Certificate. The contingent deferred sales charge compensates the Company for
expenses relating to the distribution of the Certificate, including agents'
commissions, advertising and the printing of the prospectus and sales
literature.
A surrender charge may be deducted if you request a full surrender of the
Certificate or a decrease in the Face Amount. The duration of the surrender
charge may be up to 15 years from the Date of Issue or from the effective date
of any increase in the Face Amount. The maximum surrender charge calculated upon
issuance of the Certificate is an amount up 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 up to 50% (less
any premium expense charge not associated with state and local premium taxes) of
premiums received up to the Guideline Annual Premium. In accordance with
limitations under state insurance regulations, the amount of the maximum
surrender charge will not exceed a specified amount per thousand dollars of
initial Face Amount, as indicated in APPENDIX D -- CALCULATION OF MAXIMUM
SURRENDER CHARGES. The maximum surrender charge remains level for up to 24
Certificate months, reduces uniformly each month for the balance of the
surrender charge period, and is zero thereafter. This reduction in the maximum
surrender charge will reduce the deferred sales charge and the deferred
administrative charge proportionately.
If you surrender the Certificate during the first two 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 initial Face Amount,
as described above, but the deferred sales charge will not exceed 30% (less any
premium expense charge not associated with state and local premium taxes) of
premiums received, up to one Guideline Annual Premium, plus 9% of premiums
received in excess of one Guideline Annual Premium. See APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES.
A separate surrender charge may 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 up
to the sum of (a) plus (b), where (a) is up to $8.50 per thousand dollars of
increase, and (b) is a deferred sales charge of up to 50% (less any premium
expense charge not associated with state and local premium taxes) of premiums
associated with the increase, up to the Guideline Annual Premium for the
increase. In accordance with limitations under state insurance regulations, the
amount of the surrender charge will not exceed a specified amount per thousand
dollars 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 remains level for up to 24
Certificate months, reduces uniformly each month for the balance of the
surrender charge period, and is zero thereafter. During the first two
Certificate 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 increase in the Face Amount, 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 30% (less any premium expense charge not associated with state and
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local premium taxes) 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. 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 whereby the Certificate Value will be allocated between the
initial Face Amount and the increase. Subsequent premium payments are allocated
between the initial Certificate 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 Certificate 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 would also be allocated 75%
to the initial Face Amount and 25% to the increase. Thus, existing Certificate
Value associated with the increase will equal the portion of Certificate 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.
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 Certificate. 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 Certificate), the surrender charge will be applied in the following order:
(1) the most recent increase; (2) the next most recent increases successively;
and (3) 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
After the first Certificate year, partial withdrawals of Surrender Value may be
made. The minimum withdrawal is $500. Under Option 1 or Option 3, 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 may also be deducted from Certificate Value. For
each partial withdrawal you may withdraw an amount equal to 10% of the
Certificate Value on the date the written withdrawal request is received by the
Company less the total of any prior withdrawals in that Certificate 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. There will be no partial
withdrawal charge if there is no surrender charge on the date of withdrawal
(i.e., 15 years have passed from the Date of Issue and from the effective date
of any increase in the Face Amount).
This right is not cumulative from Certificate year to Certificate year. For
example, if only 8% of Certificate Value was withdrawn in Certificate year two,
the amount you could withdraw in subsequent Certificate years would not be
increased by the amount you did not withdraw in the second Certificate year.
The Certificate'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
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charge component. The partial withdrawal charge deducted will decrease existing
surrender charges in the following order:
- first, the surrender charge for the most recent increase in the Face
Amount;
- second, the surrender charge for the next most recent increases
successively;
- last, the surrender charge for the initial Face Amount.
See APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES for an example
illustrating the calculation of the charges on partial withdrawal and their
impact on the surrender charges.
TRANSFER CHARGES
The first twelve transfers in a Certificate 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
will never exceed $25. The Company also reserves the right to change the number
of free transfers allowed in a Certificate year. See THE CERTIFICATE --
"Transfer Privilege."
You may have automatic transfers of at least $100 made on a periodic basis,
every 1, 2 or 3 months (a) 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, or (b) to reallocate Certificate Value among the
Sub-Accounts. The first automatic transfer counts as one transfer towards the
twelve free transfers allowed in each Certificate year. Each subsequent
automatic transfer is without charge and does not reduce the remaining number of
transfers which may be made without charge.
If you utilize the Conversion Privilege, Loan Privilege, or reallocate
Certificate Value within 20 days of the Date of Issue of the Certificate, any
resulting transfer of Certificate Value from the Sub-Accounts to the General
Account will be free of charge, and in addition to the twelve free transfers in
a Certificate year. See THE CERTIFICATE -- "Conversion Privileges" and
CERTIFICATE LOANS.
CHARGE FOR CHANGE IN FACE AMOUNT
For each increase or decrease in the Face Amount you request, a transaction
charge of $2.50 per $1,000 of increase or decrease, to a maximum of $40, may be
deducted from the Certificate Value to reimburse the Company for administrative
costs associated with the change. 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 (not to exceed $25) 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.
CERTIFICATE LOANS
Loans may be obtained by request to the Company on the sole security of the
Certificate. The total amount which may be borrowed is the Loan Value. In the
first Certificate year, the Loan Value is 75% of Certificate Value reduced by
applicable surrender charges, as well as Monthly Deductions and interest on the
loan to the end of the Certificate year. The Loan Value in the second
Certificate year and thereafter is 90% of an amount equal to Certificate Value
reduced by applicable surrender charges. There is no minimum limit on the amount
of the loan. The loan amount will normally be paid within seven days after the
Company receives the loan request at its Principal Office, but the Company may
delay payments under certain circumstances. See OTHER CERTIFICATE PROVISIONS --
"Postponement of Payments."
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A Certificate 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. Certificate Value in each Sub-Account equal to the Certificate
loan allocated to such Sub-Account will be transferred to the General Account,
and the number of Units equal to the Certificate Value so transferred will be
cancelled. This will reduce the Certificate Value in these Sub-Accounts. These
transactions are not treated as transfers for purposes of the transfer charge.
LOAN AMOUNT EARNS INTEREST IN THE GENERAL ACCOUNT
As long as the Certificate is in force, Certificate Value in the General Account
equal to the loan amount will be credited with interest at an effective annual
yield of at least 6.00% per year (7.5% for preferred loans). NO ADDITIONAL
INTEREST WILL BE CREDITED TO SUCH CERTIFICATE VALUE.
PREFERRED LOAN OPTION
A preferred loan option is available under the Certificate. 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 Certificate anniversary
Certificate 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 practice 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
Interest accrues daily, and is payable in arrears at the annual rate of 8%.
Interest is due and payable at the end of each Certificate 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 bear interest at the same rate. After the
due and unpaid interest is added to the loan amount, if the new loan amount
exceeds the Certificate Value in the General Account, the Company will transfer
Certificate Value equal to that excess loan amount from the Certificate 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 Certificate Value in each Sub-Account bears to the
total Certificate Value in all Sub-Accounts.
REPAYMENT OF DEBT
Loans may be repaid at any time prior to the lapse of the Certificate. Upon
repayment of Debt, the portion of the Certificate Value that is in the General
Account securing the Debt repaid will be allocated to the various Accounts and
increase the Certificate Value in such Accounts in accordance with your
instructions. If you do not make a repayment allocation, the Company will
allocate Certificate Value in accordance with your most recent premium
allocation instructions; provided, however, that loan repayments allocated to
the Separate Account cannot exceed Certificate Value previously transferred from
the Separate Account to secure the Debt.
If Debt exceeds the Certificate Value less the surrender charge, the Certificate
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 Certificate will terminate with
no value. See CERTIFICATE TERMINATION AND REINSTATEMENT.
EFFECT OF CERTIFICATE LOANS
Although Certificate loans may be repaid at any time prior to the lapse of the
Certificate, Certificate loans will permanently affect the Certificate 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-Accounts is less than or greater than the interest credited to the
Certificate Value in the General Account attributable to the loan.
Moreover, outstanding Certificate loans and the accrued interest will be
deducted from the proceeds payable upon surrender or the death of the Insured.
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CERTIFICATE TERMINATION AND REINSTATEMENT
TERMINATION
The failure to make premium payments will not cause the Certificate to lapse
unless:
- the Surrender Value is insufficient to cover the next Monthly Deduction
plus loan interest accrued; or
- if Debt exceeds the Certificate Value.
If one of these situations occurs, the Certificate will be in default. You will
then 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 Certificate. If the Insured dies during the grace period, the
Death Proceeds will still be payable, but any Monthly Deductions due and unpaid
through the Certificate month in which the Insured dies and any other overdue
charges will be deducted from the Death Proceeds.
PAYOR PROVISIONS
Subject to approval in the state in which the Certificate was issued, if you
name a "Payor" in your enrollment form supplement, the following "Payor
Provisions" will apply:
The Payor may designate what portion, if any, of each payment of a premium is
"excess premium." You may allocate the excess premium among the General Account
and Sub-Accounts. The remaining Payor's premium which is not excess premium
("Payor's premium") will automatically be allocated to the Monthly Deduction
Sub-Account, from which the Monthly Deduction charges will be made. Payor
premiums are initially held in the General Account, and will be transferred to
the Monthly Deduction Sub-Account not later than three days after underwriting
approval of the Certificate. No Certificate loans, partial withdrawals or
transfers may be made from the amount in the Monthly Deduction Sub-Account
attributable to Payor's premiums.
If the amount in the Monthly Deduction Sub-Account attributable to Payor's
premiums is insufficient to cover the next Monthly Deduction, the Company will
send to the Payor a notice of the due date and amount of premium which is due.
The premium may be paid during a grace period of 62 days, beginning on the
premium due date. If the necessary premium is not received by the Company within
31 days of the end of the grace period, a second notice will be sent to the
Payor. A 31-day grace period notice at this time will also be sent to you if the
Certificate Value is insufficient to cover the Monthly Deductions then due.
If the amount in the Monthly Deduction Sub-Account attributable to Payor
premiums is insufficient to cover the Monthly Deductions due at the end of the
grace period, the balance of such Monthly Deductions will be withdrawn on a
Pro-Rata Allocation from the Certificate Value, if any, in the General Account
and the Sub-Accounts.
A lapse occurs if the Certificate Value is insufficient, at the end of the grace
period, to pay the Monthly Deductions which are due. The Certificate terminates
on the date of lapse. Any Death Benefit payable during the grace period will be
reduced by any overdue charges.
The above Payor Provisions, if applicable, are in lieu of the grace-period
notice and default provisions applicable when the Surrender Value is
insufficient to cover the next Monthly Deduction plus loan interest accrued.
However, they do not apply if Debt exceeds the Certificate Value. See the
discussion under "Termination," above. You or the Payor may, upon Written
Request discontinue the above Payor Provisions. If the Payor makes a written
request to discontinue the Payor Provisions, the Company will send you a notice
of the discontinuance to your last known address.
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REINSTATEMENT
If the Certificate has not been surrendered and the Insured is alive, the
terminated Certificate may be reinstated anytime within three years after the
date of default and before the Final Premium Payment Date. The reinstatement
will be effective on the Monthly Processing Date following the date you submit
the following to the Company:
- a written enrollment form for reinstatement,
- Evidence of Insurability; and
- a premium that, after the deduction of the premium expense charge, is
large enough to cover the Monthly Deductions for the three-month period
beginning on the date of reinstatement.
SURRENDER CHARGE
The surrender charge on the date of reinstatement is the surrender charge which
should have been in effect had the Certificate remained in force from the Date
of Issue.
CERTIFICATE VALUE ON REINSTATEMENT
The Certificate Value on the date of reinstatement is:
- the Net Premium paid to reinstate the Certificate increased by interest
from the date the payment was received at the Principal Office; PLUS
- an amount equal to the Certificate Value less Debt on the date of default;
MINUS
- the Monthly Deduction due on the date of reinstatement. You may reinstate
any Debt outstanding on the date of default or foreclosure.
OTHER CERTIFICATE PROVISIONS
The following Certificate provisions may vary in certain states in order to
comply with requirements of the insurance laws, regulations, and insurance
regulatory agencies in those states.
CERTIFICATE OWNER
The Certificate Owner is the Insured unless another Certificate Owner has been
named in the enrollment form or the Certificate. The Certificate Owner is
generally entitled to exercise all rights under the Certificate 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 Certificate,
the Beneficiary has no rights in the Certificate 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 Certificate Owner (or the Certificate Owner'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 proportionately.
51
<PAGE>
ASSIGNMENT
The Certificate Owner may assign a Certificate as collateral or make an absolute
assignment of the Certificate. All rights under the Certificate 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 Certificate. 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.
INCONTESTABILITY
The Company will not contest the validity of a Certificate 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 rider or any increase in the Face
Amount after such rider or increase 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 Certificate,
without interest, less any outstanding Debt and less any partial withdrawals. If
the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in the Death Benefit, 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
If the Insured's Age as stated in the enrollment form for the Certificate is not
correct, benefits under the Certificate will be adjusted to reflect the correct
Age, 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. In no event will the Death Benefit be reduced to
less than the Minimum Death Benefit.
POSTPONEMENT OF PAYMENTS
Payments of any amount due from the Separate Account upon surrender, partial
withdrawals, or death of the Insured, as well as payments of a Certificate loan
and transfers may be postponed whenever: (1) 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 (2) 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 Separate Account's net assets. Payments under the Certificate 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 Certificate loans and transfers from the General Account,
for a period not to exceed six months.
52
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ---------------------------------- --------------------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Assistant Secretary (since 1992),
Director and Vice President (since 1984) of First Allmerica
Abigail M. Armstrong Secretary (since 1996), and Counsel (since 1991) of
Secretary and Counsel First Allmerica
Robert E. Bruce Director and Chief Information Officer (since 1997),Vice
Director, Vice President and President (since 1995) of First Allmerica; Corporate
Chief Information Officer Manager (1979 to 1995) of Digital Equipment Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and
Director, Vice President and Vice President (since 1991) of First Allmerica
Chief Investment Officer
John F. Kelly Director (since 1996), General Counsel (since 1981),
Director, Vice President and Senior Vice President and Assistant Secretary (since
General Counsel 1986) of First Allmerica
J. Barry May Director and President (since 1996) of First Allmerica;
Director Vice President (1993 to 1996), and General Manager (1989
to 1993) of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director
Director (since 1992), President (since 1994), and CEO (since
1996) of Citizens Insurance Company of America; Vice
President (1982 to 1994) and Chief Investment Officer
(1986 to 1994) of First Allmerica
John F. O'Brien
Director and Chairman of the Director, Chairman of the Board, President and Chief
Board Executive Officer (since 1989) of First Allmerica
Edward J. Parry, III
Director, Vice President, Director and Chief Financial Officer (since 1996), and
Treasurer, Vice President and Treasurer (since 1993) of First
and Chief Financial Officer Allmerica
Richard M. Reilly Director (since 1996), Vice President (since 1990), of
Director, President and First Allmerica; Director (since 1990) of Allmerica
Chief Executive Officer Investments, Inc.; and Director and President (since
1990) of Allmerica Financial Investment Management
Services, Inc.
Eric A. Simonsen Director (since 1996), Vice President (since 1990), and
Director and Vice President Chief Financial Officer (1990 to 1996) of First
Allmerica
Phillip E. Soule Director (since 1996), and Vice President (since 1987)
Director of First Allmerica
</TABLE>
53
<PAGE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect subsidiary of First Allmerica, acts as
the principal underwriter of the Certificates pursuant to a Sales and
Administrative Services Agreement with the Company and the Separate Account.
Allmerica Investments, Inc. is registered with the SEC as a broker-dealer and is
a member of the National Association of Securities Dealers ("NASD"). The
Certificates are sold by agents of the Company who are registered
representatives of Allmerica Investments, Inc. or of independent broker-dealers.
The Company pays commissions to broker-dealers and registered representatives
which sell the Certificates based on a commission schedule. After issuance of a
Certificate or an increase in Face Amount, commissions may be up to 25% of the
first-year premiums up to a basic premium amount established by the Company.
Thereafter, commissions may be up to 10% of any additional premiums. Alternative
compensation schedules, which may include ongoing annual compensation of up to
0.50% of Certificate Value, are available based on premium payments and the
level of enrollment and ongoing administrative services provided to participants
and benefit plans by the broker-dealer or registered representative. 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 may also be eligible to receive expense
reimbursements based on the amount of earned commissions. General Agents may
also receive overriding commissions, which will not exceed 2.5% of first-year,
or 4% of renewal premiums. To the extent permitted by NASD rules, promotional
incentives or payments may also be provided to broker-dealers based on sales
volumes, the assumption of wholesaling functions or other sales related
criteria. Other payments may be made for other services that do not directly
involve the sales of the Certificates. These services may include the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup the commission and other sales expenses through a
combination of the deferred sales charge component of the anticipated surrender
and partial withdrawal charges through a portion of the premium expense charge,
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 the Certificate Owners or to the Separate Account.
Any surrender charge assessed on a Certificate 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,
Fidelity 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
Separate Account. With respect to the T. Rowe Price International Stock
Portfolio and the Morgan Stanley Fixed Income Portfolio, the Company receives
service fees at an annual rate of 0.15% per annum of the aggregate net asset
value of shares held by the Separate 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.
REPORTS
The Company will maintain the records relating to the Separate Account. You will
be promptly sent statements of significant transactions such as premium payments
(other than payments made pursuant to the MAP procedure), changes in the
specified Face Amount, changes in the Death Benefit 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. An annual statement will also be sent to you. The annual
statement will summarize all of the above transactions and deductions of charges
during the Certificate year. It will also set forth the status of the Death
Proceeds, Certificate Value, Surrender Value, amounts in the Sub-Accounts and
General Account, and any Certificate loan(s).
In addition, you will be sent periodic reports containing financial statements
and other information for the Separate Account and the Underlying Investment
Companies as required by the 1940 Act.
54
<PAGE>
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a party,
or to which the assets of the Separate 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 Separate Account.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. Statements contained in this Prospectus concerning the
Certificate and other legal documents are summaries. The complete documents and
omitted information may be obtained from the SEC's principal office in
Washington, DC, 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 two years in the period ended December 31, 1997, and the financial
statements for the Group VEL Account as of December 31, 1997 and for the periods
indicated, included in this Prospectus constituting part of this Registration
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Certificates.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Certificate, 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 are currently interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely, and
possibly retroactively, affect the taxation of the Certificates. No
representation is made regarding the 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 Certificates 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 Certificate Owner is a corporation or the trustee of an employee benefit
plan. A qualified tax adviser should always be consulted with regard to the
enrollment form of law to individual circumstances.
THE COMPANY AND THE SEPARATE ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the Code
of 1986, 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 Separate Account. Based on these expectations,
no charge is made for federal income taxes which may be attributable to the
Separate Account.
The Company will review periodically the question of a charge to the Separate
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 is ultimately 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 Separate
Account.
55
<PAGE>
Under current laws the Company may also 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
Separate Account.
TAXATION OF THE CERTIFICATES
The Company believes that the Certificates described in this Prospectus will be
considered life insurance contracts under Section 7702 of the Code, which
generally provides for the taxation of life insurance policies and places
limitations on the relationship of the Certificate 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 Certificate Value is not
taxable until received by the Certificate Owner or the Certificate Owner's
designee. 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 Certificate 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 Certificate Owners 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 Certificates may need to be modified to comply with
such regulations. For these reasons, the Certificates or the Company's
administrative rules may be modified as necessary to prevent a Certificate Owner
from being considered the owner of the assets of the Separate Account.
Depending upon the circumstances, a surrender, partial withdrawal, change in the
Death Benefit Option, change in the Face Amount, lapse with Certificate loan
outstanding, or assignment of the Certificate may have tax consequences. In
particular, under specified conditions, a distribution under the Certificate
during the first 15 years from Date of Issue that reduces future benefits under
the Certificate will be taxed to the Certificate Owner as ordinary income to the
extent of any investment earnings in the Certificate. Federal, state and local
income, estate, inheritance, and other tax consequences of ownership or receipt
of Certificate proceeds depend on the circumstances of each Insured, Certificate
Owner, or Beneficiary.
CERTIFICATE LOANS
The Company believes that non-preferred loans received under a Certificate will
be treated as indebtedness of the Certificate Owner for federal income tax
purposes. Under current law, these loans will not constitute income for the
Certificate Owner while the Certificate is in force. See "Modified Endowment
Contracts." However, there is a risk 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 pertinent 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 or
certificate loans. Consumer interest paid on policy or certificate loans under
an individually owned policy or certificate is not tax deductible. Generally, no
tax deduction for interest is allowed on policy or certificate loans, if the
insured is an officer or employee of, or is financially interested in, any
business carried on by the taxpayer. There is an exception to this rule which
permits a deduction for interest on loans up to $50,000 related to any policies
or certificates covering the greater of (1) five individuals, or (2) the lesser
of (a) 5% of the total number of officers and employees of the corporation, or
(b) 20 individuals.
56
<PAGE>
MODIFIED ENDOWMENT CONTRACTS
The Technical and Miscellaneous Revenue Act of 1988 ("1988 Act") adversely
affects the tax treatment of distributions under so-called "modified endowment
contracts." Under the 1988 Act, any life insurance certificate, including a
Certificate offered by this Prospectus, that fails to satisfy a "seven-pay" test
is considered a modified endowment contract. A certificate fails to satisfy the
seven-pay test if the cumulative premiums paid under the certificate at any time
during the first seven certificate years, or within seven years of a material
change in the certificate, exceed the sum of the net level premiums that would
have been paid, had the certificate provided for paid-up future benefits after
the payment of seven level premiums.
If the Certificate is considered a modified endowment contract, all
distributions under the Certificate will be taxed on an "income-first" basis.
Most distributions received by a Certificate Owner directly or indirectly
(including loans, withdrawals, partial surrenders, or the assignment or pledge
of any portion of the value of the Certificate) will be includible in gross
income to the extent that the cash Surrender Value of the Certificate exceeds
the Certificate Owner's investment in the contract. Any additional amounts will
be treated as a return of capital to the extent of the Certificate Owner's basis
in the Certificate. 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
Certificate Owner during any 12-month period will be treated as a single
modified endowment contract in determining taxable distributions.
Currently, each Certificate is reviewed when premiums are received to determine
if it satisfies the seven-pay test. If the Certificate does not satisfy the
seven-pay test, the Company will notify the Certificate Owner of the option of
requesting a refund of the excess premium. The refund process must be completed
within 60 days after the Certificate anniversary, or the Certificate will be
permanently classified as a modified endowment contract.
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
As discussed earlier, you may allocate Net Premiums and transfer Certificate
Value to the General Account. Because of exemption and exclusionary provisions
in the securities law, any amount in the General Account is not generally
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 Certificate 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 VALUE
The Company bears the full investment risk for amounts allocated to the General
Account and guarantees that interest credited to each Certificate Owner's
Certificate Value in the General Account will not be less than an annual rate of
4% ("Guaranteed Minimum Rate"). (Under the Certificate, the Guaranteed Minimum
Rate may be higher than 4%.)
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 the Guaranteed Minimum Rate, and might not do so. However, the excess
interest rate, if any, in effect on the date a premium is received at the
Principal Office is guaranteed on
57
<PAGE>
that premium for one year, unless the Certificate Value associated with the
premium becomes security for a Certificate loan. AFTER SUCH INITIAL ONE-YEAR
GUARANTEE OF INTEREST ON NET PREMIUM, ANY INTEREST CREDITED ON THE CERTIFICATE
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 CERTIFICATE OWNER
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 Certificate Value
which is equal to Debt. However, such Certificate Value will be credited
interest at an effective annual yield of at least 6%.
The Company guarantees that, on each Monthly Processing Date, the Certificate
Value in the General Account will be the amount of the Net Premiums allocated or
Certificate Value transferred to the General Account, plus interest at the
Guaranteed Minimum Rate, plus any excess interest which the Company credits,
less the sum of all Certificate charges allocable to the General Account and any
amounts deducted from the General Account in connection with loans, partial
withdrawals, surrenders or transfers.
THE CERTIFICATE
This Prospectus describes certificates issued under a flexible premium variable
life insurance Certificate, and is generally intended to serve as a disclosure
document only for the aspects of the Certificate relating to the Separate
Account. For complete details regarding the General Account, see the Certificate
itself.
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CERTIFICATE LOANS
If a Certificate is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, may be imposed if such event
occurs before the Certificate, or an increase in the Face Amount, has been in
force for 15 Certificate years. 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 Certificate. Partial withdrawals are made on a
last-in/first-out basis from Certificate Value allocated to the General Account.
The first twelve transfers in a Certificate year are free of charge. Thereafter,
a $10 transfer charge will be deducted for each transfer in that Certificate
year. The transfer privilege is subject to the consent of the Company and to the
Company's then current rules.
Certificate loans may also be made from the Certificate Value in the General
Account.
Transfers, surrenders, partial withdrawals, Death Proceeds and Certificate loans
payable from the General Account may be delayed up to six months. However, if
payment is delayed for 30 days or more, the Company will pay interest at least
equal to an effective annual yield of 3% for the period of deferment. Amounts
from the General Account used to pay premiums on policies with the Company will
not be delayed.
FINANCIAL STATEMENTS
Financial Statements for the Company and for the Separate Account are included
in this Prospectus beginning immediately after this section. The financial
statements of the Company and for the Separate Account should be considered only
as bearing on the ability of the Company to meet its obligations under the
Certificate. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account.
58
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of Allmerica
Financial Life Insurance and Annuity Company at December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 3, 1998
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
REVENUES
Premiums..................................... $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 212.2 176.2
Net investment income...................... 164.2 171.7
Net realized investment gains (losses)..... 2.9 (3.6 )
Other income............................... 1.4 0.9
--------- ---------
Total revenues......................... 403.5 377.9
--------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 187.8 192.6
Policy acquisition expenses................ 2.8 49.9
Loss from cession of disability income
business................................. 53.9 --
Other operating expenses................... 101.3 86.6
--------- ---------
Total benefits, losses and expenses.... 345.8 329.1
--------- ---------
Income before federal income taxes............. 57.7 48.8
--------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 13.9 26.9
Deferred................................... 7.1 (9.8 )
--------- ---------
Total federal income tax expense....... 21.0 17.1
--------- ---------
Net income..................................... $ 36.7 $ 31.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,340.5 and $1,660.2)............................ $1,402.5 $1,698.0
Equity securities at fair value (cost of $34.4 and
$33.0)............................................ 54.0 41.5
Mortgage loans...................................... 228.2 221.6
Real estate......................................... 12.0 26.1
Policy loans........................................ 140.1 131.7
Other long term investments......................... 20.3 7.9
---------- ----------
Total investments............................... 1,857.1 2,126.8
---------- ----------
Cash and cash equivalents............................. 31.1 18.8
Accrued investment income............................. 34.2 37.7
Deferred policy acquisition costs..................... 765.3 632.7
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums...................... 251.1 81.5
Other assets.......................................... 10.7 8.2
Separate account assets............................... 7,567.3 4,524.0
---------- ----------
Total assets.................................... $10,516.8 $7,429.7
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $2,097.3 $2,171.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 18.5 16.1
Unearned premiums................................... 1.8 2.7
Contractholder deposit funds and other policy
liabilities....................................... 32.5 32.8
---------- ----------
Total policy liabilities and accruals........... 2,150.1 2,222.9
---------- ----------
Expenses and taxes payable............................ 77.6 77.3
Reinsurance premiums payable.......................... 4.9 --
Deferred federal income taxes......................... 75.9 60.2
Separate account liabilities.......................... 7,567.3 4,523.6
---------- ----------
Total liabilities............................... 9,875.8 6,884.0
---------- ----------
Commitments and contingencies (Note 13)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,521 and 2,518 shares issued and
outstanding......................................... 2.5 2.5
Additional paid in capital............................ 386.9 346.3
Unrealized appreciation on investments, net........... 38.5 20.5
Retained earnings..................................... 213.1 176.4
---------- ----------
Total shareholder's equity...................... 641.0 545.7
---------- ----------
Total liabilities and shareholder's equity...... $10,516.8 $7,429.7
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 2.5 $ 2.5
Issued during year......................... -- --
--------- ---------
Balance at end of period................... 2.5 2.5
--------- ---------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............. 346.3 324.3
Contribution from Parent................... 40.6 22.0
--------- ---------
Balance at end of period................... 386.9 346.3
--------- ---------
RETAINED EARNINGS
Balance at beginning of period............. 176.4 144.7
Net income................................. 36.7 31.7
--------- ---------
Balance at end of period................... 213.1 176.4
--------- ---------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 20.5 23.8
Net appreciation (depreciation) on
available for sale securities............ 27.0 (5.1 )
(Provision) benefit for deferred federal
income taxes............................. (9.0 ) 1.8
--------- ---------
Balance at end of period................... 38.5 20.5
--------- ---------
Total shareholder's equity............. $641.0 $545.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (2.9 ) 3.6
Net amortization and depreciation... -- 3.5
Loss from cession of disability
income business................... 53.9 --
Deferred federal income taxes....... 7.1 (9.8 )
Payment related to cession of
disability income business........ (207.0 ) --
Change in deferred acquisition
costs............................. (181.3 ) (66.8 )
Change in premiums and notes
receivable, net of reinsurance
payable........................... 3.9 (0.2 )
Change in accrued investment
income............................ 3.5 1.2
Change in policy liabilities and
accruals, net..................... (72.4 ) (39.9 )
Change in reinsurance receivable.... 22.1 (1.5 )
Change in expenses and taxes
payable........................... 0.2 32.3
Separate account activity, net...... 0.4 10.5
Other, net.......................... (7.5 ) (0.2 )
---------- ----------
Net used in operating
activities.................... (343.3 ) (35.6 )
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 909.7 809.4
Proceeds from disposals of equity
securities............................ 2.4 1.5
Proceeds from disposals of other
investments........................... 23.7 17.4
Proceeds from mortgages matured or
collected............................. 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (579.7 ) (795.8 )
Purchase of equity securities........... (3.2 ) (13.2 )
Purchase of other investments........... (79.4 ) (36.2 )
Other investing activities, net......... -- (2.0 )
---------- ----------
Net cash provided by investing
activities........................ 336.4 15.1
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 19.2 22.0
---------- ----------
Net cash provided by financing
activities........................ 19.2 22.0
---------- ----------
Net change in cash and cash equivalents..... 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 18.8 17.3
---------- ----------
Cash and cash equivalents, end of period.... $ 31.1 $ 18.8
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ 3.4
Income taxes paid....................... $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company and its results of operations
for the month of December, 1997. Somerset Square, Inc. was transferred from
SMAFCO effective November 30, 1997. (See Significant Transactions.)
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain reclassifications have been
made to the 1996 financial statements in order to conform to the 1997
presentation.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result of this decision real estate held by the
Company and real estate joint ventures were written down to the estimated fair
value less cost to sell. Depreciation is not recorded on these assets while they
are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or a group of investments is determined, a realized investment loss is recorded.
Changes in the valuation allowance for mortgage loans and real estate are
included in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, management believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
annuities. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges. Individual health
benefit liabilities for active lives are estimated using the net level premium
method, and assumptions as to future morbidity, withdrawals and interest which
provide a margin for adverse deviation. Benefit liabilities for disabled lives
are estimated using the present value of benefits method and experience
assumptions as to claim terminations, expenses and interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported. These liabilities are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all claims incurred but not paid. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.
Premiums for individual accident and health insurance are reported as earned on
a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual accident and health insurance premiums
are recognized as revenue over the related contract periods. Benefits, losses
and related expenses are matched with premiums, resulting in their recognition
over the lives of the contracts. This matching is accomplished through the
provision for future benefits, estimated and unpaid losses and amortization of
deferred policy acquisition costs. Revenues for investment-related products
consist of net investment income and contract charges assessed against the fund
values. Related benefit expenses primarily consist of net investment income
credited to the fund values after deduction for investment and risk charges.
Revenues for universal life and group variable universal life products consist
of net investment income, and mortality, administration and surrender charges
assessed against the fund values. Related benefit expenses include universal
life benefits in excess of fund values and net investment income credited to
universal life fund values. Certain policy charges that represent compensation
for services to be provided in future periods are deferred and amortized over
the period benefited using the same assumptions used to amortize capitalized
acquisition costs.
I. FEDERAL INCOME TAXES
AFC, its life insurance subsidiaries, FAFLIC and AFLIAC, and its non-life
insurance domestic subsidiaries file a life-nonlife consolidated United States
Federal income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life insurance company taxable
operating losses that can be applied to offset life insurance company taxable
income. Allmerica P&C and its subsidiaries will be included in the AFC
consolidated return as part of the
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
non-life insurance company subgroup for the period July 17, 1997 through
December 31, 1997. For the period January 1, 1997 through July 16, 1997,
Allmerica P&C and its subsidiaries will file a separate consolidated United
States Federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate Federal Income Tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). These differences result primarily from loss reserves, policy acquisition
expenses, and unrealized appreciation/depreciation on investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This statement
supersedes Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. Statement No. 131 requires that all public enterprises report
financial and descriptive information about their reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal years beginning
after December 15, 1997. The Company anticipates no impact from the adoption of
Statement No. 131.
In June 1997, the FASB also issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This statement stipulates that comprehensive income
reflect the change in equity of an enterprise during a period from transactions
and other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
anticipates that the adoption of Statement No. 130 will result primarily in
reporting the changes in unrealized gains and losses on investments in debt and
equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income under a 100% coinsurance
agreement to Metropolitan Life Insurance Company. The coinsurance agreement
became effective October 1, 1997. The transaction has resulted in the
recognition of a $53.9 million pre-tax loss in the first quarter of 1997.
During the 4th quarter of 1997, SMAFCO contributed $40.6 million of additional
paid in capital to the Company. The nature of the contribution was $19.2 million
in cash and $21.4 million in other assets including Somerset Square, Inc.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1998, the Company entered into an agreement with
Reinsurance Group of America, Inc. to reinsure the mortality risk on the
universal life and variable universal life blocks of business. Management
believes that this agreement will not have a material effect on the results of
operations or financial position of the Company.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of SFAS No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ .5 $-- $ 6.8
States and political subdivisions....... 2.8 .2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,340.5 $66.6 $ 4.6 $1,402.5
---------- -------- --------- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
---------- -------- --------- --------
---------- -------- --------- --------
1996
--------------------------------------------
U.S. Treasury securities and U.S.
government and agency securities....... $ 15.7 $ 0.5 $ 0.2 $ 16.0
States and political subdivisions....... 8.9 1.6 -- 10.5
Foreign governments..................... 53.2 2.9 -- 56.1
Corporate fixed maturities.............. 1,437.2 38.6 6.1 1,469.7
Mortgage-backed securities.............. 145.2 2.2 1.7 145.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,660.2 $45.8 $ 8.0 $1,698.0
---------- -------- --------- --------
Equity securities....................... $ 33.0 $10.2 $ 1.7 $ 41.5
---------- -------- --------- --------
---------- -------- --------- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1997, the amortized
cost and market value of these assets on deposit were $276.8 million and $291.7
million, respectively. At December 31, 1996, the amortized cost and market value
of these assets on deposit were $284.9 million and $292.2 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $4.2 million were on deposit with various state
and governmental authorities at December 31, 1997 and 1996.
There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1997
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 63.0 $ 63.5
Due after one year through five years....................... 328.8 343.9
Due after five years through ten years...................... 649.5 679.9
Due after ten years......................................... 299.2 315.2
--------- ---------
Total....................................................... $1,340.5 $1,402.5
--------- ---------
--------- ---------
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS
FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------------------------------------------------------ ---------- ------ ------
<S> <C> <C> <C>
1997
Fixed maturities............................................ $702.9 $ 11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ----- ------
9.4 8.6 18.0
---------- ----- ------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ----- ------
(7.7) 4.4 (3.3)
---------- ----- ------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mortgage loans.............................................. $228.2 $221.6
Real estate:
Held for sale............................................. 12.0 26.1
Held for production of income............................. -- --
---------- ------
Total real estate....................................... $ 12.0 $ 26.1
---------- ------
Total mortgage loans and real estate........................ $240.2 $247.7
---------- ------
---------- ------
</TABLE>
Reserves for mortgage loans were $9.4 million and $9.5 million at December 31,
1997 and 1996, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result, real estate assets with a carrying
amount of $15.7 million were written down to the estimated fair value less cost
to sell of $12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation is not recorded on these assets while they are held for
disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1997. During 1996, non-cash investing
activities included real estate acquired through foreclosure of mortgage loans,
which had a fair value of $0.9 million.
At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $18.7 million. These
commitments generally expire within one year.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Property type:
Office building........................................... $101.7 $ 86.1
Residential............................................... 19.3 39.0
Retail.................................................... 42.2 55.9
Industrial/warehouse...................................... 61.9 52.6
Other..................................................... 24.5 25.3
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
Geographic region:
South Atlantic............................................ $ 68.7 $ 72.9
Pacific................................................... 56.6 37.0
East North Central........................................ 61.4 58.3
Middle Atlantic........................................... 29.8 35.0
West South Central........................................ 6.9 5.7
New England............................................... 12.4 21.9
Other..................................................... 13.8 28.1
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $52.0 million; 1999 -- $17.1 million; 2000 -- $46.3 million; 2001 -- $7.0
million; 2002 -- $11.7 million; and $94.1 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1997, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS DECEMBER 31
- ------------------------------------------------------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $ 1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- --- --- -----
Total................................................... $ 11.2 $ 4.8 $ 6.6 $ 9.4
----- --- --- -----
----- --- --- -----
1996
Mortgage loans.............................................. $ 12.5 $ 4.5 $ 7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- --- --- -----
Total................................................... $ 14.6 $ 4.5 $ 7.9 $ 11.2
----- --- --- -----
----- --- --- -----
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deductions of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect writedowns to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $20.6 million and $21.5 million, with
related reserves of $7.1 million and $7.3 million as of December 31, 1997 and
1996, respectively. All impaired loans were reserved as of December 31, 1997 and
1996.
The average carrying value of impaired loans was $19.8 million and $26.3
million, with related interest income while such loans were impaired of $2.2
million and $3.4 million as of December 31, 1997 and 1996, respectively.
D. OTHER
At December 31, 1997, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $130.0 $137.2
Mortgage loans.............................................. 20.4 22.0
Equity securities........................................... 1.3 0.7
Policy loans................................................ 10.8 10.2
Real estate................................................. 3.9 6.2
Other long-term investments................................. 1.0 0.8
Short-term investments...................................... 1.4 1.4
---------- ------
Gross investment income..................................... 168.8 178.5
Less investment expenses.................................... (4.6) (6.8)
---------- ------
Net investment income....................................... $164.2 $171.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, mortgage loans on non-accrual status were $2.8 million,
which were all restructured loans. There were no fixed maturities on non-accrual
status at December 31, 1997. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investment, had no impact in 1997, and reduced net income by $0.1 million in
1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $21.1 million and $25.4 million at December 31, 1997 and 1996,
respectively. Interest income on restructured mortgage loans that would have
been recorded in accordance with the original terms of such loans amounted to
$1.9 million and $3.6 million in 1997 and 1996, respectively. Actual interest
income on these loans included in net investment income aggregated $2.1 million
and $2.2 million in 1997 and 1996, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $ 3.0 $ (3.3)
Mortgage loans.............................................. (1.1) (3.2)
Equity securities........................................... 0.5 0.3
Real estate................................................. (1.5) 2.5
Other....................................................... 2.0 0.1
---------- ------
Net realized investment losses.............................. $ 2.9 $ (3.6)
---------- ------
---------- ------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates which, in many cases, may differ significantly from
the amounts which could be realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on discounted
cash flow analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REINSURANCE RECEIVABLES
The carrying amount of the reinsurance receivable for outstanding claims, losses
and loss adjustment expenses reported in the balance sheet approximates fair
value.
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 31.1 $ 31.1 $ 18.8 $ 18.8
Fixed maturities.......................................... 1,402.5 1,402.5 1,698.0 1,698.0
Equity securities......................................... 54.0 54.0 41.5 41.5
Mortgage loans............................................ 228.2 239.8 221.6 229.3
Policy loans.............................................. 140.1 140.1 131.7 131.7
Reinsurance receivables................................... 251.1 251.1 72.5 72.5
--------- --------- --------- ---------
$2,107.0 $2,118.6 $2,184.1 $2,191.8
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual annuity contracts.............................. 876.0 850.6 910.2 885.9
Supplemental contracts without life contingencies......... 15.3 15.3 15.9 15.9
Other individual contract deposit funds................... 0.3 0.3 0.3 0.3
--------- --------- --------- ---------
$ 891.6 $ 866.2 $ 926.4 $ 902.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. DEBT
In 1997 the Company incurred no debt. During 1996, the Company utilized
repurchase agreements to finance certain investments.
Interest expense was $3.4 million in 1996, relating to the repurchase
agreements, and is recorded in other operating expenses.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- ------
<S> <C> <C>
Federal income tax expense (benefit)
Current................................................... $ 13.9 $ 26.9
Deferred.................................................. 7.1 (9.8)
----- -----
Total....................................................... $ 21.0 $ 17.1
----- -----
----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes. The deferred
tax (assets) liabilities are comprised of the following at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Deferred tax (assets) liabilitie
Loss reserves............................................. $(175.8) $(137.0)
Deferred acquisition costs................................ 226.4 186.9
Investments, net.......................................... 27.0 14.2
Bad debt reserve.......................................... (2.0) (1.1)
Other, net................................................ 0.3 (2.8)
---------- -------------
Deferred tax liability, net............................... $ 75.9 $ 60.2
---------- -------------
---------- -------------
</TABLE>
Gross deferred income tax liabilities totaled $253.7 million and $201.1 million
at December 31, 1997 and 1996. Gross deferred income tax assets totaled $177.8
million and $140.9 at December 31, 1997 and 1996.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the life-nonlife consolidated
group's federal income tax returns through 1991. The Company is currently
considering its response to certain adjustments proposed by the IRS with respect
to the life-nonlife consolidated group's federal income tax returns for 1989,
1990, and 1991. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these tax liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.
8. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $124.1 million and $112.4 million in 1997 and 1996. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $15.0 million and $13.3 million at
December 31, 1997 and 1996.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.
At January 1, 1998, AFLIAC could pay dividends of $33.9 million to FAFLIC
without prior approval.
10. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Insurance premiums:
Direct.................................................... $ 48.8 $ 53.3
Assumed................................................... 2.6 3.1
Ceded..................................................... (28.6) (23.7)
---------- ------
Net premiums................................................ $ 22.8 $ 32.7
---------- ------
---------- ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $226.0 $206.4
Assumed................................................... 4.2 4.5
Ceded..................................................... (42.4) (18.3)
---------- ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $187.8 $192.6
---------- ------
---------- ------
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Balance at beginning of year................................ $632.7 $555.7
Acquisition expenses deferred............................. 184.1 116.6
Amortized to expense during the year...................... (53.0) (49.9)
Adjustment to equity during the year...................... (10.2) 10.3
Adjustment for cession of disability income insurance..... (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... 50.3 --
---------- ------
Balance at end of year...................................... $765.3 $632.7
---------- ------
---------- ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
12. LIABILITIES FOR INDIVIDUAL ACCIDENT AND HEALTH BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are reflected in
results of operations in the year such changes are determined to be needed and
recorded.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$219.9 million and $226.2 million at December 31, 1997 and 1996. Accident and
health claim liabilities have been re-estimated for all prior years and were
increased by $-0- million in 1997 and $3.2 million in 1996. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
accident and health business to the Metropolitan, management believes that no
material adverse development of losses will occur. However, the amount of the
liabilities could be revised in the near term if the estimates are revised.
13. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit was instituted in Louisiana against Allmerica Financial
Corp. and certain of its subsidiaries by individual plaintiffs alleging fraud,
unfair or deceptive acts, breach of contract, misrepresentation and related
claims in the sale of life insurance policies. In October 1997, plaintiffs
voluntarily dismissed the Louisiana suit and refiled the action in Federal
District Court in Worcester, Massachusetts. The plaintiffs
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
seek to be certified as a class. The case is in the early stages of discovery
and the Company is evaluating the claims. Although the Company believes it has
meritorious defenses to plaintiffs' claims, there can be no assurance that the
claims will be resolved on a basis which is satisfactory to the Company.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
14. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles for
stock life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different assumptions,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable. Statutory net income and
surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Statutory net income........................................ $ 31.5 $ 5.4
Statutory Surplus........................................... $307.1 $234.0
---------- ------
---------- ------
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and Policyowners of the Group VEL Account of Allmerica Financial Life
Insurance and Annuity Company
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
(Growth, Investment Grade Income, Money Market, Equity Index, Government Bond,
Select Aggressive Growth, Select Growth and Income, Select Value Opportunity,
Select International Equity, Select Capital Appreciation, Fidelity VIP High
Income, Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP Overseas,
Fidelity VIP II Asset Manager, T. Rowe Price International Stock, DGPF
International Equity, INVESCO Industrial Income, INVESCO Total Return, and
Morgan Stanley Fixed Income) constituting the Group VEL Account of Allmerica
Financial Life Insurance and Annuity Company at December 31, 1997, the results
of each of their operations and the changes in each of their net assets for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Allmerica Financial Life
Insurance and Annuity Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT EQUITY
GROWTH GRADE INCOME MONEY MARKET INDEX GOVERNMENT BOND
----------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $1,775,306 $9,844,560 $28,500,493 $8,543,950 $ 39,610
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- --
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... -- -- -- -- --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- -- -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... 8 55 -- -- --
----------- ------------ -------------- ----------- ---------------
Total assets.............................. 1,775,314 9,844,615 28,500,493 8,543,950 39,610
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- -- 29 50 --
----------- ------------ -------------- ----------- ---------------
Net assets................................ $1,775,314 $9,844,615 $28,500,464 $8,543,900 $ 39,610
----------- ------------ -------------- ----------- ---------------
----------- ------------ -------------- ----------- ---------------
Net asset distribution by category:
Variable life policies.................... $1,775,314 $9,844,364 $28,500,464 $8,543,900 $ 39,610
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- 251 -- -- --
----------- ------------ -------------- ----------- ---------------
$1,775,314 $9,844,615 $28,500,464 $8,543,900 $ 39,610
----------- ------------ -------------- ----------- ---------------
----------- ------------ -------------- ----------- ---------------
Units outstanding, December 31, 1997...... 987,111 7,835,199 24,839,712 4,357,081 33,062
Net asset value per unit, December 31,
1997.................................... $ 1.798494 $1.256428 $ 1.147375 $1.960923 $1.197968
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
----------------- -------------
<S> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ 239,055 $6,982,157
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- --
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... -- --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... -- --
----------------- -------------
Total assets.............................. 239,055 6,982,157
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- 50
----------------- -------------
Net assets................................ $ 239,055 $6,982,107
----------------- -------------
----------------- -------------
Net asset distribution by category:
Variable life policies.................... $ 239,055 $6,982,107
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- --
----------------- -------------
$ 239,055 $6,982,107
----------------- -------------
----------------- -------------
Units outstanding, December 31, 1997...... 136,320 3,619,339
Net asset value per unit, December 31,
1997.................................... $1.753627 $1.929111
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT SELECT
GROWTH AND SELECT VALUE INTERNATIONAL CAPITAL FIDELITY VIP
INCOME OPPORTUNITY* EQUITY APPRECIATION HIGH INCOME
----------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ 172,162 $ 235,034 $5,636,826 $ 65,385 $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- -- -- 43,429
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- --
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... -- -- -- -- --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- -- -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Total assets.............................. 172,162 235,034 5,636,826 65,385 43,429
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Net assets................................ $ 172,162 $ 235,034 $5,636,826 $ 65,385 $ 43,429
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------
Net asset distribution by category:
Variable life policies.................... $ 172,162 $ 235,034 $5,636,826 $ 65,385 $ 43,429
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
$ 172,162 $ 235,034 $5,636,826 $ 65,385 $ 43,429
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------
Units outstanding, December 31, 1997...... 96,017 132,435 3,907,238 37,757 29,272
Net asset value per unit, December 31,
1997.................................... $1.793040 $1.774701 $1.442663 $1.731741 $1.483642
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY-INCOME GROWTH
----------------- -------------
<S> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ 58,981 345,559
Investment in shares of T. Rowe Price
International Series, Inc................. -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- --
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... -- --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... -- --
----------------- -------------
Total assets.............................. 58,981 345,559
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- --
----------------- -------------
Net assets................................ $ 58,981 $ 345,559
----------------- -------------
----------------- -------------
Net asset distribution by category:
Variable life policies.................... $ 58,981 $ 345,559
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- --
----------------- -------------
$ 58,981 $ 345,559
----------------- -------------
----------------- -------------
Units outstanding, December 31, 1997...... 33,578 195,934
Net asset value per unit, December 31,
1997.................................... $1.756503 $1.763675
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II T. ROWE PRICE DGPF
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK INTERNATIONAL EQUITY
------------ --------------- ------------------- --------------------
<S> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ -- $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ 50,771 371,439 -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- 97,829 --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- 82,633
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... -- -- -- --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... -- -- -- --
------------ --------------- ---------- ----------
Total assets.............................. 50,771 371,439 97,829 82,633
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- -- -- --
------------ --------------- ---------- ----------
Net assets................................ $ 50,771 $ 371,439 $ 97,829 $ 82,633
------------ --------------- ---------- ----------
------------ --------------- ---------- ----------
Net asset distribution by category:
Variable life policies.................... $ 50,771 $ 371,439 $ 97,829 $ 82,633
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- -- -- --
------------ --------------- ---------- ----------
$ 50,771 $ 371,439 $ 97,829 $ 82,633
------------ --------------- ---------- ----------
------------ --------------- ---------- ----------
Units outstanding, December 31, 1997...... 37,389 238,988 85,092 70,825
Net asset value per unit, December 31,
1997.................................... $1.357915 $1.554217 $1.149677 $1.166687
<CAPTION>
INVESCO INVESCO MORGAN STANLEY
INDUSTRIAL INCOME TOTAL RETURN FIXED INCOME(a)
----------------- ----------------- ---------------
<S> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- --
Investments in shares of INVESCO Variable
Investment Funds, Inc..................... 7,211 50,225 --
Investment in shares of Morgan Stanley
Universal Funds, Inc...................... -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)......................... -- -- --
----------------- ----------------- ---------------
Total assets.............................. 7,211 50,225 --
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor)................. -- -- --
----------------- ----------------- ---------------
Net assets................................ $ 7,211 $ 50,225 $ --
----------------- ----------------- ---------------
----------------- ----------------- ---------------
Net asset distribution by category:
Variable life policies.................... $ 7,211 $ 50,225 $ --
Value of investment by Allmerica Financial
Life Insurance and
Annuity Company (Sponsor)............... -- -- --
----------------- ----------------- ---------------
$ 7,211 $ 50,225 $ --
----------------- ----------------- ---------------
----------------- ----------------- ---------------
Units outstanding, December 31, 1997...... 5,168 38,284 --
Net asset value per unit, December 31,
1997.................................... $1.395217 $1.311904 $1.000000
</TABLE>
(a) For the period ended 12/31/97, there were no transactions.
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME
FOR THE FOR THE FOR THE
YEAR ENDED PERIOD YEAR ENDED FOR THE
DECEMBER 31, 5/1/95** DECEMBER 31, PERIOD
-------------------- TO --------------- 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
--------- --------- --------- --------- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 19,495 $ 2,650 $ 4 $ 611,287 $14 $11
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 6,270 1,681 -- 61,160 -- --
--------- --------- --- --------- ---- ---
Net investment income
(loss).................. 13,225 969 4 550,127 14 11
--------- --------- --- --------- ---- ---
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 282,628 51,596 18 -- -- --
Net realized gain (loss)
from sales of
investments............. 22,096 35 -- 7,069 -- --
--------- --------- --- --------- ---- ---
Net realized gain
(loss)................ 304,724 51,631 18 7,069 -- --
Net unrealized gain
(loss).................. (57,127) (33,389) 17 282,868 (6) 11
--------- --------- --- --------- ---- ---
Net realized and
unrealized gain
(loss)................ 247,597 18,242 35 289,937 (6) 11
--------- --------- --- --------- ---- ---
Net increase (decrease)
in net assets from
operations............ $ 260,822 $ 19,211 $39 $ 840,064 $ 8 $22
--------- --------- --- --------- ---- ---
--------- --------- --- --------- ---- ---
<CAPTION>
MONEY MARKET EQUITY INDEX
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED FOR THE
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
------------------ 5/1/95** ------------------- 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
--------- ------- -------------- ----------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 168,681 $ 2,028 $ 7 $ 99,982 $ 29 $ 1
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 24,667 683 -- 49,283 7 --
--------- ------- ----- ----------- ------ ---
Net investment income
(loss).................. 144,014 1,345 7 50,699 22 1
--------- ------- ----- ----------- ------ ---
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- -- -- 231,984 94 16
Net realized gain (loss)
from sales of
investments............. -- -- -- 57,606 128 --
--------- ------- ----- ----------- ------ ---
Net realized gain
(loss)................ -- -- -- 289,590 222 16
Net unrealized gain
(loss).................. -- -- -- 1,759,333 (123) 25
--------- ------- ----- ----------- ------ ---
Net realized and
unrealized gain
(loss)................ -- -- -- 2,048,923 99 41
--------- ------- ----- ----------- ------ ---
Net increase (decrease)
in net assets from
operations............ $ 144,014 $ 1,345 $ 7 $ 2,099,622 $ 121 $42
--------- ------- ----- ----------- ------ ---
--------- ------- ----- ----------- ------ ---
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT BOND
FOR THE SELECT AGGRESSIVE GROWTH
YEAR ENDED FOR THE FOR THE
DECEMBER PERIOD YEAR ENDED FOR THE
31, 5/1/95** DECEMBER 31, PERIOD
----------- TO ---------------- 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
----- ---- --------- -------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $837 $57 $ 9 $ -- $ -- $ --
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 19 8 -- 706 10 --
----- ---- --- -------- ------ -----
Net investment income
(loss).................. 818 49 9 (706) (10) --
----- ---- --- -------- ------ -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- -- -- 17,916 464 --
Net realized gain (loss)
from sales of
investments............. 1 5 -- 748 182 --
----- ---- --- -------- ------ -----
Net realized gain
(loss)................ 1 5 -- 18,664 646 --
Net unrealized gain
(loss).................. (88) (2) 7 3,863 (425) 49
----- ---- --- -------- ------ -----
Net realized and
unrealized gain
(loss)................ (87) 3 7 22,527 221 49
----- ---- --- -------- ------ -----
Net increase (decrease)
in net assets from
operations............ $731 $52 $16 $ 21,821 $ 211 $ 49
----- ---- --- -------- ------ -----
----- ---- --- -------- ------ -----
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED FOR THE
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
------------------- 5/1/95** ---------------- 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
----------- ------ -------------- -------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 20,160 $ 5 $ -- $ 1,134 $ 10 $ 2
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 39,740 2 -- 365 2 --
----------- ------ ----- -------- ------ ---
Net investment income
(loss).................. (19,580) 3 -- 769 8 2
----------- ------ ----- -------- ------ ---
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 363,902 233 -- 13,936 143 9
Net realized gain (loss)
from sales of
investments............. 51,101 92 -- 296 63 --
----------- ------ ----- -------- ------ ---
Net realized gain
(loss)................ 415,003 325 -- 14,232 206 9
Net unrealized gain
(loss).................. 1,431,596 (229) 37 (5,403) (126) 30
----------- ------ ----- -------- ------ ---
Net realized and
unrealized gain
(loss)................ 1,846,599 96 37 8,829 80 39
----------- ------ ----- -------- ------ ---
Net increase (decrease)
in net assets from
operations............ $ 1,827,019 $ 99 $ 37 $ 9,598 $ 88 $41
----------- ------ ----- -------- ------ ---
----------- ------ ----- -------- ------ ---
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SELECT VALUE OPPORTUNITY* SELECT INTERNATIONAL EQUITY
FOR THE FOR THE FOR THE
YEAR ENDED PERIOD YEAR ENDED FOR THE
DECEMBER 31, 5/1/95** DECEMBER 31, PERIOD
--------------- TO ------------------ 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
-------- ----- --------- --------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 1,289 $ 40 $ 1 $ 131,715 $ 1,124 $ 2
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 633 19 -- 35,909 119 --
-------- ----- --- --------- ------- ---
Net investment income
(loss).................. 656 21 1 95,806 1,005 2
-------- ----- --- --------- ------- ---
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 30,900 252 6 182,156 136 1
Net realized gain (loss)
from sales of
investments............. 700 142 -- 11,256 70 --
-------- ----- --- --------- ------- ---
Net realized gain
(loss)................ 31,600 394 6 193,412 206 1
Net unrealized gain
(loss).................. (5,610) 195 14 (15,069) 3,759 23
-------- ----- --- --------- ------- ---
Net realized and
unrealized gain
(loss)................ 25,990 589 20 178,343 3,965 24
-------- ----- --- --------- ------- ---
Net increase (decrease)
in net assets from
operations............ $ 26,646 $ 610 $21 $ 274,149 $ 4,970 $26
-------- ----- --- --------- ------- ---
-------- ----- --- --------- ------- ---
<CAPTION>
SELECT CAPITAL APPRECIATION FIDELITY VIP HIGH INCOME
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED FOR THE
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
--------------- 5/1/95** --------------- 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------- ------ -------------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ -- $ -- $ 5 $ 351 $ 19 $ --
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 204 58 -- 119 5 --
------- ------ --- ------- ------ -----
Net investment income
(loss).................. (204) (58) 5 232 14 --
------- ------ --- ------- ------ -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- 28 -- 43 4 --
Net realized gain (loss)
from sales of
investments............. 544 53 -- 94 42 --
------- ------ --- ------- ------ -----
Net realized gain
(loss)................ 544 81 -- 137 46 --
Net unrealized gain
(loss).................. 6,529 (147) 74 2,892 66 21
------- ------ --- ------- ------ -----
Net realized and
unrealized gain
(loss)................ 7,073 (66) 74 3,029 112 21
------- ------ --- ------- ------ -----
Net increase (decrease)
in net assets from
operations............ $ 6,869 $ (124) $ 79 $ 3,261 $ 126 $ 21
------- ------ --- ------- ------ -----
------- ------ --- ------- ------ -----
</TABLE>
* Name changed. See Note 1.
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP
EQUITY-INCOME FIDELITY VIP GROWTH
FOR THE FOR THE FOR THE
YEAR ENDED PERIOD YEAR ENDED FOR THE
DECEMBER 31, 5/1/95** DECEMBER 31, PERIOD
-------------- TO ----------------- 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
------- ----- --------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 91 $ 1 $ 4 $ 2,224 $ 1 $ --
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 177 7 -- 1,311 832 --
------- ----- --- -------- ------- -----
Net investment income
(loss).................. (86) (6) 4 913 (831) --
------- ----- --- -------- ------- -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 457 16 -- 9,956 21 --
Net realized gain (loss)
from sales of
investments............. 242 68 -- 16,498 151 --
------- ----- --- -------- ------- -----
Net realized gain
(loss)................ 699 84 -- 26,454 172 --
Net unrealized gain
(loss).................. 5,483 87 36 43,944 2,233 48
------- ----- --- -------- ------- -----
Net realized and
unrealized gain
(loss)................ 6,182 171 36 70,398 2,405 48
------- ----- --- -------- ------- -----
Net increase (decrease)
in net assets from
operations............ $ 6,096 $165 $40 $ 71,311 $ 1,574 $ 48
------- ----- --- -------- ------- -----
------- ----- --- -------- ------- -----
<CAPTION>
FIDELITY VIP OVERSEAS FIDELITY VIP II ASSET MANAGER
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED FOR THE
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
---------------- 5/1/95** ----------------- 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------- ------- -------------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 344 $ 3 $ -- $ 6,739 $ 10 $ --
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 205 76 -- 994 501 --
------- ------- ----- -------- ------- -----
Net investment income
(loss).................. 139 (73) -- 5,745 (491) --
------- ------- ----- -------- ------- -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 1,365 3 -- 16,905 8 --
Net realized gain (loss)
from sales of
investments............. 201 138 -- 499 130 --
------- ------- ----- -------- ------- -----
Net realized gain
(loss)................ 1,566 141 -- 17,404 138 --
Net unrealized gain
(loss).................. 285 1,222 15 28,899 7,451 25
------- ------- ----- -------- ------- -----
Net realized and
unrealized gain
(loss)................ 1,851 1,363 15 46,303 7,589 25
------- ------- ----- -------- ------- -----
Net increase (decrease)
in net assets from
operations............ $ 1,990 $ 1,290 $ 15 $ 52,048 $ 7,098 $ 25
------- ------- ----- -------- ------- -----
------- ------- ----- -------- ------- -----
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
T. ROWE PRICE
INTERNATIONAL STOCK FOR THE DGPF INTERNATIONAL EQUITY INVESCO INDUSTRIAL INCOME
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE
YEAR ENDED 2/9/96** YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, TO DECEMBER 31, 7/2/96** DECEMBER 31, 7/2/96**
1997 12/31/96 1997 TO 12/31/96 1997 TO 12/31/96
------------- ---------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 898 $ 468 $ 118 $ -- $ 112 $ 56
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 560 352 251 2 23 2
------ ---------- ----- ----- ------ -----
Net investment income
(loss).................. 338 116 (133) (2) 89 54
------ ---------- ----- ----- ------ -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 1,272 281 -- -- 398 154
Net realized gain (loss)
from sales of
investments............. 183 921 164 18 25 25
------ ---------- ----- ----- ------ -----
Net realized gain
(loss)................ 1,455 1,202 164 18 423 179
Net unrealized gain
(loss).................. (326) 3,447 (695) 68 752 (141)
------ ---------- ----- ----- ------ -----
Net realized and
unrealized gain
(loss)................ 1,129 4,649 (531) 86 1,175 38
------ ---------- ----- ----- ------ -----
Net increase (decrease)
in net assets from
operations............ $1,467 $4,765 $(664) $ 84 $1,264 $ 92
------ ---------- ----- ----- ------ -----
------ ---------- ----- ----- ------ -----
<CAPTION>
INVESCO TOTAL RETURN
FOR THE FOR THE
YEAR ENDED PERIOD
DECEMBER 31, 7/2/96**
1997 TO 12/31/96
------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $1,045 $458
EXPENSES (NOTE 4):
Mortality and expense risk
fees.................... 137 22
------ -----
Net investment income
(loss).................. 908 436
------ -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 245 1
Net realized gain (loss)
from sales of
investments............. 31 247
------ -----
Net realized gain
(loss)................ 276 248
Net unrealized gain
(loss).................. 5,287 (38)
------ -----
Net realized and
unrealized gain
(loss)................ 5,563 210
------ -----
Net increase (decrease)
in net assets from
operations............ $6,471 $646
------ -----
------ -----
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-8
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH
PERIOD INVESTMENT GRADE INCOME
YEAR ENDED FROM YEAR ENDED
DECEMBER 31, 5/1/95** DECEMBER 31, PERIOD
---------------------- TO ------------------ FROM 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
----------- --------- ---------- ----------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 13,225 $ 969 $ 4 $ 550,127 $ 14 $ 11
Net realized gain
(loss)................ 304,724 51,631 18 7,069 -- --
Net unrealized gain
(loss)................ (57,127) (33,389) 17 282,868 (6) 11
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets from
operations............ 260,822 19,211 39 840,064 8 22
----------- --------- ----- ----------- ----- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 793,195 638,444 -- 9,313,499 -- --
Terminations............ (2,053) -- -- -- -- --
Insurance and other
charges............... (3,267) (2) -- (447,871) -- --
Other transfers from
(to) the General
Account of Allmerica
Financial Life
Insurance and Annuity
Company (Sponsor)..... 68,391 617 -- 138,693 -- --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity Company
(Sponsor)............. -- (283) 200 -- -- 200
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 856,266 638,776 200 9,004,321 -- 200
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets......... 1,117,088 657,987 239 9,844,385 8 222
NET ASSETS:
Beginning of period....... 658,226 239 -- 230 222 --
----------- --------- ----- ----------- ----- -----
End of period............. $ 1,775,314 $ 658,226 $239 $ 9,844,615 $ 230 $222
----------- --------- ----- ----------- ----- -----
----------- --------- ----- ----------- ----- -----
<CAPTION>
MONEY MARKET EQUITY INDEX
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
------------------------ FROM 5/1/95** -------------------- FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------------ ---------- --------------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 144,014 $ 1,345 $ 7 $ 50,699 $ 22 $ 1
Net realized gain
(loss)................ -- -- -- 289,590 222 16
Net unrealized gain
(loss)................ -- -- -- 1,759,333 (123) 25
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets from
operations............ 144,014 1,345 7 2,099,622 121 42
------------ ---------- ----- ----------- ------- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 30,656,799 924,390 -- 6,793,979 6,564 --
Terminations............ (31) (13) -- (198) -- --
Insurance and other
charges............... (704,864) (110,367) -- (364,580) -- --
Other transfers from
(to) the General
Account of Allmerica
Financial Life
Insurance and Annuity
Company (Sponsor)..... (1,673,553) (737,246) -- 8,392 14 --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity Company
(Sponsor)............. -- (217) 200 -- (256) 200
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 28,278,351 76,547 200 6,437,593 6,322 200
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets......... 28,422,365 77,892 207 8,537,215 6,443 242
NET ASSETS:
Beginning of period....... 78,099 207 -- 6,685 242 --
------------ ---------- ----- ----------- ------- -----
End of period............. $ 28,500,464 $ 78,099 $207 $ 8,543,900 $ 6,685 $242
------------ ---------- ----- ----------- ------- -----
------------ ---------- ----- ----------- ------- -----
</TABLE>
** Date of initial investment
The accompanying notes are an integral part of these financial statements.
SA-9
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GOVERNMENT BOND
PERIOD SELECT AGGRESSIVE GROWTH
YEAR ENDED FROM YEAR ENDED
DECEMBER 31, 5/1/95** DECEMBER 31, PERIOD
---------------------- TO ------------------ FROM 5/1/95**
1997 1996 12/31/95 1997 1996 TO 12/31/95
----------- --------- ---------- ----------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 818 $ 49 $ 9 $ (706) $ (10) $ --
Net realized gain
(loss)................ 1 5 -- 18,664 646 --
Net unrealized gain
(loss)................ (88) (2) 7 3,863 (425) 49
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets from
operations............ 731 52 16 21,821 211 49
----------- --------- ----- ----------- ----- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 5,649 2,984 -- 98,882 8,376 --
Terminations............ (713) -- -- (3,662) -- --
Insurance and other
charges............... (163) (54) -- (3,465) (71) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 31,189 (58) -- 117,027 (17) --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (223) 200 -- (296) 200
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 35,962 2,649 200 208,782 7,992 200
----------- --------- ----- ----------- ----- -----
Net increase (decrease)
in net assets......... 36,693 2,701 216 230,603 8,203 249
NET ASSETS:
Beginning of period....... 2,917 216 -- 8,452 249 --
----------- --------- ----- ----------- ----- -----
End of period............. $ 39,610 $ 2,917 $216 $ 239,055 $8,452 $249
----------- --------- ----- ----------- ----- -----
----------- --------- ----- ----------- ----- -----
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, FROM
------------------------ FROM 5/1/95** -------------------- FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------------ ---------- --------------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ (19,580) $ 3 $ -- $ 769 $ 8 $ 2
Net realized gain
(loss)................ 415,003 325 -- 14,232 206 9
Net unrealized gain
(loss)................ 1,431,596 (229) 37 (5,403) (126) 30
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets from
operations............ 1,827,019 99 37 9,598 88 41
------------ ---------- ----- ----------- ------- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 5,368,817 1,756 -- 65,720 2,353 --
Terminations............ (18) -- -- (4,379) -- --
Insurance and other
charges............... (292,989) (4) -- (3,633) (4) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 77,472 4 (1) 102,491 (27) --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (285) 200 -- (286) 200
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 5,153,282 1,471 199 160,199 2,036 200
------------ ---------- ----- ----------- ------- -----
Net increase (decrease)
in net assets......... 6,980,301 1,570 236 169,797 2,124 241
NET ASSETS:
Beginning of period....... 1,806 236 -- 2,365 241 --
------------ ---------- ----- ----------- ------- -----
End of period............. $ 6,982,107 $ 1,806 $236 $ 172,162 $ 2,365 $241
------------ ---------- ----- ----------- ------- -----
------------ ---------- ----- ----------- ------- -----
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-10
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT VALUE OPPORTUNITY* SELECT INTERNATIONAL EQUITY
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
---------------- FROM 5/1/95** ------------------- FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
-------- ------ --------------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 656 $ 21 $ 1 $ 95,806 $ 1,005 $ 2
Net realized gain
(loss)................ 31,600 394 6 193,412 206 1
Net unrealized gain
(loss)................ (5,610) 195 14 (15,069) 3,759 23
-------- ------ ----- ---------- ------- -----
Net increase (decrease)
in net assets from
operations............ 26,646 610 21 274,149 4,970 26
-------- ------ ----- ---------- ------- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 151,059 5,481 -- 5,449,561 57,697 --
Terminations............ (3,904) -- -- (8) -- --
Insurance and other
charges............... (4,266) -- -- (259,243) (59) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 59,502 (40) -- 109,691 108 --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (275) 200 -- (266) 200
-------- ------ ----- ---------- ------- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 202,391 5,166 200 5,300,001 57,480 200
-------- ------ ----- ---------- ------- -----
Net increase (decrease)
in net assets......... 229,037 5,776 221 5,574,150 62,450 226
NET ASSETS:
Beginning of period....... 5,997 221 -- 62,676 226 --
-------- ------ ----- ---------- ------- -----
End of period............. $235,034 $5,997 $221 $5,636,826 $62,676 $226
-------- ------ ----- ---------- ------- -----
-------- ------ ----- ---------- ------- -----
<CAPTION>
SELECT CAPITAL APPRECIATION FIDELITY VIP HIGH INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, FROM
---------------- FROM 5/1/95** --------------- FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------- ------- --------------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ (204) $ (58) $ 5 $ 232 $ 14 $ --
Net realized gain
(loss)................ 544 81 -- 137 46 --
Net unrealized gain
(loss)................ 6,529 (147) 74 2,892 66 21
------- ------- ----- ------- ------ -----
Net increase (decrease)
in net assets from
operations............ 6,869 (124) 79 3,261 126 21
------- ------- ----- ------- ------ -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 53,911 15,400 -- 37,542 3,933 --
Terminations............ (3,829) -- -- (1,972) -- --
Insurance and other
charges............... (1,570) (214) -- (1,317) (16) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... (4,994) (44) -- 1,864 37 --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (299) 200 -- (250) 200
------- ------- ----- ------- ------ -----
Net increase (decrease)
in net assets from
capital
transactions.......... 43,518 14,843 200 36,117 3,704 200
------- ------- ----- ------- ------ -----
Net increase (decrease)
in net assets......... 50,387 14,719 279 39,378 3,830 221
NET ASSETS:
Beginning of period....... 14,998 279 -- 4,051 221 --
------- ------- ----- ------- ------ -----
End of period............. $65,385 $14,998 $279 $43,429 $4,051 $221
------- ------- ----- ------- ------ -----
------- ------- ----- ------- ------ -----
</TABLE>
* Name changed. See Note 1.
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-11
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP EQUITY-INCOME FIDELITY VIP GROWTH
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, PERIOD
--------------- FROM 5/1/95** ------------------- FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------- ------ --------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ (86) $ (6) $ 4 $ 913 $ (831) $ --
Net realized gain
(loss)................ 699 84 -- 26,454 172 --
Net unrealized gain
(loss)................ 5,483 87 36 43,944 2,233 48
------- ------ ----- --------- -------- -----
Net increase (decrease)
in net assets from
operations............ 6,096 165 40 71,311 1,574 48
------- ------ ----- --------- -------- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 49,237 4,266 -- 137,061 326,955 --
Terminations............ (817) -- -- (17,376) (2) --
Insurance and other
charges............... (1,985) -- -- (4,065) (261) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 2,004 46 -- (169,701) 99 1
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (271) 200 -- (285) 200
------- ------ ----- --------- -------- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 48,439 4,041 200 (54,081) 326,506 201
------- ------ ----- --------- -------- -----
Net increase (decrease)
in net assets......... 54,535 4,206 240 17,230 328,080 249
NET ASSETS:
Beginning of period....... 4,446 240 -- 328,329 249 --
------- ------ ----- --------- -------- -----
End of period............. $58,981 $4,446 $240 $ 345,559 $328,329 $249
------- ------ ----- --------- -------- -----
------- ------ ----- --------- -------- -----
<CAPTION>
FIDELITY VIP OVERSEAS FIDELITY VIP II ASSET MANAGER
YEAR ENDED YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, FROM
---------------- FROM 5/1/95** ------------------ FROM 5/1/95**
1997 1996 TO 12/31/95 1997 1996 TO 12/31/95
------- ------- --------------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 139 $ (73) $ -- $ 5,745 $ (491) $ --
Net realized gain
(loss)................ 1,566 141 -- 17,404 138 --
Net unrealized gain
(loss)................ 285 1,222 15 28,899 7,451 25
------- ------- ----- -------- -------- -----
Net increase (decrease)
in net assets from
operations............ 1,990 1,290 15 52,048 7,098 25
------- ------- ----- -------- -------- -----
FROM CAPITAL TRANSACTIONS:
Net premiums............ 31,760 17,543 -- 142,926 184,389 --
Terminations............ (184) (1) -- (172) (1) --
Insurance and other
charges............... (1,796) (460) -- (455) (13) --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 687 (36) -- (14,595) 246 --
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- (237) 200 -- (257) 200
------- ------- ----- -------- -------- -----
Net increase (decrease)
in net assets from
capital
transactions.......... 30,467 16,809 200 127,704 184,364 200
------- ------- ----- -------- -------- -----
Net increase (decrease)
in net assets......... 32,457 18,099 215 179,752 191,462 225
NET ASSETS:
Beginning of period....... 18,314 215 -- 191,687 225 --
------- ------- ----- -------- -------- -----
End of period............. $50,771 $18,314 $215 $371,439 $191,687 $225
------- ------- ----- -------- -------- -----
------- ------- ----- -------- -------- -----
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-12
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL INVESCO
STOCK DGPF INTERNATIONAL EQUITY INVESCO INDUSTRIAL INCOME TOTAL RETURN
YEAR ENDED PERIOD YEAR ENDED PERIOD YEAR ENDED PERIOD YEAR ENDED
DECEMBER 31, FROM 2/9/96** DECEMBER 31, FROM 7/2/96** DECEMBER 31, FROM 7/2/96** DECEMBER 31,
1997 TO 12/31/96 1997 TO 12/31/96 1997 TO 12/31/96 1997
------------ ------------- ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 338 $ 116 $ (133) $ (2) $ 89 $ 54 $ 908
Net realized gain
(loss)................ 1,455 1,202 164 18 423 179 276
Net unrealized gain
(loss)................ (326) 3,447 (695) 68 752 (141) 5,287
------------ ------------- ------------- ------ ------ ------ ------------
Net increase (decrease)
in net assets from
operations............ 1,467 4,765 (664) 84 1,264 92 6,471
------------ ------------- ------------- ------ ------ ------ ------------
FROM CAPITAL TRANSACTIONS:
Net premiums............ 36,785 55,319 82,362 2,639 2,869 3,228 26,884
Terminations............ -- -- (1,381) -- -- -- --
Insurance and other
charges............... (1,021) -- (1,510) -- (242) (9) (764)
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 532 (18) 1,096 7 3 6 32
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... -- -- -- -- -- -- --
------------ ------------- ------------- ------ ------ ------ ------------
Net increase (decrease)
in net assets from
capital
transactions.......... 36,296 55,301 80,567 2,646 2,630 3,225 26,152
------------ ------------- ------------- ------ ------ ------ ------------
Net increase (decrease)
in net assets......... 37,763 60,066 79,903 2,730 3,894 3,317 32,623
NET ASSETS:
Beginning of period....... 60,066 -- 2,730 -- 3,317 -- 17,602
------------ ------------- ------------- ------ ------ ------ ------------
End of period............. $97,829 $60,066 $82,633 $2,730 $7,211 $3,317 $50,225
------------ ------------- ------------- ------ ------ ------ ------------
------------ ------------- ------------- ------ ------ ------ ------------
<CAPTION>
PERIOD
FROM 7/2/96**
TO 12/31/96
-------------
<S> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 436
Net realized gain
(loss)................ 248
Net unrealized gain
(loss)................ (38)
-------------
Net increase (decrease)
in net assets from
operations............ 646
-------------
FROM CAPITAL TRANSACTIONS:
Net premiums............ 17,025
Terminations............ --
Insurance and other
charges............... (117)
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 48
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... --
-------------
Net increase (decrease)
in net assets from
capital
transactions.......... 16,956
-------------
Net increase (decrease)
in net assets......... 17,602
NET ASSETS:
Beginning of period....... --
-------------
End of period............. $17,602
-------------
-------------
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-13
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
The Group VEL Account (Group VEL) is a separate investment account of Allmerica
Financial Life Insurance and Annuity Company (the Company) established on May 1,
1995 for the purpose of separating from the general assets of the Company, those
assets used to fund the variable portion of certain flexible premium variable
life policies issued by the Company. The Company is a wholly-owned subsidiary of
First Allmerica Financial Life Insurance Company (First Allmerica). First
Allmerica is a wholly-owned subsidiary of Allmerica Financial Corporation (AFC).
Under applicable insurance law, the assets and liabilities of Group VEL are
clearly identified and distinguished from the other assets and liabilities of
the Company. Group VEL cannot be charged with liabilities arising out of any
other business of the Company.
Group VEL is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). Group VEL currently offers twenty-one
Sub-Accounts. Each Sub-Account invests exclusively in a corresponding investment
portfolio of the Allmerica Investment Trust (the Trust) managed by Allmerica
Investment Management Company, Inc., a wholly-owned subsidiary of First
Allmerica, or of the Variable Insurance Products Fund (Fidelity VIP) or the
Variable Insurance Products Fund II (Fidelity VIP II) managed by Fidelity
Management & Research Company (FMR), or of the T. Rowe Price International
Series, Inc. (T. Rowe Price) managed by Rowe Price-Fleming International, Inc.,
or of the Delaware Group Premium Fund, Inc. (DGPF) managed by Delaware
International Advisers, Ltd., or of INVESCO Variable Investment Funds, Inc.
(INVESCO) managed by INVESCO Funds Group, Inc., or of The Morgan Stanley
Universal Funds, Inc. (Morgan Stanley) managed by Miller Anderson & Sherrerd,
LLP. The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, DGPF, INVESCO and
Morgan Stanley (the Funds) are open-end, diversified management investment
companies registered under the 1940 Act. INVESCO is available only to employees
of INVESCO and its affiliates. Morgan Stanley is available only to employees of
Duke Energy Corporation and its affiliates.
Effective April 1, 1997, the investment portfolio of the Trust, which was
formerly known as Small Cap Value Fund, changed its name to Small-Mid Cap Value
Fund. At the Meeting of Shareholders of the Small Cap Value Fund, held on March
18, 1997, shareholders approved the name change and the revisions in the
investment objective of the Fund from investing primarily in small cap value
stocks to investing primarily in small and mid-cap value stocks. Effective
January 9, 1998, the portfolio changed its name to Select Value Opportunity
Fund.
Certain prior year balances have been reclassified to conform with current year
presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date. Investments
held by the
Sub-Accounts are stated at the net asset value per share of the respective
investment portfolio of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price,
DGPF, INVESCO, or Morgan Stanley. Net realized gains and losses on securities
sold are determined using the average cost method. Dividends and capital gain
distributions are recorded on the ex-dividend date and are reinvested in
additional shares of the respective investment portfolio of the Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price, DGPF, INVESCO, or Morgan Stanley at net
asset value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company" under
Subchapter L of the Internal Revenue Code (the Code) and files a consolidated
federal income tax return with First Allmerica. The
SA-14
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company anticipates no tax liability resulting from the operations of Group VEL.
Therefore, no provision for income taxes has been charged against Group VEL.
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, Fidelity VIP, Fidelity VIP II, T.
Rowe Price, DGPF, INVESCO and Morgan Stanley at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ------------------------------------------------------- ------------ ------------ ---------
<S> <C> <C> <C>
ALLMERICA INVESTMENT TRUST:
Growth............................................... 734,812 $ 1,865,806 $ 2.416
Investment Grade Income.............................. 8,853,022 9,561,687 1.112
Money Market......................................... 28,500,493 28,500,493 1.000
Equity Index......................................... 3,103,505 6,784,715 2.753
Government Bond...................................... 37,832 39,693 1.047
Select Aggressive Growth............................. 107,441 235,568 2.225
Select Growth........................................ 3,855,415 5,550,754 1.811
Select Growth and Income............................. 110,929 177,661 1.552
Select Value Opportunity*............................ 144,547 240,435 1.626
Select International Equity.......................... 4,203,450 5,648,114 1.341
Select Capital Appreciation.......................... 38,530 58,929 1.697
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income.......................................... 3,198 40,450 13.580
Equity-Income........................................ 2,429 53,374 24.280
Growth............................................... 9,314 299,332 37.100
Overseas............................................. 2,644 49,249 19.200
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager........................................ 20,624 335,065 18.010
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock.................................. 7,679 94,707 12.740
DELAWARE GROUP PREMIUM FUND, INC.:
International Equity................................. 5,324 83,261 15.520
INVESCO VARIABLE INVESTMENT FUNDS, INC.:
Industrial Income.................................... 423 6,601 17.040
Total Return......................................... 3,177 44,975 15.810
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Fixed Income......................................... -- -- --
</TABLE>
* Name changed. See Note 1.
SA-15
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS
On the date of issue and each monthly payment date thereafter, a monthly charge
is deducted from the policy value to compensate the Company for the cost of
insurance, which varies by policy, the cost of any additional benefits provided
by rider, and a monthly administrative charge of up to $10. The policyowner may
instruct the Company to deduct this monthly charge from a specific Sub-Account,
but if not so specified, it will be deducted on a pro-rata basis of allocation
which is the same proportion that the policy value in the General Account of the
Company and in each Sub-Account bear to the total policy value. For the years
ended December 31, 1997 and 1996, these monthly deductions from sub-account
policy values amounted to $2,099,066 and $335,040, respectively. For the period
ended December 31, 1995, there were no monthly deductions from sub-account
policy values. These amounts are included on the statements of changes in net
assets in Insurance and other charges.
The Company makes a charge of up to .90% per annum based on the average daily
net assets of each
Sub-Account at each valuation date for mortality and expense risks. This charge
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
the total charge may not exceed .90% per annum. During the first 10 policy
years, the Company also charges each Sub-Account up to .25% per annum based on
the average daily net assets of each Sub-Account for administrative expenses.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned subsidiary
of First Allmerica, is principal underwriter and general distributor of Group
VEL, and does not receive any compensation for sales of Group VEL policies.
Commissions are paid to registered representatives of Allmerica Investments or
of independent broker-dealers by the Company. As the current series of policies
have a surrender charge, no deduction is made for sales charges at the time of
the sale. For the years ended December 31, 1997, 1996 and 1995, there were no
surrender charges applicable to Group VEL.
NOTE 5 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable life insurance
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as a variable life insurance
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that Group VEL satisfies the current requirements of
the regulations, and it intends that Group VEL will continue to meet such
requirements.
SA-16
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price, DGPF, INVESCO and Morgan Stanley shares by Group VEL
during the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
ALLMERICA INVESTMENT TRUST:
Growth.......................................................... $ 1,457,017 $ 304,906
Investment Grade Income......................................... 10,029,950 475,557
Money Market.................................................... 30,454,456 2,032,062
Equity Index.................................................... 7,084,692 364,366
Government Bond................................................. 37,760 980
Select Aggressive............................................... 234,349 8,357
Select Growth................................................... 5,809,325 311,671
Select Growth and Income........................................ 184,500 9,596
Select Value Opportunity*....................................... 244,287 10,342
Select International Equity..................................... 5,839,070 261,107
Select Capital Appreciation..................................... 56,171 12,857
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income..................................................... 40,488 4,096
Equity-Income................................................... 53,137 4,327
Growth.......................................................... 162,155 205,367
Overseas........................................................ 34,993 3,022
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager................................................... 167,958 17,604
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock............................................. 39,576 1,670
DELAWARE GROUP PREMIUM FUND, INC.:
International Equity............................................ 84,554 4,120
INVESCO VARIABLE INVESTMENT FUNDS, INC.:
Industrial Income............................................... 3,949 832
Total Return.................................................... 32,380 5,075
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Fixed Income.................................................... -- --
------------ ------------
$ 62,050,767 $ 4,037,914
------------ ------------
------------ ------------
</TABLE>
* Name changed. See Note 1.
SA-17
<PAGE>
APPENDIX A
OPTIONAL BENEFITS
This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. The following supplemental benefits are
available for issue under the Certificates for an additional charge.
WAIVER OF PREMIUM RIDER
This Rider provides that, during periods of total disability continuing for
more than the period of time specified in the Rider, the Company will add to
the Certificate Value each month an amount selected by you or the amount
necessary to maintain the Certificate in force, whichever is greater. This
benefit is subject to the Company's maximum issue benefits. Its cost may
change yearly.
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 Certificate.
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 Certificate anniversary nearest the Insured's Age 70.
OPTION TO ACCELERATE BENEFITS RIDER
This Rider permits part of the proceeds of the Certificate to be available
before death if the Insured becomes terminally ill and, depending on the
group to which the Policy is issued, may also pay part of the proceeds if
the Insured is permanently confined to a nursing home.
EXCHANGE OPTION RIDER
This Rider allows you to use the Certificate to insure a different person,
subject to Company guidelines.
EXCHANGE TO TERM INSURANCE RIDER
This Rider allows a Certificate Owner which is a corporation or corporate
grantor trust to exchange the Certificate prior to the third Certificate
anniversary for a five-year non-convertible term insurance policy. An
exchange credit will be paid to the Certificate Owner or the corporate
assignee in the case of a corporate-sponsored collateral assignment split
dollar arrangement.
CERTAIN OF THESE RIDERS MAY NOT BE AVAILABLE IN ALL STATES.
A-1
<PAGE>
APPENDIX B
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 then 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 would otherwise be deducted from the Death Benefit.
The amounts payable under a payment option are paid from the General Account.
These amounts are not based on the investment experience of the Separate
Account.
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 become payable
B-1
<PAGE>
APPENDIX C
ILLUSTRATIONS OF SUM INSURED, CERTIFICATE VALUES
AND ACCUMULATED PREMIUMS
The tables illustrate the way in which a Certificate's Sum Insured and
Certificate Value could vary over an extended period of time.
ASSUMPTIONS
The tables illustrate a Certificate issued to a person, Age 30, under a standard
Premium Class and qualifying for the non-smoker discount, and a Certificate
issued to a person, Age 45, under a standard Premium Class and qualifying for
the non-smoker discount. The tables illustrate the guaranteed cost of insurance
rates and the current cost of insurance rates as presently in effect.
The tables illustrate the Certificate Values that would result based upon the
assumptions that no Certificate 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
Certificate year (so that no transaction or transfer charges have been
incurred).
The tables assume that all premiums are allocated to and remain in the Separate
Account for the entire period shown and 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 Certificate 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
Certificate years. The values would also be different depending on the
allocation of a Certificate's total Certificate Value among the Sub-Accounts of
the Separate 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 Certificate Values take into
account the deduction from premium for the premium expense charge, the Monthly
Deduction from Certificate Value, and the daily charge against the Separate
Account for mortality and expense risks. In both the Current Cost of Insurance
Charges tables and the Guaranteed Cost of Insurance Charges tables, the Separate
Account charge for mortality and expense risks is equivalent to an effective
annual rate of 0.90% of the average daily value of the assets in the Separate
Account attributable to the Certificates.
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 0.35% to an annual rate of 2.00% of average daily net assets. The fees
and expenses associated with the Certificate may be more or less than 0.85% in
the aggregate, depending upon how you make allocations of the Certificate Value
among the Sub-Accounts.
AFIMS 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, 1.25% for the Select Value
Opportunity Fund, 1.20% for the Growth Fund and Select Growth Fund, 1.10% for
the
C-1
<PAGE>
Select Growth and Income, 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 these Funds of the Trust were less than their
respective expense limitations throughout 1997. These limitations may be
terminated at any time.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS 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 net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-adviser. These limitations may be terminated at any time.
Effective July 1, 1997, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.80% that expired on June 30, 1997. The new limitation will be in effect
through October 31, 1998. In 1997, the actual ratio of total annual expenses of
the International Equity Series was 0.85%.
For the INVESCO VIF Industrial Income Fund and INVESCO VIF Total Return Fund of
INVESCO VIF, the ratio of total expenses, less expenses voluntarily absorbed by
the investment adviser, were 0.91% and 0.92%, respectively. If such expenses had
not been voluntarily absorbed, the total operating expenses would have been
0.97% and 1.10%, respectively.
MAS has voluntarily agreed to waive its management fees and to reimburse the
Fixed Income Portfolio if processing of such fees would cause the total annual
operating expense of the portfolio to exceed 0.70% of average daily net assets.
This fee waiver is voluntary and may be terminated by MAS at any time without
notice.
NET ANNUAL RATES OF INVESTMENT
Taking into account the 0.90% charge to the Separate Account and the assumed
0.85% charge for Underlying Investment Company advisory fees and operating
expenses, the gross annual rates of investment return of 0%, 6% and 12%
correspond to net annual rates of (-1.75%), 4.25% and 10.25%, respectively.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Separate Account since no charges are currently made.
However, if in the future 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.
C-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 117 3,502 250,000 346 3,731 250,000 575 3,960 250,000
2 9,041 3,060 6,914 250,000 3,738 7,591 250,000 4,443 8,297 250,000
3 13,903 8,104 10,236 250,000 9,454 11,585 250,000 10,917 13,048 250,000
4 19,008 12,398 13,464 250,000 14,650 15,715 250,000 17,189 18,254 250,000
5 24,368 16,601 16,601 250,000 19,987 19,987 250,000 23,963 23,963 250,000
6 29,996 19,644 19,644 250,000 24,405 24,405 250,000 30,225 30,225 250,000
7 35,906 22,587 22,587 250,000 28,967 28,967 250,000 37,092 37,092 250,000
8 42,112 25,431 25,431 250,000 33,682 33,682 250,000 44,631 44,631 250,000
9 48,627 28,174 28,174 250,000 38,554 38,554 250,000 52,913 52,913 250,000
10 55,469 30,814 30,814 250,000 43,587 43,587 250,000 62,015 62,015 250,000
11 62,652 33,346 33,346 250,000 48,784 48,784 250,000 72,024 72,024 250,000
12 70,195 35,735 35,735 250,000 54,122 54,122 250,000 83,013 83,013 250,000
13 78,114 37,977 37,977 250,000 59,604 59,604 250,000 95,092 95,092 250,000
14 86,430 40,076 40,076 250,000 65,244 65,244 250,000 108,392 108,392 250,000
15 95,161 42,024 42,024 250,000 71,043 71,043 250,000 123,054 123,054 250,000
16 104,330 43,806 43,806 250,000 77,002 77,002 250,000 139,236 139,236 250,000
17 113,956 45,448 45,448 250,000 83,155 83,155 250,000 157,139 157,139 250,000
18 124,064 46,935 46,935 250,000 89,504 89,504 250,000 176,971 176,971 250,000
19 134,677 48,253 48,253 250,000 96,054 96,054 250,000 198,970 198,970 250,000
20 145,821 49,388 49,388 250,000 102,813 102,813 250,000 223,318 223,318 272,448
Age 60 95,161 42,024 42,024 250,000 71,043 71,043 250,000 123,054 123,054 250,000
Age 65 145,821 49,388 49,388 250,000 102,813 102,813 250,000 223,318 223,318 272,448
Age 70 210,477 51,357 51,357 250,000 139,910 139,910 250,000 386,429 386,429 448,257
Age 75 292,995 44,916 44,916 250,000 184,625 184,625 250,000 649,162 649,162 694,604
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 2,753 250,000 0 2,946 250,000 0 3,139 250,000
2 9,041 1,553 5,406 250,000 2,111 5,964 250,000 2,693 6,547 250,000
3 13,903 5,826 7,957 250,000 6,924 9,055 250,000 8,117 10,248 250,000
4 19,008 9,333 10,399 250,000 11,149 12,214 250,000 13,202 14,267 250,000
5 24,368 12,732 12,732 250,000 15,444 15,444 250,000 18,638 18,638 250,000
6 29,996 14,953 14,953 250,000 18,742 18,742 250,000 23,393 23,393 250,000
7 35,906 17,049 17,049 250,000 22,098 22,098 250,000 28,561 28,561 250,000
8 42,112 19,010 19,010 250,000 25,507 25,507 250,000 34,180 34,180 250,000
9 48,627 20,825 20,825 250,000 28,957 28,957 250,000 40,290 40,290 250,000
10 55,469 22,479 22,479 250,000 32,437 32,437 250,000 46,932 46,932 250,000
11 62,652 23,964 23,964 250,000 35,942 35,942 250,000 54,164 54,164 250,000
12 70,195 25,271 25,271 250,000 39,464 39,464 250,000 62,049 62,049 250,000
13 78,114 26,389 26,389 250,000 42,996 42,996 250,000 70,660 70,660 250,000
14 86,430 27,311 27,311 250,000 46,535 46,535 250,000 80,085 80,085 250,000
15 95,161 28,024 28,024 250,000 50,072 50,072 250,000 90,419 90,419 250,000
16 104,330 28,499 28,499 250,000 53,585 53,585 250,000 101,765 101,765 250,000
17 113,956 28,715 28,715 250,000 57,058 57,058 250,000 114,248 114,248 250,000
18 124,064 28,633 28,633 250,000 60,461 60,461 250,000 128,007 128,007 250,000
19 134,677 28,203 28,203 250,000 63,756 63,756 250,000 143,205 143,205 250,000
20 145,821 27,381 27,381 250,000 66,909 66,909 250,000 160,046 160,046 250,000
Age 60 95,161 28,024 28,024 250,000 50,072 50,072 250,000 90,419 90,419 250,000
Age 65 145,821 27,381 27,381 250,000 66,909 66,909 250,000 160,046 160,046 250,000
Age 70 210,477 15,839 15,839 250,000 79,494 79,494 250,000 277,046 277,046 321,374
Age 75 292,995 0 0 0 81,287 81,287 250,000 465,877 465,877 498,488
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 297 1,221 76,221 375 1,299 76,299 453 1,377 76,377
2 3,014 1,370 2,420 77,420 1,602 2,652 77,652 1,844 2,894 77,894
3 4,634 3,107 3,596 78,596 3,572 4,062 79,062 4,076 4,566 79,566
4 6,336 4,505 4,750 79,750 5,284 5,529 80,529 6,162 6,406 81,406
5 8,123 5,881 5,881 80,881 7,055 7,055 82,055 8,432 8,432 83,432
6 9,999 6,989 6,989 81,989 8,644 8,644 83,644 10,663 10,663 85,663
7 11,969 8,073 8,073 83,073 10,296 10,296 85,296 13,118 13,118 88,118
8 14,037 9,135 9,135 84,135 12,013 12,013 87,013 15,820 15,820 90,820
9 16,209 10,172 10,172 85,172 13,798 13,798 88,798 18,793 18,793 93,793
10 18,490 11,185 11,185 86,185 15,653 15,653 90,653 22,064 22,064 97,064
11 20,884 12,174 12,174 87,174 17,579 17,579 92,579 25,664 25,664 100,664
12 23,398 13,138 13,138 88,138 19,580 19,580 94,580 29,625 29,625 104,625
13 26,038 14,077 14,077 89,077 21,658 21,658 96,658 33,983 33,983 108,983
14 28,810 14,991 14,991 89,991 23,814 23,814 98,814 38,779 38,779 113,779
15 31,720 15,881 15,881 90,881 26,054 26,054 101,054 44,057 44,057 119,057
16 34,777 16,744 16,744 91,744 28,377 28,377 103,377 49,865 49,865 124,865
17 37,985 17,581 17,581 92,581 30,789 30,789 105,789 56,256 56,256 131,256
18 41,355 18,391 18,391 93,391 33,290 33,290 108,290 63,290 63,290 138,290
19 44,892 19,174 19,174 94,174 35,884 35,884 110,884 71,031 71,031 146,031
20 48,607 19,930 19,930 94,930 38,574 38,574 113,574 79,550 79,550 154,550
Age 60 97,665 25,579 25,579 100,579 71,167 71,167 146,167 229,232 229,232 307,170
Age 65 132,771 26,546 26,546 101,546 91,516 91,516 166,516 378,078 378,078 461,255
Age 70 177,576 25,538 25,538 100,538 114,403 114,403 189,403 617,130 617,130 715,870
Age 75 234,759 21,566 21,566 96,566 139,063 139,063 214,063 1,001,956 1,001,956 1,076,956
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 116 1,040 76,040 184 1,108 76,108 252 1,176 76,176
2 3,014 1,010 2,060 77,060 1,211 2,261 77,261 1,421 2,471 77,471
3 4,634 2,570 3,059 78,059 2,971 3,461 78,461 3,407 3,896 78,896
4 6,336 3,794 4,038 79,038 4,464 4,709 79,709 5,219 5,464 80,464
5 8,123 4,994 4,994 79,994 6,003 6,003 81,003 7,186 7,186 82,186
6 9,999 5,929 5,929 80,929 7,348 7,348 82,348 9,080 9,080 84,080
7 11,969 6,841 6,841 81,841 8,743 8,743 83,743 11,161 11,161 86,161
8 14,037 7,729 7,729 82,729 10,190 10,190 85,190 13,448 13,448 88,448
9 16,209 8,592 8,592 83,592 11,688 11,688 86,688 15,958 15,958 90,958
10 18,490 9,430 9,430 84,430 13,239 13,239 88,239 18,715 18,715 93,715
11 20,884 10,242 10,242 85,242 14,845 14,845 89,845 21,742 21,742 96,742
12 23,398 11,026 11,026 86,026 16,505 16,505 91,505 25,066 25,066 100,066
13 26,038 11,784 11,784 86,784 18,222 18,222 93,222 28,716 28,716 103,716
14 28,810 12,512 12,512 87,512 19,996 19,996 94,996 32,724 32,724 107,724
15 31,720 13,214 13,214 88,214 21,830 21,830 96,830 37,127 37,127 112,127
16 34,777 13,884 13,884 88,884 23,723 23,723 98,723 41,962 41,962 116,962
17 37,985 14,524 14,524 89,524 25,678 25,678 100,678 47,272 47,272 122,272
18 41,355 15,132 15,132 90,132 27,694 27,694 102,694 53,105 53,105 128,105
19 44,892 15,707 15,707 90,707 29,772 29,772 104,772 59,511 59,511 134,511
20 48,607 16,248 16,248 91,248 31,914 31,914 106,914 66,549 66,549 141,549
Age 60 97,665 19,035 19,035 94,035 56,455 56,455 131,455 188,542 188,542 263,542
Age 65 132,771 17,687 17,687 92,687 70,077 70,077 145,077 308,053 308,053 383,053
Age 70 177,576 12,953 12,953 87,953 82,821 82,821 157,821 498,045 498,045 577,733
Age 75 234,759 2,812 2,812 77,812 91,847 91,847 166,847 799,735 799,735 874,735
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 7,819 12,101 250,000 8,573 12,855 250,000 9,328 13,610 250,000
2 28,327 18,514 23,981 250,000 20,783 26,249 250,000 23,142 28,608 250,000
3 43,561 33,511 35,643 250,000 38,075 40,206 250,000 43,012 45,144 250,000
4 59,557 46,024 47,090 250,000 53,687 54,753 250,000 62,312 63,378 250,000
5 76,353 58,328 58,328 250,000 69,919 69,919 250,000 83,496 83,496 250,000
6 93,989 69,361 69,361 250,000 85,735 85,735 250,000 105,644 105,644 283,126
7 112,506 80,190 80,190 250,000 102,199 102,199 265,718 129,927 129,927 337,810
8 131,950 90,823 90,823 250,000 119,264 119,264 300,544 156,548 156,548 394,500
9 152,365 101,260 101,260 250,000 136,947 136,947 334,151 185,727 185,727 453,174
10 173,801 111,447 111,447 264,129 155,263 155,263 367,972 217,698 217,698 515,944
11 196,309 121,383 121,383 279,180 174,227 174,227 400,723 252,718 252,718 581,252
12 219,943 131,047 131,047 292,234 193,825 193,825 432,230 291,020 291,020 648,976
13 244,758 140,443 140,443 303,356 214,070 214,070 462,391 332,900 332,900 719,063
14 270,814 149,574 149,574 314,106 234,979 234,979 493,456 378,681 378,681 795,230
15 298,173 158,442 158,442 323,221 256,560 256,560 523,383 428,705 428,705 874,558
16 326,899 167,034 167,034 332,397 278,806 278,806 554,824 483,309 483,309 961,786
17 357,062 175,392 175,392 338,506 301,792 301,792 582,459 543,013 543,013 1,048,014
18 388,733 183,504 183,504 344,988 325,512 325,512 611,962 608,230 608,230 1,143,473
19 421,988 191,373 191,373 350,212 349,978 349,978 640,460 679,448 679,448 1,243,390
20 456,905 199,001 199,001 354,222 375,208 375,208 667,870 757,203 757,203 1,347,822
Age 60 298,173 158,442 158,442 323,221 256,560 256,560 523,383 428,705 428,705 874,558
Age 65 456,905 199,001 199,001 354,222 375,208 375,208 667,870 757,203 757,203 1,347,822
Age 70 659,493 233,170 233,170 368,408 512,264 512,264 809,378 1,263,379 1,263,379 1,996,139
Age 75 918,052 261,171 261,171 370,863 668,454 668,454 949,205 2,035,561 2,035,561 2,890,497
</TABLE>
(1) Assumes a $13,160 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GROUP VARIABLE LIFE CERTIFICATE
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% CERTIFICATE CERTIFICATE -------------------------------
CERTIFICATE PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER CERTIFICATE DEATH
YEAR (1) VALUE (2) BENEFIT VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
------ --------- --------- ------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 6,199 10,481 250,000 6,864 11,146 250,000 7,529 11,811 250,000
2 28,327 15,289 20,755 250,000 17,279 22,745 250,000 19,349 24,815 250,000
3 43,561 28,696 30,827 250,000 32,688 34,820 250,000 37,011 39,142 250,000
4 59,557 39,630 40,695 250,000 46,325 47,391 250,000 53,867 54,933 250,000
5 76,353 50,367 50,367 250,000 60,487 60,487 250,000 72,352 72,352 250,000
6 93,989 59,846 59,846 250,000 74,136 74,136 250,000 91,581 91,581 250,000
7 112,506 69,129 69,129 250,000 88,363 88,363 250,000 112,659 112,659 292,913
8 131,950 78,216 78,216 250,000 103,169 103,169 259,985 135,664 135,664 341,873
9 152,365 87,108 87,108 250,000 118,432 118,432 288,973 160,757 160,757 392,246
10 173,801 95,804 95,804 250,000 134,145 134,145 317,924 188,095 188,095 445,786
11 196,309 104,310 104,310 250,000 150,314 150,314 345,721 217,869 217,869 501,098
12 219,943 112,590 112,590 251,075 166,942 166,942 372,281 250,279 250,279 558,122
13 244,758 120,601 120,601 260,497 184,038 184,038 397,522 285,551 285,551 616,791
14 270,814 128,339 128,339 269,512 201,596 201,596 423,351 323,907 323,907 680,204
15 298,173 135,810 135,810 277,053 219,621 219,621 448,027 365,602 365,602 745,828
16 326,899 142,995 142,995 284,560 238,081 238,081 473,781 410,847 410,847 817,585
17 357,062 149,915 149,915 289,336 257,002 257,002 496,013 459,970 459,970 887,742
18 388,733 156,546 156,546 294,306 276,338 276,338 519,516 513,195 513,195 964,807
19 421,988 162,882 162,882 298,073 296,065 296,065 541,800 570,795 570,795 1,044,555
20 456,905 168,923 168,923 300,683 316,170 316,170 562,783 633,082 633,082 1,126,886
Age 60 298,173 135,810 135,810 277,053 219,621 219,621 448,027 365,602 365,602 745,828
Age 65 456,905 168,923 168,923 300,683 316,170 316,170 562,783 633,082 633,082 1,126,886
Age 70 659,493 194,665 194,665 307,570 421,521 421,521 666,003 1,026,306 1,026,306 1,621,563
Age 75 918,052 213,176 213,176 302,710 532,761 532,761 756,520 1,591,643 1,591,643 2,260,133
</TABLE>
(1) Assumes a $13,160 premium is paid at the beginning of each Certificate year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate 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 CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS.
THE VALUE OF UNITS, CERTIFICATE VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
CERTIFICATE VALUE TRANSFERRED TO THE GENERAL 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.
C-8
<PAGE>
APPENDIX D
CALCULATION OF MAXIMUM SURRENDER CHARGES
A separate surrender charge may be calculated upon issuance of the Certificate
and upon each increase in the Face Amount. The maximum surrender charge
calculated upon issuance of the Certificate is equal to $8.50 per thousand
dollars of the initial Face Amount plus up to 50% (less any premium expense
charge not associated with state and local premium taxes) of the Guideline
Annual Premium, depending on the group to which the Policy is issued. The
maximum surrender charge for an increase in the Face Amount is $8.50 per
thousand dollars of increase, plus up to 50% (less any premium expense charge
not associated with state and local premium taxes) of the Guideline Annual
Premium for the increase. The calculation may be summarized in the following
formula:
Maximum Surrender Charge = (8.5x Face Amount) + (up to 50% X Guideline Annual
Premium)
1000
A further limitation is imposed based on the Standard Nonforfeiture Law of each
state. The maximum surrender charges upon issuance of the Certificate and upon
each increase in the Face Amount are shown in the following table. During the
first two Certificate years following issue or an increase in Face Amount, the
actual surrender charge may be less than the maximum. See "CHARGES AND
DEDUCTIONS -- "Surrender Charge."
The maximum surrender charge remains level for up to the first 24 Certificate
months, reduces uniformly for the balance of the surrender charge period, and is
zero thereafter. The actual surrender charge imposed may be less than the
maximum.
The Factors used in calculating the maximum surrender charges vary with the
issue Age and Underwriting Class as indicated in the following table.
D-1
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1000 FACE AMOUNT
<TABLE>
<CAPTION>
Age at
issue or Unisex Unisex Unisex
increase Non-smoker Smoker Uni-smoker
- --------- ------------- ----------- -------------
<S> <C> <C> <C>
0 14.89 14.37
1 14.84 14.31
2 15.00 14.44
3 15.17 14.58
4 15.35 14.73
5 15.53 14.88
6 15.73 15.05
7 15.94 15.23
8 16.16 15.41
9 16.39 15.61
10 16.64 15.82
11 16.91 16.05
12 17.18 16.28
13 17.47 16.52
14 17.77 16.77
15 18.08 17.02
16 18.38 17.28
17 18.67 17.54
18 17.15 18.98 17.80
19 17.40 19.29 18.07
20 17.65 19.62 18.35
21 17.92 19.95 18.64
22 18.20 20.31 18.95
23 18.49 20.68 19.27
24 18.80 21.08 19.61
25 19.13 21.49 19.97
26 19.48 21.94 20.35
27 19.85 22.42 20.75
28 20.24 22.92 21.18
29 20.65 23.45 21.63
30 21.08 24.02 22.11
31 21.54 24.62 22.61
32 22.03 25.25 23.15
33 22.54 25.92 23.71
34 23.03 26.62 24.30
35 23.64 27.36 24.92
36 24.24 28.15 25.57
37 24.87 28.97 26.26
38 25.53 29.84 26.99
39 26.23 30.76 27.75
40 26.97 31.72 28.55
41 27.74 32.73 29.39
42 28.55 33.79 30.27
43 29.41 34.91 31.19
44 30.31 36.08 32.17
45 31.26 37.31 33.19
46 32.27 38.60 34.27
</TABLE>
D-2
<PAGE>
<TABLE>
<CAPTION>
Age at
issue or Unisex Unisex Unisex
increase Non-smoker Smoker Uni-smoker
- --------- ------------- ----------- -------------
<S> <C> <C> <C>
47 33.33 39.95 35.40
48 34.46 41.38 36.59
49 35.64 42.89 37.86
50 36.90 44.48 39.19
51 38.24 46.17 40.60
52 39.66 47.95 42.10
53 41.17 49.84 43.68
54 42.76 51.82 45.36
55 44.46 53.91 47.12
56 46.25 56.11 48.98
57 48.16 56.87 50.95
58 50.18 56.76 53.03
59 52.34 56.65 55.24
60 54.64 56.54 56.71
61 56.54 56.44 56.59
62 56.41 56.34 56.47
63 56.29 56.26 56.36
64 56.16 56.18 56.25
65 56.03 56.10 56.13
66 55.90 56.01 56.00
67 55.74 55.90 55.85
68 55.58 55.76 55.70
69 55.41 55.63 55.53
70 55.27 55.49 55.37
71 55.12 55.38 55.22
72 54.96 55.29 55.10
73 54.85 55.23 54.99
74 54.75 55.19 54.89
75 54.64 55.16 54.80
76 54.52 55.10 54.69
77 54.36 55.01 54.53
78 54.18 54.86 54.35
79 53.97 54.68 54.14
80 53.75 54.49 53.91
</TABLE>
D-3
<PAGE>
EXAMPLES
For the purposes of these examples, assume that a unisex, Age 35 non-smoker
purchases a $100,000 Certificate. In this example the Guideline Annual Premium
("GAP") equals $1,032.25. The maximum surrender charge is calculated as follows:
(1) Deferred Administrative Charge $850.00
($8.50/$1,000 of Face Amount)
(2) Deferred Sales Charge $516.13
(50% X GAP)
------------
$1,366.13
Maximum surrender charge per Table (23.64 X 100) $2,364.00
During the first two Certificate years after the Date of Issue, the actual
surrender charge is the smaller of the maximum surrender charge and the
following sum:
(1) Deferred Administrative Charge $850.00
($8.50/$1,000 of Face Amount)
(2) Deferred Sales Charge Varies
(not to exceed 30% of premiums received, up to one
GAP, plus 9% of premiums
received in excess of one GAP)
--------------------
Sum of (1) and (2)
The maximum surrender charge is $1,366.13. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.
EXAMPLE 1:
Assume the Certificate Owner surrenders the Certificate in the 10th Certificate
month, having paid total premiums of $900. The actual surrender charge would be
$1,120.
EXAMPLE 2:
Assume the Certificate Owner surrenders the Certificate in the 120th Certificate
month. Also assume that after the 24th Certificate month, the maximum surrender
charge decreases by 1/156 per month, thereby reaching zero at the end of the
15th Certificate year. In this example, the maximum surrender charge would be
$525.43.
D-4
<PAGE>
PART II
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
Securities and Exchange Commission ("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.
<PAGE>
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement 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 1933 Act.
Representations pursuant to Section 26(e) of the 1940 Act.
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 November 22, 1993 establishing the Group VEL Account
is filed herewith.
(2) Not Applicable.
(3) (a) Underwriting and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. is filed
herewith.
(b) Registered Representatives/Agents Agreement is filed
herewith.
(c) Sales Agreements are filed herewith.
(d) Sales Agreement with Chase is filed herewith.
(e) Commission Schedule is filed herewith.
(f) General Agent's Agreement is filed herewith.
(g) Career Agent Agreement is filed herewith.
(4) Not Applicable.
(5) Policy and initial Riders are filed herewith. The Preferred Loan
Endorsement and Exchange to Term Rider were previously filed in
Post-Effective Amendment No. 5 on April 30, 1997 and are
incorporated by reference herein.
(6) Articles of Incorporation and Bylaws, as amended, of the Company
were previously filed in Post-Effective Amendment No. 1 on
October 1, 1995 and are incorporated by reference herein.
(7) Not Applicable.
(8) (a) Participation Agreement with Allmerica Investment Trust is
filed herewith.
<PAGE>
(b) Participation Agreement, as amended, with Variable Insurance
Products Fund is filed herewith.
(c) Participation Agreement, as amended, with Variable Insurance
Products Fund II is filed herewith.
(d) Participation Agreement with Delaware Group Premium Fund,
Inc. is filed herewith.
(e) Participation Agreement with T. Rowe Price International
Series, Inc. is filed herewith.
(f) Participation Agreement with Invesco Funds Group, Inc. is
filed herewith
(g) Fidelity Service Agreement, effective as of November 1,
1995, was previously filed on April 30, 1996 in
Post-Effective Amendment No. 3 and is incorporated by
reference herein.
(h) An Amendment to the Fidelity Services Agreement, effective
as of January 1, 1997, was previously filed on April 30,
1997 in Post-Effective Amendment No. 3 and is incorporated
by reference herein.
(i) Fidelity Service Contract, effective as of January 1, 1997,
was previously filed on April 30, 1997 in Post-Effective
Amendment No. 3 and is incorporated by reference herein
(j) Service Agreement with Rowe Price-Fleming International,
Inc. is filed herewith.
(k) Service Fee Agreement Letter with Morgan Stanley Asset
Management, Inc. is filed herewith.
(l) Participation Agreement with Morgan Stanley is filed
herewith.
(9) Not Applicable.
(10) Application is filed herewith.
2. Policy and Policy riders are as set forth in Item 1(5) above.
3. Opinion of Counsel is filed herewith.
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent is filed herewith.
7. Procedures Memorandum dated August, 1994 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) is filed herewith.
8. Consent of Independent Accountants is filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Worcester, and Commonwealth of Massachusetts, on the 15th day of April, 1998.
GROUP VEL 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 April 15, 1998
- ------------------- the Board
John F. O'Brien
/s/ Bruce C. Anderson Director
- ---------------------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief
- -------------------- Information Officer
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
- --------------------- Chief Investment Officer
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and
- ----------------- General Counsel
John F. Kelly
/s/ J. Barry May Director
- ----------------
J. Barry May
/s/ James R. McAuliffe Director
- ----------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President, Chief
- ----------------------- Financial Officer and Treasurer
Edward J. Parry III
/s/ Richard M. Reilly Director, President and
- --------------------- Chief Executive Officer
Richard M. Reilly
/s/ Eric A. Simonsen Director and Vice President
- --------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- --------------------
Phillip E. Soule
<PAGE>
FORMS S-6 EXHIBIT TABLE
Exhibit 1 Certified Copy of Resolutions of the Board of Directors
Exhibit 1(3)(a) Underwriting and Administrative Services Agreement
Exhibit 1(3)(b) Registered Representatives/Agents Agreement
Exhibit 1(3)(c) Sales Agreements
Exhibit 1(3)(d) Chase Sales Agreement
Exhibit 1(3)(e) Commission Schedule
Exhibit 1(3)(f) General Agents Agreement is filed herewith
Exhibit 1(3)(g) Career Agents Agreement if filed herewith
Exhibit 1(5) Policy and initial Policy Riders
Exhibit 1(8)(a) Participation Agreement with Allmerica Investment Trust
Exhibit 1(8)(b) Participation Agreement with Variable Insurance Products
Fund
Exhibit 1(8)(c) Participation Agreement with Variable Insurance Products
Fund II
Exhibit 1(8)(d) Participation Agreement with Delaware Group Premium Fund,
Inc.
Exhibit 1(8)(e) Participation Agreement with T. Rowe Price International
Series, Inc.
Exhibit 1(8)(f) Participation Agreement with Invesco Funds Group, Inc.
Exhibit 1(8)(j) Service Agreement with Rowe Price-Fleming International,
Inc.
Exhibit 1(8)(k) Service Fee Agreement Letter with Morgan Stanley Asset
Management, Inc.
Exhibit 1(8)(l) Participation Agreement with Morgan Stanley
Exhibit 1(10) Application
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
SEC Cover Letter
<PAGE>
I, Abigail M. Armstrong, Secretary of SMA Life Assurance Company, do hereby
certify that the following is a resolution approved by unanimous vote of the
Board of Directors on November 22, 1993, and that such resolution has not been
repealed or amended, and is in full force and effect as of the date hereof:
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 Group VEL 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 annuity
contracts or other contracts ("Contracts") as may be designated from
time to time and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts;
and
That the fundamental investment policy of the Separate Account shall
be to invest or reinvest its assets in securities issued by investment
companies registered under the Investment Company Act of 1940; 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
1
<PAGE>
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
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
2
<PAGE>
That the Secretary and Counsel is hereby appointed as agent for
service under any such registration statement and is duly authorized
to receive communications and notices from the Securities and Exchange
Commission with respect thereto; and
That the appropriate officers of the Company be and they hereby are
authorized on behalf of the Separate Account and on behalf of the
Company to take any and all action that they may deem necessary or
advisable in order to sell the Contracts, including any registrations,
filings and qualifications of the Company, its officers, agents and
employees, and the Contracts under the insurance and security laws of
any other states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute,
deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of
process and other papers and instruments as may be required under such
laws, and to take any and all further action which said officers or
counsel of the Company may deem necessary or desirable (including
entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as
said officers or counsel deem it to be in the best interests of the
Separate Account and the Company; and
That the President, any Vice President, and the Secretary and Counsel
of the Company be and hereby are authorized in the names and on behalf
of the Separate Account and the Company to execute and file
irrevocable written consents on the part of the Separate Account and
of the Company to be used in such states wherein such consents to
service of process may be requisite under the insurance or security
laws therein, in connection with said registration or qualification of
Contracts, and to appoint the appropriate state official, or such
other person as may be allowed by said insurance or securities laws,
agent of the Separate Account and of the Company for the purpose of
receiving and accepting process; and
That the President of the Company be and hereby is authorized to
establish procedures under which the Company will institute procedures
for providing voting rights for owners of such Contracts with respect
to securities owned by the Separate Account; and
That the President of the Company is hereby authorized to execute such
agreement or agreements as deemed necessary and appropriate (i) with
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
3
<PAGE>
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.
* * *
IN WITNESS WHEREOF, I set my hand and the seal of the corporation,
this 6th day of June, 1994.
/s/ Abigail M. Armstrong
------------------------
Abigail M. Armstrong
Secretary
4
<PAGE>
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this 26th day of November, 1997 between and among Allmerica
Financial Life Insurance and Annuity Company, a Delaware corporation (the
"Company"), each of its separate investment accounts (the "Accounts") which is a
registered investment company under the Investment Company Act of 1940 (the
"1940 Act"), as may be established by the Company from time-to-time, and
Allmerica Investments, Inc., a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Company and the respective Accounts issue certain variable annuity
contracts or variable insurance policies (the "contracts") which may be deemed
to be securities under the Securities Act of 1933 (the "1933 Act"), and the laws
of some states;
WHEREAS, the Distributor, an affiliate of the Company, is registered as a
broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the parties desire to have the Distributor act as principal underwriter
for the Accounts set forth in Exhibit A, as may be amended from time-to-time by
mutual consent of the parties, and to assume full responsibility for the
securities activities of all "persons associated" (as that term is defined in
Section 3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the variable contract operation (the "associated persons");
WHEREAS, the parties desire to have the Company perform certain administrative
services in connection with the sale and servicing of the contracts.
NOW, THEREFORE, in consideration of the covenants and mutual promises of the
parties made to each other, it is hereby covenanted and agreed as follows:
1. The Distributor will act as the exclusive principal underwriter for the
Accounts and as such will assume full responsibility for the securities
activities of all the associated persons in connection with the sale of the
contracts. The Distributor will train the associated persons, use its best
efforts to prepare them to complete satisfactorily the applicable NASD and
state examinations so that they may be qualified, register the associated
persons as its registered representatives before they engage in the sale of
the contracts, and supervise and control them in the performance of such
activities. Notwithstanding anything in this Agreement to the contrary,
the Distributor may enter into sales agreements with independent
broker-dealers for the sale of the contracts. All such sales agreements
entered into by the Distributor with independent broker-dealers shall
provide that each independent broker-dealer will assume full responsibility
for continued compliance by itself and its associated persons with the NASD
Rules of Fair Practice and Federal and state securities laws.
2. The Distributor will assume full responsibility for the continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws, to the extent applicable in
connection with the sale of the contracts. The Distributor, directly or
through the Company as its agent, will make timely filings with the SEC,
NASD, and any other securities regulatory authorities of all reports and
any sales literature relating to the Accounts required by law to be filed
by the Distributor.
3. The Company will prepare and submit to the Accounts (a) all registration
statements and prospectuses (including amendments) and all reports required
by law to be filed by the Accounts with Federal and state securities
regulatory authorities, and (b) all notices, proxies, proxy statements, and
periodic reports that are to be transmitted to persons having voting rights
with respect to the Accounts.
- 1 -
<PAGE>
4. The Company will, except as otherwise provided in this Agreement, bear the
cost of all services and expenses, including legal services and expenses,
filing fees, and other fees incurred in connection with (a) registering and
qualifying the Accounts and the contracts, and (b) preparing, printing, and
distributing all registration statements and prospectuses (including
amendments), contracts, notices, periodic reports, proxy solicitation
material, sales literature, and advertising filed or distributed in
connection with the sale of the contracts.
All cost associated with the variable contract compliance function
including, but not limited to, fees and expenses associated with qualifying
and licensing associated persons with Federal and state regulatory
authorities and the NASD and with performing compliance-related
administrative services, shall be allocated to the Company. To the extent
that the Distributor incurs out-of-pocket expenses in connection with the
variable contracts compliance function, the Company shall reimburse the
Distributor for such expenses. To the extent that such costs are in
connection with services provided by employees of the Company, they shall
be charged to the Company. The determination and allocation of all such
costs shall be pursuant to the Cost Distribution Policy as stated in the
Consolidated Service Agreement (effective January 1, 1993) among the
Allmerica Financial group of affiliated companies, as may be amended from
time.
5. All purchase payments made under the contracts will be forwarded by or on
behalf of Contract Owners directly to the Company and shall become the
exclusive property of the Company. The Company agrees to pay on behalf of
Distributor all sales commissions and any other remuneration due in
connection with the sale of the contracts by associated persons of the
Distributor and any independent broker-dealers having a sales agreement
with the Distributor. The Distributor or the Company as agent for the
Distributor shall pay all other remuneration due any other person for
activities relating to the sale of the contracts. The Company shall
reimburse the Distributor fully and completely for all amounts paid by the
Distributor to any person pursuant to this Section.
6. The Company will, as the Distributor's agent, (a) maintain and preserve in
accordance with Rules 17a-3 and 17a-4 under the 1934 Act all books and
records required to be maintained by the Distributor in connection with the
offer and sale of the contracts being offered for sale pursuant to this
Agreement, which books and records shall remain the property of the
Distributor, and shall at all times be subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, and all other regulatory
bodies having jurisdiction, and (b) send a written confirmation for each
such transaction reflecting the facts of the transaction and showing that
it is being sent on behalf of the Distributor acting in the capacity of
agent for the Accounts, in conformance with the requirements of Rule 10b-10
of the 1934 Act.
7. Each party hereto shall advise the others promptly of (a) any action of the
SEC or any authorities of any state or territory of which it has knowledge,
affecting registration or qualification of the Accounts or the contracts,
or the right to offer the contracts for sale, and (b) the happening of any
event which makes untrue any statement, or which requires the making of any
change in the registration statement or prospectus in order to make the
statements therein not misleading.
8. The Company agrees to be responsible to the Accounts for all sales and
administrative expenses incurred in connection with the administration of
the contracts and the Accounts other than applicable taxes arising from
income and capital gains of the Accounts and any other taxes arising from
the existence and operation of the Accounts.
9. As compensation for services performed and expenses incurred under this
Agreement, the Company will receive the charges and deductions as provided
in each outstanding series of the Company's contracts. Distributor will
receive the compensation provided for in Section 4, and may receive such
additional compensation, if any, as may be agreed upon by the parties from
time-to-time.
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<PAGE>
10. Each party hereto agrees to furnish any other state insurance commissioner
or regulatory authority with jurisdiction over the contracts with any
information or reports in connection with services provided under this
Agreement which may be requested in order to ascertain whether the variable
insurance product operations of the Company are being conducted in a manner
consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. The initial Accounts covered by this Agreement are set forth in Appendix A.
This Agreement, including Appendix A, may be amended at any time by mutual
consent of the parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ David J. Mueller
-------------------------------------
Title: Vice President
ALLMERICA INVESTMENTS, INC.
By: /s/ Thomas P. Cunningham
-------------------------------------
Title: Vice President
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<PAGE>
Appendix A
SEPARATE ACCOUNTS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
AS OF SEPTEMBER 1, 1997
VEL Account
VEL II Account
Inheiritage Account
Allmerica Select Separate Account II
Group VEL Account
Fulcrum Variable Life Separate Account
Separate Account VA-K
Separate Account VA-P
Allmerica Select Separate Account
Separate Account KG
Separate Account KGC
Fulcrum Separate Account
- 4 -
<PAGE>
Registered
[LOGO] ALLMERICA Allmerica 440 Lincoln Street Representative's
FINANCIAL(R) Investments, Inc. Worcester, MA 01653 Agreement
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints ________________________
("Registered Representative") for the purpose of selling and servicing variable
contracts offered by Allmerica Financial Life Insurance and Annuity Company,
mutual funds, limited partnerships and other investment products and services
(collectively "Investment Products and Services") offered and distributed by
Company. Registered Representative will submit Investment Products and Services
business through the office of _________________________________________________
("General Agent") or successor at ______________________________________________
("Agency") or successor. This appointment is effective as of the date accepted
by Registered Representative and acknowledged by General Agent.
1. DUTY OF COMPLIANCE/SUPERVISION: Registered Representative is assigned to
the above named Agency and General Agent for the purposes of training,
supervision and recordkeeping. Registered Representative agrees to comply
with all of the applicable laws, rules and regulations of the Securities
and Exchange Commission (SEC), National Association of Securities Dealers,
Inc. (NASD) and all other applicable federal and state insurance and
securities laws and regulations.
Registered Representative agrees to comply with all procedures and
requirements outlined in Company manuals, memoranda and other publications
as may be amended from time-to-time.
Registered Representative agrees to abide by Company's Compliance Program
including his/her mandatory attendance, on at least an annual basis, at
Agency's Compliance Meeting(s) and/or Interview(s). Failure to attend
Compliance Meeting and/or Interview is grounds for immediate termination
for cause.
2. LIMITATIONS OF AUTHORITY: Registered Representative may not delegate any
authority granted under this Agreement and shall not appoint any
solicitors or subagents to act on his/her behalf. Registered
Representative may not sign and/or submit any customer applications or
orders on behalf of any individual who is not fully qualified as a
Registered Representative of Company.
Registered Representative will only offer for sale those Investment
Products and Services for which he/she is properly NASD registered,
securities-licensed through Company and, if required by state law, state
insurance-licensed through Allmerica Financial Life Insurance and Annuity
Company, and for which Company has fully executed sales agreements with
the sponsor or issuer. To participate in the sale of Investment Products
and Services for which no agreement has been executed is to "sell-away"
from Company and is grounds for immediate termination of this Agreement
upon written notice to Registered Representative.
Registered Representative will maintain his/her NASD registration solely
through Company and will provide full disclosure to Company of his/her
background. Registered Representative agrees to notify Company immediately
of any matter requiring disclosure on the NASD Form U-4, Uniform
Application for Securities Industry Registration, including but not
limited to any income generating business activity, other than personal,
passive investment, which is outside the scope of Registered
Representative's Agreement with Company.
Customer accounts or applications may only be accepted on behalf of
Company based on approval by a Home Office principal. Registered
Representative has no authority to accept any risk on Company's behalf, to
incur any indebtedness or liability on behalf of Company and understands
and agrees to Company's prohibition against assuming discretionary
authority over client investments.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any of
the rights, claims or interests under it may be made by Registered
Representative without the prior written consent of Company. Such
assignment, sale or transfer by Registered Representative without written
consent of Company will immediately make this Agreement void, and will be
a release in full to Company of any and all of its obligations hereunder.
4. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: All
applications and/or payments collected by Registered Representative on
behalf of Company or any issuer or sponsor are to be delivered immediately
to Registered Representative's Agency no later than noon of the business
day following receipt by Registered Representative.
Investment Product and Services purchase checks are to be client personal
checks, cashier's checks or money orders made payable to either the
Company, appropriate issuer, sponsor or other designated agent. Such
checks may not be made payable to Registered Representative, General Agent
or any personal or Agency account.
5. SUITABILITY/RESPONSIBILITY TO EXPLAIN INVESTMENT PRODUCTS: Registered
Representative agrees to make Investment Product and Services
recommendations to clients only after obtaining sufficient information
regarding a client's financial background, goals and objectives so as to
make a reasonable determination that the proposed Investment Product
and/or Service is suitable based on such background, goals and
objectives. Registered Representative agrees to fully explain the risks,
terms and conditions of the purchase of an Investment Product or Service
and that he/she will not make untrue statements, interpretations,
misrepresentations nor omit or evade material facts concerning such
Investment Product or Service.
6. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: Registered
Representative agrees not to directly or indirectly use or distribute
any advertising or sales literature material (including but not limited
to prospectuses, illustrations, circulars, form letters or postal cards,
business cards, stationery, booklets, schedules, broadcasting and other
sales material of any kind) concerning Company and/or the offering of
Investment Products and Services of any kind until the material has been
approved by Company in writing.
Registered Representative also agrees to provide to General Agent copies
of all correspondence pertaining to the solicitation of execution of any
Investment Products and Services transaction, and to any other aspect of
his/her Investment Products and Services business in order to allow for
the review and endorsement of the correspondence in writing, on an
official internal record of Company by a registered principal located at
Home Office.
SMAE-050NS (11/95)
<PAGE>
7. RECORDKEEPING: Registered Representative agrees, in accordance with
Company guidelines and requirements, to cooperate in the maintenance of
complete customer account files and other records at the assigned Agency
which pertain to the conduct of Investment Products and Services business
through Company. Customer account files of Registered Representative are
to be considered the property of Company and are not to be taken from the
immediate Agency premises for any purpose.
8. COMMISSIONS: Commissions for the sale of Investment Products and Services
offered or effected by Registered Representative will be paid after
compensation for those sales is paid to Company. Commissions for
Investment Products and Services will be paid at the rates established and
published by Company.
Commissions may be changed by Company at any time without advance notice.
However, this policy shall not be applied retroactively to divest any
Registered Representative of specific commission amounts already due
him/her.
Registered Representative agrees not to share commissions with
non-qualified representatives or with clients.
Under certain circumstances, i.e., termination of agents subject to
variable contract commission vesting, retirement or death, Registered
Representative or his/her estate may be entitled to receive continuing
commissions from Company for transactions conducted prior to the cessation
of his/her service with Company. Continuing commissions will be paid based
on vesting schedules established and published by Company, as may be
amended from time-to-time.
If Company or any issuer or sponsor returns or waives payments on any
application or order, commissions will not be due or payable on the
payments. Registered Representative shall repay to Company on demand any
commissions already received by Registered Representative with respect to
such returned or waived payments.
Where cancellation of any Investment Products and Services order results
in expense or loss to Company, Registered Representative is liable for
reimbursement to Company of the expense or loss including but not limited
to any sales charge levied by an issuer and any decline in the price of an
Investment Product, as of the time of cancellation.
In the event Registered Representative becomes party to a Career Builder
Supplemental Agreement (Supplemental Agreement) with First Allmerica
Financial Life Insurance Company ("First Allmerica"), and its affiliate,
Allmerica Financial Life Insurance and Annuity Company, commissions
payable under this Registered Representative's Agreement will be credited
to the Reserve Account described in such Supplemental Agreement during the
period such Supplemental Agreement is in effect and will be paid to
Registered Representative only as provided therein.
Company reserves the right to pay commissions to the Registered
Representative for Investment Products and Services sold or performed by
utilizing one check issued by Allmerica Financial or one of its
wholly-owned subsidiaries. Such check may also contain compensation for
traditional life, health and disability policies as well as other products
and services sold by Registered Representatives through Allmerica
Financial.
9. RIGHT OF OFF-SET: Company, for its own benefit and/or the benefit of its
affiliates, will have a lien on any commissions and other compensation
payable under this Agreement, and may deduct any monies owed Company or
affiliates from such commissions or other compensation to the extent
permitted by law.
10. TERMINATION FOR CAUSE: If Registered Representative withholds or
misappropriates monies, securities, certificates, payments, receipts,
"sells-away," commits any willful or dishonest act which, in the sole
discretion of Company, is detrimental to Company, or fails to comply with
any of the conditions, duties or obligations of this Agreement, this
Agreement will immediately terminate without notice.
11. TERMINATIONS WITHOUT CAUSE: Registered Representative or company may
terminate this Agreement without cause during the first twelve (12) months
following the date this Agreement is executed by providing ten (10) days'
notice in writing to the other party of the intention to terminate. After
the first twelve (12) months, Registered Representative or Company may
terminate this Agreement without cause upon thirty (30) days' notice in
writing of the intention to terminate.
In the event Registered Representative terminates his/her Career Agent
Agreement with First Allmerica Financial Life Insurance Company, this
Agreement will be terminated upon written notice as described herein.
12. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and Registered Representative or between Company's General Agent
and Registered Representative. Registered Representative shall exercise
his/her own judgment concerning the individual(s) to whom he/she will
solicit Investment Products and Services as well as the time, place and
manner of the solicitations. Registered Representative, however, shall
comply with all applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations
and procedures concerning the conduct of Investment Products and
Services business, as may be amended from time-to-time.
13. EFFECTIVENESS OF CONTRACT: This Agreement constitutes the entire contract
between Registered Representative and Company.
Registered Representative accepts the appointment, subject to all of the
conditions and provisions set forth in this Agreement. This Agreement
supersedes all previous agreements, whether oral or written between the
parties, and no modification, except to attached Compensation Schedules
(if any), will be valid unless made in writing and signed by both parties.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned on the
____________________________________ day of
_________________________ ,19 _______. Allmerica Investments, Inc.
By__________________________
__________________________________ ____________________________
Registered Representative General Agent
<PAGE>
SALES
AGREEMENT ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica") and
_________________________________________________________________, a
________________________ corporation (herein "Broker-Dealer").
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints Broker-Dealer to solicit applications for the sale of
Contracts. Broker-Dealer accepts this appointment and agrees to the terms
and conditions set forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with Broker-Dealer who
are licensed as life insurance agents in those jurisdictions in which
applications for the sale of Contracts are to be solicited and who are also
duly registered with the National Association of Securities Dealers, Inc.
(herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
RELATIONSHIP OF PARTIES
SECTION 1. Nothing in this Agreement will be construed to create the
relationship of employer and employee between Allmerica or either Insurance
Company and any Broker-Dealer or Registered Representative. Broker-Dealer
and each Registered Representative will be free to exercise their independent
judgment as to the time, place and manner of solicitation and servicing of
business underwritten by the Insurance Companies. However, neither
Broker-Dealer nor any Registered Representative shall have authority to act
on behalf of Allmerica or the Insurance
1
<PAGE>
Companies in a manner which does not conform to applicable statutes,
ordinances, or governmental regulations or to reasonable rules adopted from
time to time by Allmerica or the Insurance Companies.
LIMITATIONS OF AUTHORITY
SECTION 2. Neither Broker-Dealer nor any Registered Representative will have
authority to accept risks of any kind; to make, alter or discharge Contracts;
to waive forfeitures or exclusions; to alter or amend any papers received
from either Insurance Company; to deliver any life insurance Contract or any
document, agreement or endorsement changing the amount of insurance coverage
if Broker-Dealer or the soliciting Registered Representative knows or has
reason to believe that the insured is uninsurable; or to accept any payment
unless the payment meets the minimum payment requirement for the Contract
established by the Insurance Company.
LICENSING AND REGISTRATION
SECTION 3. Broker-Dealer is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by Broker-Dealer shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives of
Broker-Dealer.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative or firm who has been appointed by
the Insurance Companies.
AGREEMENTS BY BROKER-DEALER
SECTION 4. Broker-Dealer agrees that at all times when performing its duties
under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Broker-Dealer agrees that at all times when performing its duties under this
Agreement it shall be duly licensed to sell Contracts in each jurisdiction in
which Broker-Dealer intends to perform hereunder.
Broker-Dealer shall be responsible for carrying out its sales and
administrative obligations under this Agreement in continued compliance with
the NASD Rules of Fair Practice, federal and state securities laws and
regulations, and state insurance laws and regulations. Broker-Dealer agrees
to offer the Contracts for sale through its Registered Representatives and to
offer such Contracts only in accordance with the prospectus. Broker-Dealer
and Registered Representative(s) are not authorized to give any information
or make any representations concerning such Contracts other than
2
<PAGE>
those contained in the prospectus or in such sales literature or advertising
as may be authorized by Allmerica.
Broker-Dealer agrees that it shall take reasonable steps to ensure that no
person shall offer or sell Contracts on its behalf until such person is
appropriately licensed, registered or otherwise qualified to offer and sell
such Contracts under the state and federal securities laws and the insurance
laws of each jurisdiction in which such person intends to solicit.
Broker-Dealer agrees to train, supervise and be solely responsible for the
conduct of its Registered Representatives in the solicitation and sale of the
Contracts and for the supervision as to their strict compliance with
Allmerica's rules and procedures, the NASD rules of Fair Practice, and
applicable rules and regulations of any other governmental or other agency
that has jurisdiction over the offering for sale of the Contracts.
Broker-Dealer shall take reasonable steps to ensure that its Registered
Representatives shall not make recommendations to an applicant to purchase a
Contract in the absence of reasonable grounds to believe that the purchase of
such Contract is suitable for such applicant. Such determination will be
based upon, but will not be limited to, information furnished to a Registered
Representative after reasonable inquiry of such applicant concerning the
applicant's insurance and investment objectives, financial situation and
needs.
Broker-Dealer shall take reasonable steps to ensure that Registered
Representatives of Broker-Dealer shall conduct their business with respect to
the Contracts at all times in compliance with all applicable federal and
state laws and regulations and shall be subject to a standard of conduct
including, but not limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit applications for the sale of
the Contracts without delivering the then currently effective prospectus
for such Contracts and any then applicable amendments or supplements
thereto, including the current prospectus(es) for any fund(s) in which
Contract separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
3
<PAGE>
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered Broker-Dealer under the '34 Act and be
a member in good standing of the NASD.
During the term of this Agreement, Allmerica will provide Broker-Dealer,
without charge, with as many copies of the prospectus(es) for the Contracts
(and any amendments, or supplements thereto), the current prospectus(es) for
any underlying fund(s) and applications for the Contracts as Broker-Dealer
may reasonably request. Upon termination of the Agreement, any prospectuses,
applications, and other materials and supplies furnished by Allmerica to
Broker-Dealer shall be promptly returned to Allmerica by Broker-Dealer.
Allmerica agrees to promptly notify Broker-Dealer of newly declared effective
prospectus(es) for the Contracts and any amendments or supplements thereto.
Allmerica agrees to keep Broker-Dealer informed of all jurisdictions in which
the Insurance Companies are licensed to sell the Contracts and in which the
Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Broker-Dealer will submit, or cause to be submitted, directly to
the Principal Office of the Insurance Companies all Contract applications
solicited by Registered Representatives of the Broker-Dealer. Broker-Dealer
will deliver, or cause to be delivered, within 10 days of its receipt by
Broker-Dealer all Contracts issued on applications submitted by Broker-Dealer
or its Registered Representatives and will ensure that any Contract
endorsement, amendment or other agreement is properly executed by the
Contract owner at the time of Contract delivery. Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. Neither Broker-Dealer nor any Registered Representative of
Broker-Dealer will furnish any prospective Contract owner with an
illustration of the financial or other aspects of a Contract or a proposal
for a Contract unless the same has been either furnished by the Insurance
Companies or prepared from computer software or other material furnished or
approved by the Insurance Companies. Any illustration or proposal will
conform to standards of completeness and accuracy established by the
Insurance Companies. If the proposal or illustration was not furnished by
the Insurance Companies, Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
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ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies,
Broker-Dealer will account for and remit immediately to the Principal Office
of the Insurance Companies all funds received or collected by Broker-Dealer
or by Registered Representatives of Broker-Dealer for or on behalf of either
Insurance Company without deduction for any commissions, or other claim
Broker-Dealer or the Registered Representative may have against either
Insurance Company or Allmerica and will make such reports and file such
substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Broker-Dealer shall indemnify and hold Allmerica and the
Insurance Companies and their officers, directors and employees harmless from
any liability arising from any act or omission of Broker-Dealer or of any
affiliate of Broker-Dealer, or any officer, director, employee of
Broker-Dealer or of its Registered Representatives, including but not limited
to, any fines, penalties, attorney's fees, costs of settlement, damages or
financial loss. Broker-Dealer expressly authorizes Allmerica and the
Insurance Companies, without precluding them from exercising any other remedy
they may have, to charge against all compensation due or to become due to
Broker-Dealer under this Agreement, any monies paid on any liability incurred
by Allmerica or the Insurance Companies by reason of any such act or omission
of Broker-Dealer, or any affiliate of Broker-Dealer, or of any officer,
director, employee of Broker-Dealer or of its Registered Representatives.
Allmerica shall indemnify and hold Broker-Dealer, its affiliates and their
officers, directors and employees harmless from any liability arising from
any act or omission of Allmerica, the Insurance Companies or any affiliate of
Allmerica or any of the Insurance Companies (collectively the "Allmerica
Companies"), or any officer, director or employee of the Allmerica Companies,
including but not limited to, any fines, penalties, reasonable attorney's
fees, costs of settlement damages or financial loss.
The indemnifications provided by this Section shall survive termination of this
Agreement.
If a Contract is not delivered to the Contract owner within 10 days of its
receipt by the Broker-Dealer and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was due
to the inaction or negligence of the Broker-Dealer or a Registered
Representative of Broker-Dealer, the difference between the payments refunded
and the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the Insurance
Company by the Broker-Dealer in any case where the cash value is less than the
payments refunded. Any such reimbursement shall be paid by the Broker-Dealer to
the affected Insurance Company within 30 days of Broker-Dealer's receipt of a
written request for payment.
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If Broker-Dealer utilizes delivery receipts as part of its Contract delivery
rules and procedures, the date of execution of the delivery receipt by the
Contract owner shall be deemed to be the date of Contract delivery for
purposes of this Agreement.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises the
Contract's Right to Examine privilege (i.e., free-look), then Broker-Dealer
will repay the appropriate Insurance Company the amount of any commissions
received on the payments returned within 10 days of Broker-Dealer's receipt
of a written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay Broker-Dealer commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts
Broker-Dealer agrees to pay its Registered Representatives. Commission
payments will be made to Broker-Dealer for each Contract issued pursuant to
an application solicited by duly appointed Registered Representatives of
Broker-Dealer.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon Broker-Dealer's or Allmerica's ceasing to comply with any
of the terms and conditions of this Agreement or upon the dissolution,
bankruptcy or insolvency of Broker-Dealer or Allmerica.
Whether or not there is a breach of this Agreement, Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT TO SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
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NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica or
Broker-Dealer to enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will be void and
of no effect hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 30 days after the
notice is given to Broker-Dealer. However, the requirement to give advance
notice shall not apply if the change becomes necessary or expedient by reason
of legislation or the requirements of any governmental body and, in the
opinion of Allmerica, it is not reasonably possible to meet the 30 day
requirement. Changes will not be retroactive and will apply only to life
insurance coverage solicited or annuity payments made on or after the
effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Broker-Dealer and Allmerica agree to cooperate fully in any
customer complaint, insurance or securities regulatory proceeding or judicial
proceeding with respect to Broker-Dealer, Allmerica, the Insurance Companies,
their affiliates or their Registered Representatives to the extent that such
customer complaint or proceeding is in connection with Contracts marketed
under this Agreement. To the extent required, Allmerica will arrange for the
Insurance Companies to cooperate in any such complaint or proceeding.
Without limiting the foregoing:
(a) Broker-Dealer will be notified promptly by Allmerica or the Insurance
Companies of any written customer complaint or notice of any regulatory
proceeding or judicial proceeding of which they become aware including
Broker-Dealer or any Registered Representative of Broker-Dealer which may
be related to the issuance of any Contract marketed under this Agreement.
Broker-Dealer will promptly notify Allmerica of any written customer
complaint, or notice of any regulatory proceeding or judicial proceeding
received by Broker-Dealer, with respect to Broker-Dealer or any of its
Registered Representatives in connection with any Contract marketed under
this Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint specified above, Broker-Dealer,
Allmerica and the Insurance Companies will cooperate in investigating
such complaint and any proposed response to such complaint will be sent
to the other party of this Agreement for approval not less than five
business days prior to its being sent to the customer or regulatory
authority, except that if a more prompt
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response is required, the proposed response shall be communicated by
telephone or facsimile transmission.
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of Broker-Dealer and of any company or person
affiliated with Broker-Dealer, and the names and addresses of any Registered
Representatives of Broker-Dealer which may come to the attention of Allmerica
exclusively as a result of its relationship with Broker-Dealer or any
affiliated company and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or any company or
person affiliated with Allmerica or the Insurance Companies, nor divulged to
any party for any purpose whatsoever, except as may be necessary in
connection with the administration and marketing of the Contracts sold by or
through Broker-Dealer, including responses to specified requests to the
Insurance Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and addresses of
such customers, prospective customers and Registered Representatives be
furnished by Allmerica to any other company or person, including but not
limited to, any of their managers, registered representatives, or brokers who
are not Registered Representatives of Broker-Dealer, any company affiliated
with Allmerica or any manager, agency, or broker of such company, or any
securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of Broker-Dealer or of any affiliated
companies which is derived exclusively as a result of the relationships
created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of Broker-Dealer if the names of said Registered
Representatives were obtained from independent sources and not exclusively as
a result of Allmerica's relationship with Broker-Dealer; (ii) from entering
into separate sales agreements with Registered Representatives of
Broker-Dealer upon the request and at the initiation of said Registered
Representatives; or (iii) divulging the names and addresses of any such
customers, prospective customers, Registered Representatives, or other
companies or persons described in the preceding paragraph in connection with
any customer complaint or insurance or securities regulatory proceeding
described in Section 18. PROVIDED, HOWEVER, that Allmerica shall not enter
into separate sales agreements with Registered Representatives of
Broker-Dealer while such Registered Representatives are affiliated with
Broker-Dealer.
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BONDING
SECTION 20. Broker-Dealer represents that it shall maintain bonding in the
form, type, and amount required under the NASD Rules of Fair Practice.
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to the
Insurance Companies or to Allmerica, if delivered or mailed postage prepaid
to the address specified on page 1 of this Agreement and, in the case of
notice to Broker-Dealer, if delivered or mailed postage prepaid to the
intended recipient's principal place of business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to affect the substance of any provision of this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between Broker-Dealer
and Allmerica and the Insurance Companies, or any of them, relating to the
solicitation of Contracts. It is hereby understood and agreed that any other
agreement or representation, commitment, promise or statement of any nature,
whether oral or written, relating to or purporting to relate to the
relationship of the parties is hereby rendered null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of Broker-Dealer
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Date:________________________________ Date:______________________________
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SALES ALLMERICA INVESTMENTS, INC.
AGREEMENT 440 Lincoln Street
Worcester, Massachusetts 01653
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agreement, effective as of February 13, 1998, by and
between Allmerica Investments, Inc., a Massachusetts
corporation (herein "Allmerica"), First Allmerica Financial
Life Insurance Company, a Massachusetts corporation (herein
"First Allmerica"), Allmerica Financial Life Insurance and
Annuity Company, a Delaware corporation (herein "Allmerica
Financial Life"), Chase Investment Services Corp., a
Delaware corporation (herein "Broker-Dealer") and Chase
Insurance Agency, Inc., an affiliate of Broker-Dealer
(herein "General Agent").
Allmerica, First Allmerica and Allmerica Financial Life,
subject to the terms and conditions set forth in this
Agreement, authorize and appoint General Agent to solicit
applications for the sale of Contracts. General Agent
accepts this appointment and General Agent and Broker-Dealer
agree to the terms and conditions set forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First
Allmerica or by Allmerica Financial Life, a subsidiary of
First Allmerica. The Principal Office of First Allmerica
and Allmerica Financial Life (herein collectively referred
to as "the Insurance Companies") is located at 440 Lincoln
Street, Worcester, Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance
contracts of the Insurance Companies listed on the attached
Commission Schedule(s) and, in the case of group variable
life insurance contracts, the individual certificates of
insurance issued thereunder, for which Allmerica
Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal
underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with
General Agent and Broker-Dealer who are licensed as life
insurance agents in those jurisdictions in which
applications for the sale of Contracts are to be solicited
and who are also duly registered with the National
Association of Security Dealers, Inc. (herein "NASD") in
compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
INDEPENDENT '34 ACT - The Securities Exchange Act of 1934, as amended.
CONTRACTOR
STATUS SECTION 1. Nothing in this Agreement will be construed to
create the relationship of employer and employee between
Allmerica or either Insurance Company and General Agent,
Broker-Dealer or any Registered Representative. General
Agent and Registered Representatives will be free to
exercise their independent judgment
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as to the time, place and manner of solicitation and
servicing of business underwritten by the Insurance
Companies. However, General Agent, Broker-Dealer and
Registered Representatives shall have no authority to
act on behalf of Allmerica or the Insurance Companies
in a manner which does not conform to applicable statutes,
ordinances, or governmental regulations or to reasonable
rules adopted from time to time by Allmerica or the
LIMITATIONS Insurance Companies, which said reasonable rules shall have
ON AUTHORITY been provided in writing to Broker-Dealer and General Agent.
SECTION 2. General Agent, Broker-Dealer and Registered
Representatives will have no authority to accept risks of
any kind; to make, alter or discharge Contracts; to waive
forfeitures or exclusions; to alter or amend any papers
received from either Insurance Company; to deliver any life
insurance Contract or any document, agreement or endorsement
changing the amount of insurance coverage if General Agent,
Broker-Dealer or the soliciting Registered Representative
knows or has reason to believe that the insured is
uninsurable; or to accept any payment unless the payment
LICENSING AND meets the minimum payment requirement for the Contract
REGISTRATION established by the Insurance Company.
SECTION 3. General Agent and Broker-Dealer are hereby
authorized to recommend Registered Representatives for
appointment by the Insurance Companies and only individuals
so recommended by General Agent or Broker-Dealer shall
become Registered Representatives hereunder. The Insurance
Companies agree to apply for life insurance agent
appointments in the appropriate jurisdictions for such
recommended Registered Representatives.
Notwithstanding the foregoing, the Insurance Companies and
Allmerica reserve the right to refuse to appoint any
proposed Registered Representative and/or to terminate any
Registered Representative who has been appointed by the
Insurance Companies. The Insurance Companies shall promptly
notify General Agent and Broker-Dealer in writing if the
AGREEMENTS BY Insurance Companies or Allmerica terminate the appointment
GENERAL AGENT of a Registered Representative.
AND BROKER-
DEALER SECTION 4. Broker-Dealer agrees that at all times when
performing its duties under this Agreement it shall be duly
registered as a securities broker-dealer under the '34 Act,
be a member in good standing of the NASD, and be duly
licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is
required in connection with the sale of the Contracts or the
supervision of Registered Representatives who solicit
applications for the Contracts.
General Agent agrees that at all times when performing its
duties under this Agreement it shall be duly licensed to
sell Contracts in each jurisdiction in which General Agent
intends to perform hereunder.
General Agent and Broker-Dealer shall be responsible for
carrying out their sales and administrative obligations
under this Agreement in continued compliance with the NASD
Rules of Fair Practice, federal and state securities laws
and regulations,
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and state insurance laws and regulations. General Agent and
Broker-Dealer agree to offer the Contracts for sale through
their Registered Representatives and, in the case of
Contracts which require registration, to offer such
Contracts only in accordance with the prospectus. General
Agent, Broker-Dealer and Registered Representatives are not
authorized to give any information or make any
representations concerning such Contracts other than those
contained in the prospectus or in such sales literature or
advertising as may be authorized by Allmerica.
General Agent and Broker-Dealer agree that they shall be
responsible for ensuring that no person shall offer or sell
Contracts requiring registration on their behalf until such
person is appropriately licensed, registered or otherwise
qualified to offer and sell such Contracts under the state
and federal securities laws and the insurance laws of each
jurisdiction in which such person intends to solicit.
General Agent and Broker-Dealer agree to train, supervise
and be responsible for the conduct of their Registered
Representatives in the solicitation and sale of the
Contracts and for the supervision as to their strict
compliance with Allmerica's written rules and procedures,
the NASD Rules of Fair Practice, and applicable rules and
regulations of any other governmental or other agency that
has jurisdiction over the offering for sale of the
Contracts.
General Agent and Broker-Dealer shall take reasonable steps
to ensure that their Registered Representatives shall not
make recommendations to an applicant to purchase a Contract
subject to registration under the '33 Act in the absence of
reasonable grounds to believe that the purchase of such
Contract is suitable for such applicant. Such
determination will be based upon, but will not be limited
to, information furnished to the Broker-Dealer by a
Registered Representative after reasonable inquiry of such
applicant concerning the applicant's insurance and
investment objectives, financial situation and needs.
General Agent and Broker-Dealer agree that Registered
Representatives shall conduct their business with respect to
the Contracts at all times in compliance with all applicable
federal and state laws and regulations and shall be subject
to a standard of conduct including, but not limited to, the
following:
(a) A Registered Representative shall not solicit or
participate in the sale of the Contracts in any
jurisdiction until such Registered Representative is
trained and licensed.
(b) A Registered Representative shall not solicit for the
sale of registered Contracts without delivering the
then currently effective prospectus for such Contracts
and any then applicable amendments or supplements
thereto, including the current prospectus(es) for any
fund(s) in which Contract separate account(s) invest.
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AGREEMENTS
BY ALLMERICA (c) A Registered Representative shall have no authority to
advertise for or on behalf of the Insurance Companies
or Allmerica without express written authorization from
Allmerica.
SECTION 5. Allmerica agrees that at all times while this
Agreement remains in force that it shall be a registered
broker-dealer under the '34 Act and be a member in good
standing of the NASD.
During the term of this Agreement, Allmerica will provide
to, or cause to be provided to, General Agent and
Broker-Dealer, without charge, with as many copies of the
prospectus(es) for the Contracts (and any amendments, or
supplements thereto), the current prospectus(es) for any
underlying fund(s) and applications for the Contracts as
General Agent and Broker-Dealer may reasonably request.
Upon termination of the Agreement, any prospectuses,
applications, and other materials and supplies furnished by
Allmerica to General Agent and Broker-Dealer shall be
promptly returned to Allmerica. Alternatively, at the
option of the General Agent and Broker-Dealer, such
materials may be destroyed by the General Agent or
Broker-Dealer rather than returned to Allmerica.
Allmerica agrees to promptly notify and supply (or caused to
be supplied) General Agent and Broker-Dealer with a
reasonable number of all newly declared effective
prospectus(es) for the Contracts and any amendments or
supplements thereto.
SUBMISSION OF Allmerica agrees to keep General Agent and Broker-Dealer
APPLICATIONS; informed of all jurisdictions in which the Insurance
DELIVERY OF Companies are licensed to sell the Contracts and in which
CONTRACTS; the Contracts may be offered for sale.
REJECTED
BUSINESS SECTION 6. Broker-Dealer will advise Insurance Companies of
any and all instances, based upon information provided to
Broker-Dealer by Registered Representatives, of an
applicant's purchase appearing to not meet the suitability
standards of the Broker- Dealer. Applications will be
returned within five days of receipt by Insurance Companies
unless Broker-Dealer is provided additional information by
Registered Representative relative to adequate suitability.
General Agent or Broker-Dealer will submit, or cause to be
submitted, directly to the Principal Office of the Insurance
Companies all Contract applications solicited by Registered
Representatives. General Agent or Broker-Dealer will
deliver, or cause to be delivered, within 10 days of the
date of issue all Contracts issued on applications submitted
by General Agent, Broker-Dealer or their Registered
Representatives. General Agent or Broker-Dealer will
ILLUSTRATIONS promptly return, or cause to be returned, to the Insurance
AND PROPOSALS Companies any Contract which is declined by the applicant or
which cannot be delivered within the time permitted by the
issuing Insurance Company's rules.
SECTION 7. General Agent, Broker-Dealer and Registered
Representatives will not furnish any prospective Contract
owner with an illustration of the financial or other aspects
of a Contract or a proposal for a Contract unless the same
has been either furnished by the Insurance Companies or
prepared from computer software or other
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material furnished or approved by the Insurance Companies.
Any illustration or proposal will conform to standards of
completeness and accuracy established by the Insurance
Companies. If the proposal or illustration was not furnished
by the Insurance Companies, General Agent or Broker-Dealer
ACCOUNTING will retain in its records for availability to the Insurance
FOR FUNDS Companies a copy thereof or the means to duplicate the
COLLECTED same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
SECTION 8. In accordance with the rules of the Insurance
Companies, General Agent and Broker-Dealer will account for
and remit promptly to the Principal Office of the Insurance
Companies all funds received or collected for or on behalf
of either Insurance Company without deduction for any
commissions, or other claim General Agent, Broker-Dealer or
INDEMNIFICATION any Registered Representative may have against either
Insurance Company or Allmerica and will make such reports
and file such substantiating documents and records as the
Insurance Companies may reasonably require.
SECTION 9. General Agent and Broker-Dealer, jointly and
severally, shall indemnify and hold Allmerica and the
Insurance Companies and their officers, directors and
employees harmless from any liability arising from any act
or omission of General Agent, Broker-Dealer or of any
affiliate of General Agent or Broker-Dealer, or any officer,
director, employee of General Agent or Broker-Dealer or of
their Registered Representatives, including but not limited
to, any fines, penalties, reasonable attorney's fees, costs
of settlement, damages or financial loss.
Allmerica and Insurance Companies, jointly and severally,
shall indemnify and hold harmless the General Agent and
Broker-Dealer and their directors, officers, employees and
agents from and against any damages, losses, liabilities,
claims, charges, reasonable attorney's fees, or other
expenses or costs arising from or in connection with any
claim, action, or proceeding relating to or arising from (i)
any act or omission or any negligent or intentional
misconduct by Allmerica and/or Insurance Companies relating
to the subject matter of this Agreement; (ii) the failure of
Allmerica and/or Insurance Companies to comply with the
terms of this Agreement; or (iii) Allmerica's and/or the
Insurance Companies' breach of any warranty, representation
or covenant of this Agreement.
With respect to any demand or proceeding involving a matter
("Indemnification Matter") against which a party(ies) to
this Agreement ("Indemnitee") is indemnified by Allmerica
and the Insurance Companies or the General Agent and
Broker-Dealer, whichever is appropriate ("Indemnitors")
under this Section 9, the Indemnitors shall be solely
responsible, at their sole expense, for litigating,
defending or otherwise attempting to resolve such demand or
proceeding, and the Indemnitee shall fully cooperate with
the Indemnitors and counsel in their efforts to litigate,
defend or otherwise attempt to resolve such demand or
proceeding, and the Indemnitee shall have the right to
participate therein at its sole expense, to the extent
permitted by law, through counsel of its own choice. The
Indemnitors shall
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not agree to any settlement without the Indemnitee's prior
written consent, which consent shall not be unreasonably
withheld.
With respect to each Indemnification Matter:
Within 10 days after the Indemnitee receives documents
pertaining to any demand or proceeding constituting
such Indemnification Matter, or within such shorter
period of time as may be necessary under the
circumstances to avoid prejudice to the Indemnitors'
rights, the Indemnitee shall give notice to the
Indemnitors of the nature of such indemnification
Matter and shall deliver to the Indemnitors copies of
all such documents.
Within 10 days after a final agreement is reached or a
final judgment is rendered with respect to such
Indemnification Matter, the Indemnitors shall pay to
the Indemnitee any amounts to which the Indemnitee is
entitled under this Section 9.
If a Contract is not delivered to the Contract owner within
10 days of the date of issue of the Contract and if after
delivery the owner returns the Contract to the Insurance
Company and receives a full refund of all payments made, in
any situation where the failure to deliver in a timely
manner was due to the inaction or negligence of the General
Agent, the Broker-Dealer or a Registered Representative, the
difference between the payments refunded and the cash value
of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be
reimbursed to the Insurance Company by the General Agent or
Broker-Dealer in any case where the cash value is less than
the payments refunded. Any such reimbursement shall be paid
COMMISSION to the affected Insurance Company within 30 days of receipt
REFUNDS of a written request for payment.
The provisions of this Section 9 shall survive termination
of this Agreement.
BASIS OF SECTION 10. If a Contract owner rescinds a Contract or
COMPENSATION exercises a right to surrender a Contract for return of all
payments made, General Agent or Broker-Dealer will repay the
appropriate Insurance Company the amount of any commissions
received on the payments returned within 30 days of receipt
of a written request for repayment.
SECTION 11. While this Agreement remains in force, the
TIME OF PAYMENT Insurance Companies agree to pay General Agent and/or
OF COMMISSIONS Broker-Dealer commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from
which amounts General Agent and Broker-Dealer agree to pay
their Registered Representatives. Commission payments will
be made for each Contract issued pursuant to an application
solicited by duly appointed Registered Representatives.
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TERMINATION
SECTION 12. A payment will not be considered made until it
has been received by the Insurance Company at its Principal
Office. On payments made, commissions will be paid at
regular intervals in accordance with the written rules of
the Insurance Companies.
SECTION 13. This Agreement shall automatically terminate
immediately and without notice upon General Agent's or
Broker-Dealer's ceasing to comply with any of the terms and
conditions of this Agreement or upon the dissolution,
bankruptcy or insolvency of General Agent or Broker-Dealer.
Whether or not there is a breach of this Agreement, General
Agent, Broker-Dealer or Allmerica may terminate this
Agreement by giving thirty (30) days' advance written notice
to the other parties of such termination. PROVIDED,
HOWEVER, that any such termination by Allmerica shall
require the written consent of Broker-Dealer and General
Agent.
In the event of termination, Allmerica, the Insurance
Companies, Broker-Dealer and General Agent shall agree on
the wording of any notices to be sent to any person or
Contractholder, subject to the requirements of applicable
laws and regulations concerning any matter within the scope
of this Agreement, including replacement of the General
Agent.
Upon termination of this Agreement all authorizations,
RIGHT OF SET-OFF rights and obligations shall cease except the obligation to
pay commissions due on payments received prior to
termination for Contracts in effect on the date of
termination, or for Contracts to be issued pursuant to
applications received by the Insurance Companies prior to
termination. Except as provided in the preceding sentence,
no further commissions shall be paid after termination of
this Agreement.
SECTION 14. Allmerica and the Insurance Companies will have
a lien on any commissions payable under this Agreement,
whether or not such payments are now due or hereafter become
due, and may apply any such monies to the satisfaction of
any indebtedness to Allmerica or either Insurance Company
WAIVER AND arising under this Agreement, to the extent permitted by law.
MODIFICATION
Allmerica and the Insurance Companies can only exercise this
lien upon thirty (30) days' advance written notice to the
General Agent and Broker-Dealer and such written notice
shall set forth the basis of the exercise of any such lien.
SECTION 15. No waiver by any party of any default by
another in the performance of any promise, term or condition
of this Agreement shall be construed to be a waiver by such
party of any other or subsequent default in performance of
the same or any other covenant, promise, term or condition
hereof. No prior transactions or dealings between the
parties shall be deemed to establish any custom or usage
waiving or modifying any provision hereof. Except as
otherwise provided within the Agreement, this Agreement may
be modified only by a written agreement duly
7
<PAGE>
ASSIGNMENT signed by the persons authorized to sign agreements on
behalf of the parties. This Agreement and the attached
Schedules constitutes the entire agreement between the
parties with regard to this subject matter. The word
"Agreement" shall be understood to include any and all
Addenda attached in accordance with the terms and conditions
herein provided.
SECTION 16. This Agreement and the rights, duties and
obligations of the parties hereto shall not be assignable by
either without prior written consent of the other parties,
and any purported assignment shall be void, EXCEPT that the
General Agent or the Broker-Dealer shall be permitted to
RESERVATION OF assign the Agreement or any interest they may have in the
RIGHT TO CHANGE Agreement to their ultimate parent holding company and any
affiliate or subsidiary of the General Agent, the
Broker-Dealer, or their ultimate parent holding company,
upon notice to but without obtaining the consent of
Allmerica and the Insurance Companies. Any assignee shall
be appropriately licensed and shall comply with all
applicable insurance laws and regulations.
SECTION 17. Allmerica reserves the right at any time, and
from time to time, to change prospectively the terms and
conditions of this Agreement. PROVIDED, HOWEVER, that
Allmerica agrees that any such unilateral changes shall be
limited to the following: (i) changes which Allmerica
determines are reasonably necessary to comply with any
federal or state legislative or regulatory requirements,
(ii) amendments related to changes in Allmerica's and/or the
Insurance Companies' product line, contracts or distribution
structure affecting all broker-dealers and general agents
involved in the solicitation and servicing of variable life
insurance or variable annuity contracts substantially the
same as the Contracts described in this Agreement or (iii)
changes in Contract commission rates. Any change will
become effective on the date specified in a notice or, if
later, thirty (30) days after the notice is given to General
Agent and Broker-Dealer. However, the requirement to give
COMPLAINTS AND advance notice shall not apply if the change becomes
INVESTIGATIONS necessary or expedient by reason of legislation or the
requirements of any governmental body and, in the opinion of
Allmerica, it is not reasonably possible to meet the thirty
day requirement. Changes will not be retroactive and will
apply only to life insurance coverage solicited or annuity
payments made on or after the effective date of the change.
SECTION 18. General Agent, Broker-Dealer, Allmerica and the
Insurance Companies agree to cooperate fully in any customer
complaint, insurance or securities regulatory proceeding or
judicial proceeding with respect to General Agent,
Broker-Dealer, Allmerica, the Insurance Companies, their
affiliates or their Registered Representatives to the extent
that such customer complaint or proceeding is in connection
with Contracts marketed under this Agreement. Without
limiting the foregoing:
(a) General Agent and Broker-Dealer will be notified
promptly by Allmerica or the Insurance Companies of any
written customer complaint or notice of any regulatory
proceeding or judicial proceeding of which they become
aware
8
<PAGE>
including General Agent, Broker-Dealer or any Registered
Representative which may be related to the issuance of
any Contract marketed under this Agreement. General
Agent or Broker-Dealer will promptly notify Allmerica
and the Insurance Companies of any written customer
complaint, or notice of any regulatory proceeding or
judicial proceeding received by General Agent or
Broker-Dealer related to any Contract marketed under
this Agreement or any activity in connection with any
such Contract(s).
(b) In the case of a customer complaint, General Agent,
Broker-Dealer, Allmerica and the Insurance Companies
CONFIDENTIALITY will cooperate in investigating such complaint and any
proposed response to such complaint will be sent to the
other parties of this Agreement for approval not less
than five (5) business days prior to its being sent to
the customer or regulatory authority, except that if a
more prompt response is required, the proposed response
shall be communicated by telephone or facsimile
transmission.
SECTION 19. Allmerica and the Insurance Companies agree
that the names and addresses of all customers and
prospective customers of General Agent and Broker-Dealer and
of any company or person affiliated with General Agent or
Broker-Dealer, and the names and addresses of any Registered
Representatives of General Agent and Broker-Dealer which may
come to the attention of Allmerica or the Insurance
Companies exclusively as a result of its relationship with
General Agent and Broker-Dealer or any affiliated company
and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or
any company or person affiliated with Allmerica or the
Insurance Companies, nor divulged to any party for any
purpose whatsoever, except as may be necessary in connection
with the administration and marketing of the Contracts sold
by or through General Agent, including responses to
specified requests to the Insurance Companies for service by
Contract owners or efforts to prevent the replacement of
such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and
addresses of such customers, prospective customers and
Registered Representatives be furnished by Allmerica or the
Insurance Companies to any other company or person,
including but not limited to, any of their managers,
registered representatives, or brokers who are not
Registered Representatives of Broker-Dealer, any company
affiliated with Allmerica or the Insurance Companies or any
manager, agency, or broker of such company, or any
securities broker-dealer or any insurance agent affiliated
with such broker-dealer. The intent of this section is that
Allmerica, the Insurance Companies or companies or persons
affiliated with them shall not utilize, or permit to be
utilized, their knowledge of General Agent, Broker-Dealer or
of any affiliated companies which is derived exclusively as
a result of the relationships created through the sale of
the Contracts.
Should General Agent and/or Broker-Dealer or any affiliate or
subsidiary thereof make available customer information of any
type to Allmerica and Insurance Companies for purposes
contemplated pursuant to this Agreement, Allmerica and
9
<PAGE>
Insurance Companies acknowledge that General Agent and
Broker-Dealer, their affiliates or subsidiaries, as the case
may be, are the owners and have the exclusive right to all
such customer lists, records (in writing or in other form)
or other information (including originals, copies or any
derivative material of any of the foregoing documents)
relating to customers or clients of General Agent and/or
Broker-Dealer, their affiliates or subsidiaries
("Customers"). Allmerica and Insurance Companies agree that
they will not knowingly solicit Customers for any other
products or services offered by Allmerica and Insurance
Companies, their subsidiaries, affiliates or any third party
without the prior written consent of General Agent and
Broker-Dealer, their subsidiaries or affiliates, which
consent may be unreasonably withheld.
Information obtained by Allmerica and/or Insurance Companies
in regard to Contracts issued by Allmerica and/or Insurance
Companies shall remain the property of Allmerica and/or
Insurance Companies.
Notwithstanding the foregoing provisions of this Section 19,
nothing herein shall prohibit Allmerica, the Insurance
Companies or any company or person affiliated with Allmerica
or the Insurance Companies from (i) seeking business
relationships and entering into separate sales agreements
with Registered Representatives of Broker-Dealer if the
names of said Registered Representatives were obtained from
independent sources and not exclusively as a result of
Allmerica's relationship with General Agent and
Broker-Dealer; (ii) from entering into separate sales
agreements with Registered Representatives of Broker-Dealer
upon the request and at the initiation of said Registered
Representatives; or (iii) divulging the names and addresses
of any Customers, prospective customers, Registered
BONDING Representatives, or other companies or persons described in
the preceding paragraph in connection with any customer
complaint or insurance or securities regulatory proceeding
described in Section 18.
The terms of this Section 19 shall survive termination of
this Agreement.
NOTICES
SECTION 20. General Agent and Broker-Dealer represent that
all of their directors, officers, employees and Registered
Representatives are and shall be continuously covered by a
blanket fidelity bond, including coverage for larceny and
embezzlement, issued by a reputable bonding company. This
bond shall be, at least, of the form, type and amount
required under the NASD Conduct Rules.
SECTION 21. All notices which are required to be given or
submitted pursuant to this Agreement shall be in writing and
shall be deemed given when deposited with the United States
Postal Service, postage prepaid, registered or certified
mail, return receipt requested, to the last address of
record of the party being notified which is maintained by
the other party in the ordinary course of business. Each
party agrees to notify the others immediately in writing of
any claims, demands or actions having any bearing on this
Agreement. Until further notice, all notices to Insurance
Companies and Allmerica shall be sent to the address
specified on page 1 of this
10
<PAGE>
Agreement. Until further notice, all notices to the
Broker-Dealer shall be addressed to Chase Investment
Services Corp., 55 Water Street, New York, NY 10041,
Attention: Gary Johnson, Vice President, and all notices
to the General Agent shall be addressed to Chase Insurance
Agency, Inc., 802 Delaware Avenue, 12th Floor, Wilmington,
DE 19801, Attention: Thomas Molitor, Vice President.
AUDIT
Notwithstanding the foregoing, proper notice shall also be
effective and deemed given when sent if given by facsimile
transmission, provided that such transmission is followed by
an original of the notice mailed within three (3) business
days of the date of the sending of the facsimile
transmission postage prepaid, registered or certified mail,
return receipt requested, as described above.
SECTION 22. General Agent and Broker-Dealer shall have the
right upon reasonable written notice to Allmerica and the
Insurance Companies during regular business hours, to audit
all the records and practices of Allmerica and the Insurance
Companies relating to the business contemplated hereunder in
order to determine if Allmerica and the Insurance Companies
are complying with the terms of this Agreement, including
USE OF NAME the payment of compensation. General Agent and
Broker-Dealer will have the right to inspect and copy all
such records at their own expense. At General Agent's and
Broker-Dealer's option, such audit may be conducted by
designated personnel or an independent auditor selected by
General Agent and Broker-Dealer. Any such audit shall be
conducted in a manner that avoids any material disruption of
Allmerica's or the Insurance Companies' business.
REPRESENTATIONS
AND WARRANTIES SECTION 23. Neither Allmerica nor the Insurance Companies
shall use the name "Chase Manhattan Bank", "Chase Investment
Services Corp.", "Chase Insurance Agency, Inc.", "Chase" or
any derivative thereof, in any manner whatsoever without the
express prior written consent of Broker-Dealer, General
Agent and The Chase Manhattan Bank, which consent may be
withheld in their sole and absolute discretion.
SECTION 24. In order to induce Broker-Dealer and General
Agent to enter into and to perform their obligations under
this Agreement, Allmerica and Insurance Companies represent
and warrant to Broker-Dealer and General Agent that:
(a) Allmerica and First Allmerica are corporations duly
incorporated, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts.
Allmerica Financial Life is a corporation duly
incorporated, validly existing and in good standing
under the laws of the State of Delaware. Allmerica and
the Insurance Companies are qualified and licensed to
do business and are in good standing in each state
where the nature of their business requires such
qualification; have all requisite corporate right,
power and authority to own and lease their properties,
to carry on their business in the manner in which it is
now conducted and to enter into, execute and deliver
this Agreement and to perform their obligations
hereunder; and have completed all corporate proceedings
11
<PAGE>
necessary to authorize the execution and delivery of
this Agreement and the performance of their obligations
hereunder;
(b) The execution and delivery by Allmerica and Insurance
Companies of this Agreement and the performance of all
of their obligations hereunder will not violate any
provisions of their Articles of Incorporation or
By-laws;
(c) This Agreement will constitute a valid and binding
obligation of Allmerica and Insurance Companies, fully
enforceable in accordance with its terms, except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and by
general equity principles;
(d) The execution and delivery by Allmerica and Insurance
Companies of this Agreement and the performance by
Allmerica and Insurance Companies of all of their
obligations hereunder will not violate or result in the
breach of any material term or provision of, constitute
a material default under or permit the acceleration of
maturity under, any material governmental or judicial
order, judgment or decree, or any material loan
agreement, debenture, mortgage, deed of trust or other
agreement or instrument, to which Allmerica and/or
Insurance Companies is a party or by which it is bound;
(e) There is no material threatened or pending legal
proceeding or government action to which Allmerica
and/or Insurance Companies is a party or to which any
of their property is subject which could materially and
adversely affect the ability of Allmerica and Insurance
Companies to enter into this Agreement and/or to
perform all of their obligations hereunder;
(f) Allmerica and Insurance Companies have complied with
and are not in default in any material respect under
any laws, ordinances, requirements, regulations, orders
or decrees of any court, commission, board or other
administrative body or governmental agency having
jurisdiction in respect of the conduct of their
business which could materially and adversely affect
their ability to enter into this Agreement and to
perform all of their obligations hereunder;
(g) All (i) insurance products issued by Insurance
Companies hereunder, and (ii) all compensation payable
hereunder to Broker-Dealer or General Agent, comply
CHANGE OF with all applicable laws, regulations and rulings, and
CONTROL - are or shall be filed with and approved by all
RIGHT OF administrative agencies as required by law; and
TERMINATION
(h) All materials, including but not limited to
advertising, promotional, software, sales
illustrations, and prospectuses, whether electronic,
written or otherwise, provided by Allmerica and/or
Insurance Companies, are current,
12
<PAGE>
free from any known defects and comply with all
applicable laws, regulations and rulings, and are
or shall be filed with and approved by all
administrative agencies as required by law.
CHOICE SECTION 25. The Broker-Dealer and General Agent may
OF LAWS terminate this Agreement if: there is a transfer (i) of
stock or assets of the Insurance Companies which would
effect a change in control of such insurers, or (ii) by
reinsurance or otherwise of ten percent or more of the
CAPTIONS Insurance Companies' insurance in force. The term "control"
means the possession, direct or indirect of the power to
direct or cause the direction of the management and policies
of the Insurers, whether through the ownership of voting
securities, by contract or otherwise. Control shall
conclusively be deemed to exist if any person directly or
EFFECTIVENESS; indirectly owns, controls or holds with the power to vote
ENTIRE ten percent or more of the voting securities of the
CONTRACT; Insurance Companies or any person(s) controlling such
PRIOR insurers.
AGREEMENTS
SECTION 26. The laws of the State of New York shall govern
all matters concerning the validity, performance and
integration of this Agreement.
SECTION 27. Captions are used for informational purposes
only and no caption shall be construed to affect the
substance of any provision of this Agreement.
SECTION 28. This Agreement contains the entire contract
between the parties. Upon execution it will replace all
previous agreements between General Agent or Broker-Dealer
and Allmerica and the Insurance Companies, or any of them,
relating to the solicitation of Contracts. It is hereby
understood and agreed that any other agreement or
representation, commitment, promise or statement of any
nature, whether oral or written, relating to or purporting
to relate to the relationship of the parties is hereby
rendered null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
For: CHASE INSURANCE AGENCY, INC. For: ALLMERICA INVESTMENTS, INC.
By: /s/ Joseph D. Picarello By: /s/ Emil J. Aberizk Jr.
-------------------------------- ----------------------------------
Name: Joseph D. Picarello Name: Emil J. Aberizk Jr.
-------------------------------- ----------------------------------
Title: Vice President Title: Compliance Officer
-------------------------------- ----------------------------------
Date: 1/28/98 Date: 2/19/98
-------------------------------- ----------------------------------
13
<PAGE>
For: CHASE INVESTMENT SERVICES CORP. For: FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY AND ALLMERICA
FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY
By: /s/ Arden D. Down By: /s/ Emil J. Aberizk Jr.
-------------------------------- ----------------------------------
Name: Arden D. Down Name: Emil J. Aberizk Jr.
-------------------------------- ----------------------------------
Title: Vice President Title: Compliance Officer
-------------------------------- ----------------------------------
Date: 2/5/98 Date: 2/19/98
-------------------------------- ----------------------------------
14
<PAGE>
ALLMERICA FINANCIAL
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
PRINCIPAL UNDERWRITER AND EXCLUSIVE DISTRIBUTOR
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA INVESTMENTS, INC.
- --------------------------------------------------------------------------------
GROUP VARI-EXCEPTIONAL LIFE PLUS CERTIFICATES*
COMMISSION SCHEDULE
STANDARD SERVICE
Premium Paid: 3%
Fee**: $12/quarter
Trail***: .25%
STANDARD SERVICE WITH LOWER ADMINISTRATION CHARGE
Premium Paid: 3%
Trail**: .25%
CONSULTATIVE SERVICE WITH ONGOING ADMINISTRATION
Trail**: .25%
FULL SERVICE
FOR EACH CERTIFICATE YEAR
PERCENTAGE OF TOTAL PREMIUMS PAID
Premiums Paid Year 1: 9%
Premiums Paid Year 2 through 5: 4%
Trail**: .25%
FULL SERVICE
FOR EACH CERTIFICATE YEAR
PERCENTAGE OF TOTAL PREMIUMS PAID
Premiums Paid Year 1: 9%
Premiums Paid Year 2 through 5: 6%
Premiums Paid Year 6 on: 5%
MODERATE SERVICE
FOR EACH CERTIFICATE YEAR
PERCENTAGE OF TOTAL PREMIUMS PAID
Premiums Paid Year 1: 6%
Premiums Paid Year 1 through 5: 3%
Premiums Paid Year 6 and thereafter: 2%
FULL SERVICE WITH ONGOING ADMINISTRATION
FOR EACH CERTIFICATE YEAR
PERCENTAGE OF TOTAL PREMIUMS PAID
Premiums Paid Year 1: 6%
Premiums Paid Year 2 and thereafter: 4%
Fee**: $12/quarter
Trail***: .25%
* Allmerica Financial Life Insurance and Annuity Company Certificate Form
1029-94. First Allmerica Financial Life Insurance Company Certificate
Form 1029-94NY.
** Fee is paid in arrears for each Certificate that is in force at the end
of each calendar quarter. Fee is payable within 60 days following the
end of each calendar quarter.
*** Trail commissions will be paid within 60 days following the end of each
quarter. Quarterly trail commissions will be .0625% (1/4 of .25%) of the
unloaned value of each eligible Certificate. For purposes of trail
commission calculations, unloaned account value means the cash value of
a Certificate on the last day of the calendar quarter immediately
preceding the payment date less the principal of any Certificate loan
and accrued interest thereon. The first full trail commission for a
Certificate will be paid on the first quarterly payment date following
the first anniversary of the date of issue of the Certificate (e.g., if
the Certificate is issued on March 1, 1995, the first trail commission
will be payable within 60 days of March 31, 1996). Trail commissions will
continue to be paid while the Sales Agreement remains in force and will
be paid on a particular Certificate while the Certificate remains in
force.
No expense allowances are payable on Group Vari-Exceptional Life Plus
Certificates.
NOTE: COMMISSIONS WILL ONLY BE PAID WHILE THE SALES AGREEMENT IS IN FORCE.
<PAGE>
ALLMERICA ALLMERICA 440 Lincoln Street GENERAL AGENT'S
FINANCIAL INVESTMENTS, INC. Worcester, MA 01653 AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints
__________________________________________________
("General Agent") as local supervisor for the purpose of training and
supervising all associated persons and registered representatives of Company
assigned to _________________________________________________________
("Agency") engaged in the solicitation, sale or service of variable life
insurance and variable annuity contracts offered by Allmerica Financial Life
Insurance and Annuity Company and/or First Allmerica Financial Life Insurance
Company, mutual funds, limited partnerships and general securities (collectively
"Investment Products and Services") offered and/or distributed by Company. This
appointment is effective as of the date accepted by General Agent and
acknowledged by Company.
1. SUPERVISION: General Agent agrees to supervise all registered
representatives assigned to Agency, both those operating from Agency and
those operating from detached locations, consistent with the standards of
conduct outlined in Company's Business Conduct Guide, Company's Statement
of Compliance for the Office of Supervisory Jurisdiction and Branch
Offices, the Program for Allmerica Financial Life/Allmerica Investments
Office Examinations, and the procedures and requirements outlined in other
Company manuals, memoranda and other publications, as may be amended from
time to time.
General Agent agrees to be responsible for Investment Products and Services
activity conducted through Agency by monitoring Investment Products and
Services activity in order to ensure that the business is processed in
accordance with regulatory and Company standards and to notify Company of
any irregularities and/or deficiencies.
General Agent agrees to be responsible for the maintenance and periodic
review of the books and records of Agency, as required by Company.
On at least an annual basis, General Agent agrees to conduct and/or
participate, in coordination with Company's compliance personnel, an agency
compliance meeting which all registered representatives assigned to Agency
shall attend. If for any reason a registered representative does not
attend agency compliance meeting, General Agent will schedule a personal
interview, on at least an annual basis, for the purpose of reviewing
activity of registered representative with respect to Investment Products
and Services and to discuss the compliance topics reviewed at agency
compliance meeting.
General Agent agrees to acquire and/or comply with all of the applicable
laws, rules and regulations (General Securities Principal Registration) of
the Securities and Exchange Commission (SEC), National Association of
Securities Dealers, Inc. (NASD) and all other federal and state laws and
regulations.
General Agent agrees to maintain all NASD registrations required to
supervise the solicitation and sale of Investment Products and Services
offered through Agency. General Agent will maintain all state securities
licenses and state insurance licenses as may be required to offer and
solicit Investment Products and Services.
2. LIMITATIONS OF AUTHORITY: General Agent has no authority to accept any
risk on Company's behalf, to issue, make, alter or discharge any contract,
to extend the time of payments, to waive or extend any contract obligation
or condition, or to alter or amend any communication sent by Company
without express authority in writing from an officer of Company.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any
of the rights, claims or interests under it may be made by General Agent
without the prior written consent of Company. An assignment, sale or
transfer by General Agent without written consent of Company will
immediately make this Agreement void and shall be a release in full to
Company of any and all of its obligations under this Agreement.
4. AGENCY STAFFING: General Agent agrees to recruit, train and supervise
registered representatives to solicit Investment Products and Services
offered through Company. General Agent agrees to develop a sales force of
sufficient size and quality to adequately penetrate the market with
Investment Products and Services of Company.
<PAGE>
5. BUSINESS AUTHORIZED: General Agent agrees to act for Company in the
solicitation of orders only for those Investment Products and Services for
which Company has executed sales agreements. General Agent shall monitor
his/her registered representatives on a continuing basis to prevent the
offering or the selling of Investment Products and Services not offered by
Company and to prevent registered representatives of Company from
exercising discretionary authority on behalf of any of their clients.
6. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: General Agent
agrees to establish and maintain at Agency procedures, as outlined in
Company manuals, concerning the collection, recording and transmittal of
all applications and/or payments collected on behalf of Company, any
issuer, or any sponsor.
General Agent agrees to be responsible to Company for monies collected by
registered representatives and for any securities, certificates, payments,
receipts and other Company papers in the possession of registered
representatives and employees of Agency.
Purchase checks for Investment Products and Services are to be client
personal checks, cashier's checks or money orders made payable to either
the Company, appropriate issuer, sponsor or other designated agent.
Purchase checks may not be made payable to registered representative,
General Agent or any personal or Agency Accounts.
7. REVIEW OF INVESTMENT PRODUCT BUSINESS: General Agent agrees, in accordance
with Company procedures, to conduct periodic reviews of Investment Product
and Services business of each registered representative. Such review of
Investment Product and Services business shall include, but not be limited
to, reviews for adequate NASD registrations and state securities and/or
insurance licensing of registered representative, prompt transmittal of
applications, checks and other pertinent items to Agency and subsequently
to Home Office, the correct use of applications and proper mode of payment
and the suitability of Investment Products and Service based on client's
financial profile and objectives.
8. BOOKS AND RECORDS: General Agent agrees to maintain a regular and
accurate record of all Investment Products and Services transactions of
Agency, including any journal, account books, records, papers, customer
account files or any other material, as required by Company. General Agent
agrees, at such times that Company may request, to make detailed report to
Company, on forms furnished for that purpose, showing an accurate
accounting of all monies and other items received for, or on behalf of
Company.
General Agent agrees that all records, files and papers are, and remain,
property of Company and will at all times be freely exhibited for the
purpose of examinations and inspection by duly authorized personnel of
Company.
Upon termination, all records revert to Company and should be turned over
to a Company representative.
9. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: General
Agent agrees not to directly or indirectly recommend or distribute any
advertising and/or sales literature to registered representatives
(including but not limited to prospectuses, illustrations, circulars, form
letters or postal cards, business cards, stationary, booklets, schedules,
broadcasting and other sales material of any kind) concerning Company
and/or the offering of Investment Products and Services until the material
has been approved in writing by a registered principal in the Company's
Compliance Department.
General Agent also agrees to obtain from his/her registered
representatives, at the time of development, copies of all correspondence
pertaining to the solicitations and/or sale of any Investment Products and
Services or to any other aspect of their Investment Products and Services
business, and to forward the correspondence to Home Office to allow for the
review and endorsement of correspondence in writing, on an official record
of Company, by a registered principal in the Company's Compliance
Department. General Agent shall periodically inspect Registered
Representatives' materials, sales literature and correspondence to ensure
compliance with Company requirements.
10. COMPENSATION: General Agent, subject to the provisions of this Agreement,
will be allowed expense reimbursement or allowances and overriding
commissions on payments collected on all Investment Product sales solicited
by Registered Representatives assigned to General Agent and effected
through Agency at rates established and published by Company, as may be
amended from time to time.
<PAGE>
11. COMMISSIONS: Company will pay commissions to General Agent, after
concession payments are made to Company by an issuer or sponsor, in
connection with sales of Investment Products and Services effected through
General Agent's personal solicitation. Such commissions will be paid on
the same basis and terms as specified in Company's Registered
Representative Agreement, which is incorporated herein by reference and as
may be amended from time to time.
12. TERMINATION WITHOUT CAUSE: General Agent and Company may terminate this
Agreement at any time without cause.
13. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and General Agent. General Agent, however, is to always comply
with all of the applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations and
procedures concerning methods of conducting Investment Products and
Services business, as may be amended from time to time.
14. EFFECTIVENESS OF CONTRACT: This Agreement between General Agent and
Company is not binding until Agreement has been duly executed by both
parties. This Agreement supersedes all previous agreements, whether oral
or written. This Agreement shall not cancel or affect any right, claim or
interest General Agent may have concerning commissions now due or hereafter
to become due under preceding agreements between General Agent and Company.
Neither shall Agreement cancel, terminate or affect in any way any lien,
right or interest which Company may have, or may hereafter acquire, with
respect to commissions or equities to General Agent under any other
agreement with Company, any provision of any such agreement which, by its
terms or by implications, continues beyond termination of such agreement.
IN WITNESS THEREOF, this Agreement has been executed by the undersigned on the
dates indicated below.
Allmerica Investments, Inc.
By: By:
---------------------------------- ----------------------------------
General Agent Signature Home Office Principal
Date: Date:
-------------------------------- --------------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE 440 Lincoln Street
INSURANCE AND ANNUITY COMPANY Worcester, MA 01653 CAREER AGENT AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Financial Life Insurance and Annuity Company (the "Company") does
hereby appoint_____________________________ of _________________________________
("Career Agent") its Agent to solicit applications for insurance and annuities
and to submit such applications through the office of
__________________________________________ ("General Agent"), this appointment
to be effective on _____________________________.
Career Agent accepts this appointment, subject to the terms and provisions set
forth in this Agreement.
WITNESSETH:
Career Agent will solicit applications for coverages offered by the Company and
for which he/she is duly licensed. Career Agent is authorized to collect and
pay over to General Agent premiums on coverages solicited by him/her. Career
Agent shall not delegate any authority granted under this Agreement and shall
not appoint any solicitors or subagents to act on his/her behalf.
TERRITORY AND CLASSES OF BUSINESS
Territory SECTION 1. The district within which Career Agent may
solicit insurance and annuity applications for the Company
is the district assigned to General Agent.
Permissible SECTION 2. Career Agent agrees that in the sale and service
Activity of insurance and annuities he/she will act only on behalf of
the Company and such of its affiliates as he/she is
authorized to represent; and he/she will not engage in any
other activity for remuneration or profit which requires
his/her personal services without first obtaining the
consent of the Company. If the Company makes arrangements
with another business entity to make any of its products
available to Career Agents, this will constitute consent to
Career Agent to enter into an arrangement with such entity
to sell and service such products on its behalf. If, with
the consent of the Company, Career Agent engages in any
personal service activities for remuneration or profit,
he/she will, upon request of the Company, disclose the
amount of time expended and the amount of income derived
from such other activities.
STATUS, DUTIES AND AUTHORITY
Relationship SECTION 3. Nothing in this Agreement will be construed to
of Parties create the relationship of employer and employee between the
Company and Career Agent. Within the scope of his/her
authority, Career Agent will be free to exercise his/her
independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the
Company. However, he/she will have no authority to act in a
manner which does not conform to applicable statutes,
ordinances or governmental regulations pertaining to the
conduct of the business or to reasonable rules adopted, from
time to time, by the Company.
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Limitations SECTION 4. Career Agent will have no authority to accept
on Authority risks of any kind; to make, alter or discharge contracts of
insurance or annuities; to waive forfeitures or exclusions;
to fix any premium for hazardous or substandard risks; to
alter or amend any papers received by him/her from the
Company; to deliver any policy of insurance or any document,
agreement or endorsement changing the amount of insurance
coverage if Career Agent knows or has reason to believe that
the insured is uninsurable; to collect any premium after the
expiration of the policy grace period except in connection
with a policy reinstatement; to accept payment of any
premium unless the premium meets the minimum premium
requirement for the policy established by the Company; or to
contract any debt rendering or purporting to render the
Company liable therefor, without express authority in
writing from an authorized officer of the Company.
Implied SECTION 5. Career Agent will have no power or authority
Authority other than as expressly provided in this Agreement and no
other power or authority shall be implied from the grant or
denial of power specifically mentioned in this Agreement.
Duty of SECTION 6. Career Agent agrees that he/she will not
Compliance; intentionally violate any applicable state or Federal law,
Negative ruling or regulation pertaining to the insurance business or
Obligations any rule or regulation of the Company. Career Agent will
not knowingly engage in any activity which is detrimental to
the best interests of the Company or any of its affiliates.
Neither while this Career Agent Agreement is in force nor
for a period of two years following the termination of this
Agreement will Career Agent directly or indirectly interfere
with the relationship of the Company or any of its
affiliates with any agent or broker.
Policy While this Agreement remains in force, Career Agent agrees
Termination that he/she will not, directly or indirectly, replace or
and Replacement induce or attempt to induce any policyholder to terminate or
replace any policy issued by the Company or any of its
affiliates except when permitted by the rules of the issuing
insurer. For a period of two years following termination of
this Agreement, Career Agent agrees that he/she will not,
directly or indirectly, replace or induce or attempt to
induce any policyholder serviced through the office of the
General Agent to terminate or replace any policy issued by
the Company or any of its affiliates.
SOLICITATION OF INSURANCE AND ANNUITIES
Submission of SECTION 7. Career Agent will submit through General Agent
Applications; all Company policy applications solicited by him/her,
Delivery of whether or not it appears the proposed insured is an
Policies; acceptable risk under the rules of the Company. Career
Rejected Agent will deliver, or cause to be delivered, in accordance
Business with the rules of the Company all policies issued on
applications submitted by him/her and will return to General
Agent any policy which is declined by the applicant or which
cannot be delivered within the time permitted by the
Company's rules. If an application is declined by the
Company or is accepted at a rate higher than standard which
is not acceptable to the applicant, with the Company's
permission Career Agent may place the coverage with another
insurance company.
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Limitation on SECTION 8. Career Agent will not solicit any insurance or
Solicitation annuities in any jurisdiction in which he/she is not
licensed nor will he/she solicit by mail or otherwise any
insurance or annuities outside the district assigned to
General Agent without first receiving consent of the Company
and ascertaining that he/she is properly licensed to solicit
such insurance or annuities.
Advertising SECTION 9. The Company, through General Agent, will make
Material, Rate available to Career Agent a supply of canvassing and
Books, Forms, advertising materials, stationery, books, records and forms
etc. necessary or suitable to properly solicit insurance and
annuities. Career Agent will not print, publish or
distribute any advertisement, circular, statement or
document relating to the business of the Company or any of
its affiliates or use any title or language descriptive of
his/her status without the prior approval of the Company.
Policyowner Solely to assist Career Agent in rendering service to
Service Aids policyowners, Career Agent may use whatever aids, such as
data cards, computer printouts, etc. as may be available.
All such aids, whether furnished by the Company or otherwise
- including any copies thereof - shall be the property of
the Company.
Illustrations Career Agent will not furnish any prospective insured or
and Proposals policyowner an illustration of the financial or other
aspects of a policy or a proposal for a policy of the
Company unless the same has been either furnished by the
Company or prepared from computer software or other material
furnished or approved by the Company. Any illustration or
proposal delivered by Career Agent will conform to standards
of completeness and accuracy established by the Company. If
the proposal or illustration was not furnished by the
Company, Career Agent will retain in his/her records for
availability to the Company a copy thereof or the means to
duplicate the same. Any computer software or materials
furnished by the Company will be and remain its property.
Return of Upon termination of this Agreement, Career Agent will return
Materials, etc. to the Company all manuals, computer software, policyholder
data cards, policyholder files, stationery and business
cards and other material which, by the terms of this Section
or otherwise, is the property of the Company.
Accounting for SECTION 10. In accordance with the rules of the Company,
Funds Collected Career Agent will account for and remit immediately through
General Agent all funds received or collected by him/her for
or on behalf of the Company without deduction for any
commissions, fees, or other claim he/she may have against
the Company and will make such reports and file such
substantiating documents and records as the Company or
General Agent may require.
Liability for SECTION 11. If the Company pays Career Agent commissions or
Refund of fees in advance of receipt of the premium on which the
Commissions payment is based, the amount by which the payment to Career
and Fees Agent exceeds, at any time, the amount attributable to the
premiums paid will constitute a personal debt of Career
Agent payable on demand. If the Company returns premiums on
a policy for any reason whatsoever (other than as a part of
claim settlement) or rescinds or cancels a policy for any
reason whatsoever or if a policyholder exercises a right to
surrender
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the policy for return of all premiums paid, Career Agent
will pay on demand the amount of any commissions received on
the premiums returned.
Notwithstanding the foregoing, after this Agreement has been
in force for 10 complete years and prior to the date the
Agreement is terminated for cause, unearned commissions paid
in advance on policies the premiums for which are being paid
under the Company's Monthly Automatic Premium (MAP) Plan or
other annualized commission arrangement that are repayable
because of a lapse or surrender of the policy may only be
recovered by set-off from first year and renewal commissions
and fees otherwise payable by the Company or its affiliates
to Career Agents.
COMPENSATION
Basis of SECTION 12. Career Agent's compensation will be a
Compensation combination of commissions and fees payable on premiums for
individual and group life, health and annuity policies
placed with the Company. The amount of commissions and fees
payable for individual insurance and annuity policies will
be determined by the further provisions of this Agreement
and the published rules of the Company. The amount of
commissions and fees payable on group life and health
insurance and group annuity policies solicited by Career
Agent will be specified in separate agreements related
solely to that class of business.
Commissions payable on premiums on a policy resulting from
conversion, exchange, replacement or the exercise of an
option to purchase additional insurance will be determined
by Company rules in effect at the time of the conversion,
exchange, replacement or exercise of the option.
Published Rules The Company may, by published rule, limit the amount of
Affecting premium on which commissions or fees are payable and limit,
Compensation defer, or exclude commissions or fees because of the nature
of the transaction, discretionary nature of the premium or
other circumstances.
Payor All compensation due Career Agent under this Agreement will
be paid by First Allmerica Financial Life Insurance Company
(First Allmerica), an affiliate of the Company, as the
common paymaster.
Time of Payment SECTION 13. A premium will not be considered paid until it
of Commissions has been received by the Company at its Principal Office.
On premiums paid or allocated prior to the 15th day of the
month, commissions and fees will be paid on the last
business day of the month. On premiums paid or allocated
subsequent to the 15th day of the month, commissions and
fees will be paid on the 15th day of the following month, or
on the last business day preceding such pay date, if such
pay date is not a business day.
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TERMINATION AND ITS EFFECT ON COMMISSIONS AND FEES
Termination SECTION 14. This Agreement may be terminated for cause and
for Cause without notice if Career Agent:
(a) misappropriates any funds belonging to or received on
behalf of the Company or any of its affiliates; or
(b) withholds any funds or other property belonging to the
Company or any of its affiliates after the same should
have been reported and transmitted to the Company or
its affiliate or after a demand has been made for the
same; or
(c) commits any willful or dishonest act which injures the
Company or any of its affiliates; or
(d) commits any intentional act which violates any
applicable Fair Trade Practices Act and thereby injures
the Company or any of its affiliates; or
(e) intentionally performs any act prohibited by law or
intentionally omits any act required by law with the
result that the Company or any of its affiliates is
subject to disciplinary action; or
(f) willfully violates any of the provisions of this
Agreement.
Forfeiture of SECTION 15. No commissions or fees will be paid following
Commissions termination of this Agreement, if it is terminated for
and Fees cause, nor will commissions or fees continue to be paid
after termination of this Agreement if Career Agent breaches
any of its terms or conditions by the commission of an act
prohibited by its terms.
Termination SECTION 16. Notwithstanding the foregoing, and whether or
Without Cause not there is a breach of this Agreement, either party may
terminate this Agreement during its first year by giving 10
days' notice in writing to the other party of the intention
to do so and thereafter by giving 30 days' notice in writing
to the other party of the intention to do so.
Effect of Certain SECTION 17. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent:
(a) by reason of the death of Career Agent; or
(b) by reason of the permanent Total Disability of Career
Agent; or
(c) by reason of retirement of Career Agent under the
Career Agents' Retirement Plan established and
maintained by the Company; or
(d) by reason of employment of Career Agent by the Company
or any of its affiliates in some capacity other than as
a Career Agent;
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commissions will continue to be paid to Career Agent only as
provided in the Exhibits attached hereto.
After termination of this Agreement by reason of the
permanent Total Disability of Career Agent, if Career Agent
recovers from said disability, this Agreement may be
reinstated. If Career Agent recovers from disability and
this Agreement is not reinstated, commissions will be
payable on premiums paid thereafter only if they would have
been payable if Section 18 had applied on termination.
Effect of Other SECTION 18. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent for any reason other
Without Cause than asset forth in Section 17, commissions will continue to
be paid to Career Agent only as provided in the Exhibits
attached hereto.
GENERAL PROVISIONS
Right of SECTION 19. The Company, for its own benefit, for the
Set-Off benefit of its affiliates and for the benefit of the General
Agent, will have a lien on any commissions and fees payable
under this Agreement, whether or not the commissions are now
due or hereafter become due, and may apply any such monies
to the satisfaction of indebtedness to any of said persons
to the extent permitted by law.
Non-waiver SECTION 20. Waiver of any breach of any provision of this
of Breach Agreement will not be construed as a waiver of the provision
or of the right of the Company to enforce said provision
thereafter.
Assignability SECTION 21. This Agreement is not transferable. Without
the consent of the Company, no rights or interest in or to
commissions or fees will be subject to assignment, other
than a collateral assignment of commissions and fees, and
any attempted absolute assignment, sale or transfer of this
Agreement or of any commissions or fees without the written
consent of the Company will immediately make this Agreement
void and be a release to the Company in full of any and all
of its obligations hereunder.
Errors and SECTION 22. Career Agent agrees to maintain errors and
Omissions omissions insurance coverage meeting the Company's minimum
Coverage coverage requirements and to furnish the Company proof of
such coverage upon request. If any lawsuit is brought
against the Company as a result of any alleged action, error
or omission of Career Agent and if (1) Career Agent has
maintained errors and omissions coverage which complies with
the Company's minimum requirements, and (2) the alleged
action, error or omission of Career Agent was not committed
intentionally or with dishonest, fraudulent or criminal
intent, Career Agent agrees to reimburse the Company and its
affiliates for all costs of the lawsuit, including
attorney's fees, and all damages resulting therefrom up to
the Company's Career Agent liability limit. The minimum
coverage requirements and Career Agent liability limit will
be set forth in a bulletin or announcement published by the
Company and are subject to change at any time. Distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent. If any lawsuit is
brought against the Company as a result of any alleged
Career Agent action, error or omission and if Career Agent
(1) did not maintain at least the
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required minimum errors and omissions coverage, or (2) did
maintain such coverage but Career Agent's action, error or
omission was committed intentionally or with dishonest,
fraudulent or criminal intent, Career Agent agrees to
reimburse the Company and its affiliates for all costs of
the lawsuit, including attorney's fees, and all damages
resulting therefrom unless the court determines the suit to
be groundless and without merit.
Reservation of SECTION 23. The Company reserves the right at any time to
Right to Change change the terms and conditions of this Agreement,
including but not limited to, the rates of commissions and
fees, or to discontinue the payment of any commissions and
fees described in the Exhibits attached hereto.
Effective Date SECTION 24. Any change will become effective on the date
of Change specified in a notice or, if later, 30 days after the notice
is given to Career Agent. However, the requirement to give
advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the
requirements of any governmental body and, in the opinion of
the Company, it is not reasonably possible to meet the 30
day requirement. Changes will not be retroactive and will
apply only to units of coverage solicited on or after the
effective date of the change. Notice of any change may be
given by a Company bulletin or announcement and distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent.
Arbitration SECTION 25. By his/her execution of this Agreement, Career
Agent agrees to settle any dispute, claim or controversy
arising between Career Agent and the Company by arbitration
pursuant to the then current rules of the American
Arbitration Association. Judgment upon any award rendered
in the arbitration may be entered in any court of competent
jurisdiction.
All applicable disputes shall be referred to three
arbitrators, one to be chosen by each party, and the third
by the two so chosen. If either party refuses or neglects
to appoint an arbitrator within thirty days after the
receipt of written notice from the other party requesting it
to do so, the requesting party may nominate two arbitrators
who shall choose the third. In the event the two
arbitrators do not agree on the selection of the third
arbitrator within thirty days after both arbitrators have
been named, then the third arbitrator shall be selected
pursuant to the then current rules of the American
Arbitration Association. The decision of the majority of
the arbitrators shall be final and binding upon all parties.
The expenses of the arbitrators and of the arbitration shall
be equally divided between all parties. Arbitration is the
sole remedy for disputes arising under this Career Agent
Agreement.
General Agent SECTION 26. General Agent means the General Agent
identified on the face page or any other General Agent in
charge from time to time of a general agency office to which
Career Agent is assigned.
Definitions SECTION 27. As used in this Agreement, including the
Exhibits attached hereto:
"Replacement" means a transaction in which a new life or
disability insurance policy or a new annuity contract is to
be purchased, and by reason of the transaction, all or a
portion of
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any existing life or disability insurance policy or any
existing annuity contract has been or is to be lapsed,
forfeited, reduced in face amount, surrendered, assigned to
the replacing insurer, placed on a reduced paid-up basis or
under another nonforfeiture provision or terminated, or
subjected to borrowing or withdrawals, whether in a single
sum or under a schedule of borrowing or withdrawals over a
period of time.
"Total Disability" means the inability of the Career Agent,
because of injury or sickness, to perform the duties of any
occupation for which he/she is reasonably fitted by
training, education or experience. During the first 24
months of total disability, Career Agent will be considered
to have met the foregoing requirement if he/she is unable to
perform the duties of his/her regular occupation and is not
performing the duties of any other occupation. Total
disability will be considered permanent after it has existed
6 months and thereafter while it continues.
"Flexible premium policy" means an individual insurance or
annuity policy under which the policyowner may unilaterally
vary the amount and timing of premium payments.
"Unit of Coverage" means all benefits of a policy which have
the same date of issue, except as modified by Company
published rules. Usually all the benefits specified in the
policy Schedule of Benefits and in each Supplementary
Schedule of Benefits constitute a unit of coverage.
"Policy Year," as to each unit of coverage, means a period
of 1 year commencing on its date of issue and each
anniversary thereof.
"Monthaversary," as to each unit of coverage, means its date
of issue and the corresponding day of each month thereafter.
"Basic premium," for each unit of coverage, means the sum of
the basic or target premiums for each benefit in the unit,
as determined from the Company's Rate Manual.
"Excess premium" means premium paid in any policy year in
excess of basic or target premium.
"Agreement" means this entire agreement, including all
Exhibits and commission and fee schedules attached thereto.
Other Exhibits issued hereafter will become a part of this
Agreement on their effective date.
Notice SECTION 28. Whenever this Agreement requires a notice to be
given, the requirement will be considered to have been met,
in the case of notice to the Company, if delivered or mailed
postage prepaid to General Agent at the agency office or to
a Vice President in the Company's Allmerica Financial
Services Operation and, in the case of notice to Career
Agent, if left at the usual place for him/her to pick up
mail within the agency office, or by mailing postage
prepaid, to Career Agent's last home address known to the
Company or to such other address as may be designated by
Career Agent.
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Captions SECTION 29. Captions are used for informational purposes
only and no caption shall be construed to affect the
substance of any provision of this Agreement.
Effectiveness; SECTION 30. This Agreement contains the entire contract
Entire Contract; between the parties. Upon execution it will replace all
Prior Agreements previous agreements between Career Agent and the Company
relating to the solicitation of insurance and annuity
policies except as the previous agreement relates to the
payment of commissions and fees on policies solicited prior
to the effective date of this Agreement. For purposes of
determining vestings on termination, the date of the
earliest prior Career Agent Agreement executed by Career
Agent during his current period of continuous service with
the Company and First Allmerica will be considered the date
of this Agreement. It is hereby understood and agreed that
any other agreement or representation, commitment, promise
or statement of any nature, whether oral or written,
relating to or purporting to relate to the relationship of
the parties is hereby rendered null and void.
IT IS UNDERSTOOD THAT THIS IS AN "AT WILL" RELATIONSHIP WHICH MAY BE TERMINATED
BY EITHER PARTY WITHOUT CAUSE OR REASON AS PROVIDED FOR IN SECTION 16.
IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate to
take effect on its effective date.
Allmerica Financial Life Insurance and Annuity Company
By:
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Vice President
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Career Agent
Approved:
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General Agent
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DEFINITIONS
Acquired - means born or legally adopted.
Age - means the insured's age as of the nearest birthday measured from a
certificate anniversary.
Amount at risk - for each certificate is the death benefit provided by the
certificate less its certificate value.
Benefit change - means any change in a certificate's face amount, the addition
or deletion of a rider or a change in the death benefit option for an insured.
Certificate date - is shown in the Certificate Schedule, and is the effective
date of coverage under this certificate. Certificate months, years and
anniversaries are measured from this date.
Certificate owner - means you or your assignee.
Certificate year - means a period of 12 months commencing on the same day of the
year as the certificate date.
Death proceeds - is the death benefit adjusted for any debt, rider charges and
monthly deductions.
Debt - means any unpaid certificate loans, plus interest due and accrued on such
loans.
Disabled - means either confined in a hospital or unable because of sickness or
injury, to perform all the normal duties and tasks of the disabled person's
occupation. The term "occupation" includes homemaking and active participation
at school.
Enrollment form - means the form which is completed and signed by the applicant
when applying for the initial coverage.
Evidence of insurability - is information, including medical information,
satisfactory to us, that is used to determine an insured's underwriting class.
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Final premium payment date - means the certificate anniversary nearest the
insured's 95th birthday.
Monthly deduction sub-account - is a sub-account of the Variable Account to
which net premiums are allocated to pay all or a portion of the insurance
charges, charges for any benefits provided by riders, and administrative
charges.
Monthly processing date - is the date on which the monthly deduction is deducted
from certificate values. This date is shown in the Schedule Page.
Net Premium - is equal to the premium less the premium expense charge.
Owner - is the owner of this certificate.
Paid-up insurance - is insurance, usually for a reduced amount, on which no
further premiums are due.
Principal Office - means our office located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
Pro rata - refers to the manner in which a payment or deduction will be
allocated among the General Account and/or the sub-accounts of the Variable
Account, excluding the monthly deduction sub-account. A pro-rata allocation will
be in the same proportion that the certificate value in each account or
sub-account bears to the total certificate value.
Sub-accounts - are the sub-accounts of the Variable Account.
Surrender value - except as otherwise provided in the paid-up insurance option,
is the certificate value less the sum of the debt.
We, us, our - means Allmerica Financial Life Insurance and Annuity Company.
To reach our service center, call 1-800-782-8386.
Written request - is a request in writing satisfactory to us, and filed at our
Principal Office.
You, your - means the owner of this certificate.
GENERAL PROVISIONS
Adjustment of Cost Factors - Monthly insurance charges, premium expense
charges,
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administrative charges and a charge for mortality and expense risk used to
calculate certificate values are set by us, subject to any guarantees set forth
in the policy. Any changes in these factors will be by underwriting class, and
will be based on changes in future expectations for such elements as: investment
earnings, mortality, persistency and expenses.
Incontestability - Except for failure to pay premiums, the insurance coverage
under this certificate cannot be contested after it has been in force during the
insured's lifetime for two years from the date of issue, which is the
certificate date.
Except for failure to pay premiums, a requested increase in the face amount
cannot be contested after the increased amount has been in force during the
insured's lifetime for two years from its effective date.
All statements by any insured person in an enrollment form, including any
subsequent applications, are considered representations and not warranties. We
will not use any statement to contest the coverage under this certificate or
defend a claim unless the statement is in an enrollment form or application, and
a copy of the instrument containing the statement is or has been furnished to
the insured or the beneficiary.
Misstatement of Age - If an insured's age is misstated, and death occurs before
the insured's age 95, the death proceeds will be adjusted. The adjusted death
proceeds will be equal to the insured's certificate value plus the death benefit
which the insurance charges for the amount at risk on the monthly payment date
immediately prior to the date of death would have purchased at the correct age.
Ownership of Assets - We shall have exclusive and absolute ownership and control
of our assets, including the assets of the Variable Account.
Money Payable - All money payable by or to us is to be paid in the lawful
currency of the United States of America.
Suicide Exclusion - The risk of suicide of an insured, while sane or insane,
within two years of the certificate date is not assumed. Instead of the death
benefit, the beneficiary will receive the sum of the certificate premiums paid
less the sum of any outstanding debt and partial withdrawal amounts.
The risk of suicide of an insured, while sane or insane, within two years of the
effective date of any requested increase in the face amount is also not assumed
to the extent of such increase. Instead of the death benefit for the increase in
face amount, the beneficiary will receive the sum of the monthly deductions paid
for such increase.
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Assignment - You may assign rights in the certificate subject to the provisions
of the Certificate Owner and Beneficiary provision.
Protection of Proceeds - To the extent allowed by law, the death proceeds and
certificate values will be exempt from attachment by the claims of creditors of
the payee. No beneficiary can assign, transfer, anticipate or encumber the
proceeds or payments unless you give them this right.
Annual Report - A report will be mailed to your last known address at least once
a year. This report will show the following information for each certificate as
of a date not more than two months prior to the date of the report:
o the death benefit,
o the certificate value in the General Account and in each
sub-account,
o the surrender value,
o certificate premiums paid and monthly deductions made during the
year,
o partial withdrawals and certificate loans, including accrued
interest,
o increases and decreases in the face amount,
o changes in the Maximum Single Premium and the Maximum Level Premium,
and
o any other information required by law.
Projections - You may request an illustration of future benefits based on both
the guaranteed and then current assumptions. We reserve the right to charge a
fee for each projection requested; however, the fee will never be more than $25.
Authority - No change in the certificate will be valid until it is approved by
our President, a Vice President or Secretary. This approval must be endorsed on
or attached to the certificate. No agent or other person has authority to accept
representations or information not in a written enrollment form or application,
nor may that person change this certificate or waive any of its provisions.
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CERTIFICATE OWNER AND BENEFICIARY
Certificate Owner - The insured is the owner of the certificate insuring his or
her life unless another is named as owner in the enrollment form. The owner may
change the ownership without the consent of any beneficiary. The consent of the
insured is required whenever the face amount of insurance is increased. The
owner may exercise all other rights and options granted by the certificate,
subject to the consent of any irrevocable beneficiary. The consent of any
revocable beneficiary is not required.
Assignment - A certificate may be assigned by written request. An absolute
assignment will transfer ownership from you to the assignee. A certificate may
also be collaterally assigned as security. The limitations on ownership rights
while a collateral assignment is in force are set forth in the assignment. An
assignment will take place only when recorded at our 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 us before the change is recorded.
We will not be responsible for the validity of any assignment or the extent of
any assignee's interest. If a certificate is assigned as collateral, any excess
of the amount due the assignee will accrue to those otherwise entitled to it.
Beneficiary - The beneficiary is named by you to receive the death proceeds. The
interest of any beneficiary will be subject to any assignment. A beneficiary may
be revocable or irrevocable. A revocable beneficiary may be changed at a later
time. An irrevocable beneficiary must consent in writing to any change. Unless
otherwise indicated, the beneficiary will be revocable.
A change of beneficiary may be made by written request while the insured is
living. The change will take place as of the date the request is signed even if
the insured is not living on the day the request is received by us. Any rights
created by the change will be subject to any payments made or actions taken by
us before the written request is received.
The interest of a beneficiary who dies before the insured will pass to the
surviving beneficiaries in proportion to their share in the proceeds unless
otherwise provided. If a common disaster clause is in effect on the date of the
insured's death, the beneficiary must survive the insured for the number of days
following the date of the insured's death as shown in the clause (exclusive of
the date of the insured's death); otherwise payment will be made in the same
manner as if such beneficiary had predeceased the insured. If all beneficiaries
die before the insured, the death proceeds will pass to the owner or the owner's
estate.
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BENEFIT
Death Proceeds - Except as otherwise provided in the paid-up insurance option,
the amount payable on the death of the insured prior to the final premium
payment date will be the death benefit under either Option 1 or Option 2,
whichever is applicable. Options 1 and 2 are described later. Any debt, rider
charges, and monthly deductions due and unpaid through the certificate month in
which the insured dies will be deducted from the death proceeds. Any partial
withdrawals and withdrawal charges applicable since the last monthly processing
date also will be deducted from the death proceeds. The amount payable on the
death of the insured after the final premium payment date will be the
certificate value less debt and less any partial withdrawals and withdrawal
charges applicable since the last monthly processing date.
Interest will be paid on lump sum death proceeds at a rate not less than 3% per
year or the minimum rate set by law, if greater. Interest will be paid from the
date of death to the payment date.
Minimum Death Benefit - This certificate provides a minimum amount at risk on
the insured. The minimum death benefit is obtained by multiplying the
certificate value by the percentage shown in the Minimum Death Benefit Table for
the insured's attained age. The minimum death benefit varies by age. The Minimum
Death Benefit Table is shown in the Certificate Schedule.
The minimum death benefit is determined according to the rules set forth in the
federal tax laws. The minimum death benefit will be adjusted to conform to any
changes in the law.
Death Benefit Options - There are two death benefit options. The option is
elected in the insured's enrollment form. The death benefit options are:
Option 1 - The death benefit is the greater of:
o the face amount, or
o the minimum death benefit.
Option 2 - (Not available under paid-up insurance option) The death benefit is
the greater of:
o the face amount plus the certificate value on the date due proof of
death is received by us, increased by any monthly deductions made by
us after the date of death, or
o the minimum death benefit.
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Face Amount - The face amount is shown in the Certificate Schedule. The death
benefit option may be changed by you upon written request. The effective date of
the change is the monthly processing date following the date the request is
received at our Principal Office. Evidence of insurability is required to change
from Option 1 to Option 2. If the change is from Option 1 to Option 2 and we
determine, based on the evidence of insurability, that the insured is an
acceptable risk, the face amount under Option 2 will be equal to the death
benefit less the certificate value under Option 1 on the effective date of the
change. If the change is from Option 2 to Option 1, the face amount will be
equal to the death benefit under Option 2 on the effective date of the change.
The death benefit option may not be changed more than once in any certificate
year. The option may not be changed if it reduces the face amount to less than
the Minimum Face Amount shown in the Certificate Schedule.
Benefit Change - The face amount of this certificate of insurance may be changed
according to the Increase or Decrease provisions if such request is made by you:
o during the lifetime of the insured, and
o by written request while the certificate is in force.
We will deduct the transaction charge for a change in face amount from the
certificate value on the effective date of the change. The transaction charge
for a change is shown in the Certificate Schedule.
Increase - All of the following must occur before the effective date of any
increase in the face amount:
o evidence of insurability must be provided to us,
o the insured must be under our maximum issue age for new insurance
and be insurable according to our underwriting rules, and
o payment to us of the transaction charge for an increase plus two
times the next monthly deduction, if the certificate surrender value
is less than this sum.
The effective date of the increased face amount will be the first monthly
processing date on or following the date all the conditions are met. New
certificate pages, including a Supplemental Insurance Charge Table, will be
issued. These pages will include the following information for the additional
face amount of insurance:
o the effective date,
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o the amount of the increase,
o the underwriting class,
o a new Table of Guaranteed Net Single Premiums, if the underwriting
class of the insured has changed, and
o the new Maximum Single Premium and Maximum Level Premium applicable
to the certificate.
The minimum increase amount is shown in the Certificate Schedule.
You may return the new certificate pages by mailing or delivering them to our
Principal Office or to our agent within ten days after receiving them, 45 days
after you complete Part 1 of the application for the increase, or ten days after
we mail you the Notice of Withdrawal Right. If the certificate pages are
returned, the increase will be considered void from the beginning, and we will
refund the charges deducted from the certificate value which would not have been
deducted but for the increase. The refunded amount will be added to your
certificate value unless you otherwise request. We also will waive any surrender
charge for the increase.
Decrease - Existing insurance will be decreased or eliminated in the following
order:
o first, the most recent increase,
o second, the next most recent increases successively, and
o last, the initial face amount.
A surrender charge, if applicable, will be deducted from the certificate value
on the date of the decrease. Such charge will be:
o the surrender charge for any increased amount which is eliminated in
the order set forth above, plus
o a proportionate share of the surrender charge for a partial
reduction in an increase or in the initial face amount.
You may specify from which sub-account this charge will be deducted. If you do
not so specify, we will allocate the charge among the General Account and all
the sub-accounts (except the monthly
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deduction sub-account if the Payor Option is in force) in the same proportion
that the certificate value in the General Account and the certificate value in
each sub-account bear to the total certificate value.
The effective date of the decreased face amount will be the first monthly
processing date on or following the date of our receipt of the request for a
decrease. New specification pages will be issued. These pages will include the
following information:
o the effective date of the decrease,
o the revised surrender charge, if any, as of the effective date of
the decrease,
o the amount of the decrease and the benefit remaining in force, and
o the new Maximum Single Premium and Maximum Level Premium.
The minimum decrease amount is shown in the Certificate Schedule. The decrease
will not be approved if it results in a certificate face amount less than the
Minimum Face Amount.
PREMIUMS
Certificate Premiums - the certificate premium is the premium paid for insurance
coverage under the policy. The amount of certificate premium is called the
planned premium. Additional certificate premiums, called "unplanned premiums",
may be paid at any time before the insured's age 95 or the date the paid-up
insurance option is elected, if sooner. Certificate premiums may be in any
amount subject to the limits described below. Planned premium payments may be
skipped, or their frequency and amount may be changed.
Maximum Premium - We may limit the maximum certificate premium received in any
certificate year to an amount not less than the Maximum Level Premium. The sum
of the premiums paid on each certificate, less any partial withdrawals, may not
exceed the greater of:
o the Maximum Single Premium, or
o the sum of the Maximum Level Premiums to the date of payment.
The amounts of the Maximum Single Premium and Maximum Level Premium are shown
in the
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Certificate Schedule. The Maximum Single Premium and Maximum Level Premium will
change whenever there is a benefit change. The new Maximum Single Premium and
Maximum Level Premium will be shown in new specification pages issued with each
benefit change. These premium limitations do not apply to the extent necessary
to prevent lapse of the certificate during the certificate year.
The Maximum Single Premium and Maximum Level Premium are determined according to
the rules set forth in the federal tax laws. These premiums will be adjusted to
conform to any changes in the federal tax laws.
In the event the maximum premium limit applies, we will return the excess
premium payment to you.
Net Premiums and Allocation of Net Premiums - The net premium is equal to the
premium less any premium expense charge. The premium expense charge in effect on
the certificate issue date is shown in the Certificate Schedule as "PREMIUM
EXPENSE CHARGE." It may be adjusted to reflect any increase or decrease in the
applicable state or local premium expense rate.
You may allocate the net premiums to one or more of the sub-accounts, to the
General Account, or to any combination of these accounts. You may not allocate
net premiums to more than seven sub-accounts at any one time without our
consent. There may not be certificate value in more than seven sub-accounts at
any one time. The minimum percentage that you may allocate to any one of these
accounts is 1% of the net premium paid. All percentage allocations must be in
whole numbers. The total allocation to all selected accounts must equal 100%.
The sub-accounts that you chose for your initial allocations are shown in the
enrollment form for this certificate, a copy of which is attached to this
certificate. You may change the allocation of future net premiums at any time
upon written request. A processing charge of up to $25 may be made for changing
the premium allocation.
Continuation of Coverage - If planned premiums are not paid as scheduled, the
coverage under this certificate will continue in force for as long as the
surrender value is sufficient to cover the monthly deduction. If the surrender
value of the certificate is not sufficient, the Certificate Grace Period
provision will apply.
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GRACE PERIOD
Certificate Grace Period - The certificate grace period of 62 days will begin if
the surrender value of the certificate is less than the amount needed to pay the
next monthly deduction.
Reinstatement - A certificate may be reinstated during the insured's lifetime if
the coverage has ended because of non-payment of the premium (lapsed) and has
not been surrendered. A certificate will be reinstated effective on the monthly
processing date following the date we receive:
o a written application for reinstatement,
o evidence of insurability showing the insured is insurable according
to our underwriting rules, and
o payment of the reinstatement premium.
The reinstatement premium will not exceed the amount necessary to keep the
certificate in force for three months beginning on the date of reinstatement.
The premiums paid on reinstatement will be allocated to the General Account and
the sub-accounts in accordance with your most recent premium allocation.
The certificate value on the date of reinstatement is:
o the net premium paid to reinstate the certificate increased by
interest from the date the payment was received at our Principal
Office, plus
o an amount equal to the certificate value less debt on the date of
default, minus
o the monthly deduction due on the date of reinstatement.
PAYOR OPTION
Premium Billing and Allocation - The Payor Option is elected when a payor is
named in the enrollment form. Our premium billing procedure will be modified as
described in this section if the Payor Option is elected.
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We will mail all premium notices to the payor while this option is in effect.
The premium notices will include the insurance charges and administrative
charges to be paid by you and the payor. The net premiums paid by you and the
payor for these charges will be allocated to the monthly deduction sub-account,
and the balance of the net premiums will be allocated to the General Account and
appropriate sub-accounts as you direct. No loans, partial withdrawals or
transfers may be made from the monthly deduction sub-account while this option
is in effect.
Changes in the Face Amount and Partial Withdrawals - In the event the payor
agrees to pay the monthly deductions for a specified amount of coverage, you may
purchase additional amounts of insurance in accordance with the increase
provision of this certificate. In the event you later decide to decrease the
face amount of coverage or make a partial withdrawal, you may eliminate that
portion of the face amount for which you are paying the charges before
eliminating amounts of insurance which are paid for by the payor.
Grace Period - We will send a notice to the payor if the value of the monthly
deduction sub-account is less than the amount needed to pay the next monthly
deduction under the certificate. This notice will be sent to the last known
address of the payor. The notice will state the due date and the amount of
premium payable. The premium may be paid during a period of 62 days, beginning
on the premium due date. The certificate will remain in force during this grace
period.
We will send a notice to you if the premium shown in the grace period notice is
not received by us within 31 days of the end of the grace period, and if the
certificate value is not sufficient to maintain the insurance in force.
If the value of the monthly deduction sub-account at the end of the grace period
is not sufficient to pay the monthly deductions which are due, the balance of
the monthly deductions will be withdrawn from the certificate value, if any, in
the General Account and the sub-accounts. A lapse occurs if the certificate
value at the end of the grace period is not sufficient to pay the monthly
deductions which are due. The certificate terminates on the date of lapse. The
death benefit payable during the grace period will be reduced by any overdue
charges.
This option will terminate upon request by you or the payor. If this option
terminates at the written request of the payor, a notice will be sent to your
last known address. This notice will include a statement showing the premium
due, if any.
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CERTIFICATE VALUE
Certificate Value - The certificate value on the date of issue is the net
certificate premium paid, plus any interest earned during the period when
premiums are held in the General Account, less the first monthly deduction.
Monthly Deduction - The monthly deduction from each certificate's value is the
insurance charge, the administrative charge, a charge for the cost of any
additional benefits provided by rider, the Variable Account administrative
charge, and the Variable Account mortality and expense risk charge.
These charges will be allocated as follows:
You may specify from which sub-account the insurance charge, the
administrative charge, and the charges for the cost of any additional
benefits provided by riders will be deducted. If the Payor Option is in
force, all monthly insurance and administrative charges will be deducted
from the monthly deduction sub-account. If you do not so specify, these
charges will be allocated pro rata among the General Account and the
sub-accounts.
The Variable Account administrative charge and the Variable Account
mortality and expense risk charge are assessed against each sub-account
that generates a charge. In the event this charge is greater than the
value of the sub-account to which it relates on a monthly processing date,
the unpaid balance will be totaled and allocated pro rata among the
General Account and the sub-accounts.
Monthly deductions are made on the certificate date and on each monthly
processing date until the final premium payment date. Monthly deductions are not
made if you elect the paid-up option.
Insurance Charges - Beginning on the date of issue of each certificate and
monthly thereafter, prior to the insured's age 95, an insurance charge will be
deducted from the certificate value.
For each certificate, the insurance charge equals the sum of the insurance
charges applicable to the following:
o the initial face amount, plus
o each increase in the face amount, plus
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o any rider benefits.
The insurance charge will be determined each month by the Company. Any change in
the insurance charge will be uniform by underwriting class, The monthly
insurance charge will be adjusted for any decreases in the face amount according
to the Benefit Change provision.
For each certificate, the monthly insurance charge for the initial face amount
will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Insurance Charge Table
for the insured's age, and
(2) is the initial face amount divided by 1,000. For the purpose of this
calculation, the initial face amount will be reduced by the
certificate value minus the administrative charge and charges for
rider benefits at the beginning of the month if Death Benefit Option
1 is in effect to the extent such certificate value does not exceed
the initial face amount; however, if the certificate value exceeds
the initial face amount while Death Benefit Option 1 is in effect,
the excess certificate value will be applied to reduce any increases
in the face amount in the order in which the increases were issued.
The monthly insurance charge for each increase in the face amount issued at the
certificate owner's request will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Supplemental Insurance
Charge Table for the insured's age, and
(2) is the amount of the increase in the face amount divided by 1,000.
For the purpose of this calculation, the increase in the face amount
will be reduced by the excess certificate value minus charges for
rider benefits (as described in the monthly insurance charge for the
initial face amount, above) at the beginning of the month if Death
Benefit Option 1 is in effect.
If the death benefit of any certificate is the minimum death benefit as defined
above, the monthly insurance charge for that portion of the death benefit which
exceeds the face amount will not exceed (1) multiplied by the quotient of (2)
divided by 1,000 where:
(1) is the cost of insurance rate applicable to the initial face amount,
and
(1) is the death benefit less:
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(a) the greater of the face amount of the certificate value if
Death Benefit Option 1 is in effect, or
(b) the face amount plus the certificate value if Death Benefit
Option 2 is in effect.
Cost of Insurance Rate - The cost of insurance is based on the insured's age and
underwriting class. The guaranteed rates are based on the mortality table shown
in the Certificate Schedule. We will review the current monthly cost of
insurance rates when rates for new flexible premium variable life insurance
policies change. Rates will be reviewed not more than once each year nor less
than once in a five-year period. The cost will not exceed the guaranteed amounts
shown in the Insurance Charge Table and any supplements to it.
General Account -The General Account consists of all assets owned by us other
than those in the Variable Account and other separate accounts. Subject to
applicable law, we have sole discretion over the investment of the assets in the
General Account. The allocation or transfer of funds to the General Account does
not entitle you to share in the investment experience of the General Account.
Basis of Value of General Account - Minimum certificate values of the General
Account are based on the mortality table(s) and minimum guaranteed interest
rate(s) shown in the Schedule Pages. Certificate values are based on interest
rates and insurance rates set by the Company. A detailed statement of the way
this value is determined has been filed with the State Insurance Department. All
values are not less than the minimums required by the law in the state in which
the certificate is delivered.
Interest Rate - The guaranteed minimum interest rate used to calculate
certificate values in the General Account is shown in the Certificate Schedule.
The actual interest rate will be determined periodically by us at least
annually; however, the interest rate applicable to that portion of the
certificate value equal to existing debt will be not less than the rate shown in
the Certificate Schedule.
The interest rate in effect on the date a premium is received at our Principal
Office is guaranteed for one year unless the certificate value associated with
the premium becomes subject to a certificate loan. Certificate value will be
used for payment of fees, charges, certificate loans and partial withdrawals on
a last-in, first-out basis.
General Account Certificate Value - If premium is paid with the enrollment form
or at any time prior to issuance and acceptance of the certificate, that premium
will be placed in the General Account on the date it is received at our
Principal Office. All certificate value will be allocated in accordance with
your premium allocation no later than the expiration of the period during which
you
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may exercise your right to examine the certificate.
On each monthly payment date, the certificate value in the General Account is:
o the certificate value in the General Account on the preceding
monthly payment date increased by one month's interest; plus
o net premiums received since the last monthly payment date which are
allocated to the General Account, increased by interest from the
date the payment is received by us; plus
o Variable Account certificate value transferred to the General
Account from any sub-account since the preceding monthly payment
date, increased by interest from the date the certificate value is
transferred; less
o certificate value transferred from the General Account to a
sub-account since the preceding monthly payment date, and interest
on said transfers from the date of transfer to the monthly payment
date; less
o partial withdrawals from the General Account, partial withdrawal
charges and partial withdrawal transaction charges since the last
monthly payment date, and interest on such withdrawals and charges
from the date of withdrawal to the monthly payment date; less
o any transaction charges for any increase in the face amount since
the last monthly payment date, and interest on such charges to the
monthly payment date; less
o any surrender charges incurred since the last monthly payment date,
and interest on such charges to the monthly payment date; and less
o the portion of the monthly deduction allocated to the certificate
value in the General Account.
During any certificate month, the certificate value will be calculated on a
consistent basis.
Variable Account - The certificate value may vary if funded through investments
in the sub-accounts. The Variable Account is separate from our General Account.
That portion of the assets of the Variable Account equal to the reserves and
other certificate liabilities of the certificates which are supported by the
Variable Account will not be charged with liabilities that arise from any other
business we conduct. We established the Variable Account to support variable
life insurance contracts. The Variable Account is registered with the Securities
and Exchange
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Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940 ("1940 Act"). It also is governed by the laws of the State of Delaware
and the laws of the state in which the certificate is delivered.
The Variable Account has several sub-accounts. We reserve the right, subject to
compliance with applicable law, to change the names of the Variable Account or
its sub-accounts. The sub-accounts in which you initially chose to invest are
shown in your enrollment form.
Each sub-account invests its assets in a separate registered investment company
or a separate series of a registered investment company ("Fund").
Income and realized and unrealized gains or losses from the assets of each
sub-account are credited to or charged against that sub-account without regard
to income, gains or losses in the other sub-accounts, the General Account or any
other separate accounts.
Variable Account Certificate Value - Certificate value in the General Account
prior to the date of issue will be allocated to purchase units of the
sub-accounts in accordance with your premium allocation no later than the
expiration of the period during which you may exercise the right to examine the
certificate. Net premiums paid thereafter which are allocated to the
sub-accounts will purchase additional units of the sub-accounts.
The number of units purchased in each sub-account is equal to the portion of the
net premium allocated to the sub-account, divided by the value of the applicable
unit as of the valuation date the payment is received at our Principal Office,
or on the date value is transferred to the sub-account from the General Account
or another sub-account.
The number of units will remain fixed unless (1) changed by a subsequent split
of unit value, or (2) reduced because of a transfer, certificate loan, partial
withdrawal, partial withdrawal charge, deletion transaction charge, monthly
deduction, surrender or surrender charge allocated to the sub-account. Any
transaction described in (2) will result in the cancellation of a number of
units which are equal in value.
On each valuation date we will value the assets of each sub-account in which
there has been activity. The certificate value in a sub-account at any time is
equal to the number of units this certificate then has in that sub-account,
multiplied by the sub-account's unit value.
The dollar value of a 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 Fund. The value of a unit for any sub-account for any
valuation period is determined by multiplying that sub-account's unit value for
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the immediately preceding valuation period by the net investment factor for the
valuation period for which the unit value is being calculated.
Net Investment Factor - The net investment factor measures the investment
performance of a sub-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), 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; and
(b) is the value of that sub-account's assets at the beginning of the
valuation period.
The net investment factor may be greater or less than one; therefore, the unit
value may increase or decrease. You bear the investment risk. Subject to any
required regulatory approvals, we reserve the right to change the method for
determining the net investment factor.
Valuation Dates and Period - A valuation date is each day that the New York
Stock Exchange ("NYSE") is open for business, and any other day in which there
is a sufficient degree of trading in the Variable Account's portfolio securities
to materially affect the value of the Variable Account. A valuation period is
the period between valuation dates.
Addition, Deletion or Substitution of Investments - The investment policy of the
Variable Account shall not be changed without the approval of the Insurance
Commissioner of Delaware. The approval process is on file with the Commissioner
of the state in which this policy is issued.
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of a Fund that are
held by the Variable Account or that the Variable Account may purchase. We
reserve the right to eliminate the shares of any Fund if the shares of a Fund no
longer are available for investment or if, in our judgment, further investment
in any eligible Fund should become inappropriate in view of the purposes of the
Variable Account.
We will not substitute any shares attributable to your interest in a sub-account
without notice to you and any prior approval of the SEC required by the 1940
Act. This shall not prevent the Variable Account from purchasing other
securities for other series or classes of policies, or from permitting a
conversion between series or classes of certificates on the basis of requests
made by certificate owners.
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We reserve the right to establish additional sub-accounts, and to make such
sub-accounts available to any class or series of policies as we deem
appropriate. Each new sub-account would invest in a new investment company or in
shares of another open-end investment company. Subject to obtaining any required
approvals or any consents required by applicable law, we also reserve the right
to eliminate or combine existing sub-accounts and to transfer the assets of one
or more sub-accounts to any other sub-accounts.
In the event of any substitution or change, we may, by appropriate endorsement,
make such changes in this and other policies as may be necessary or appropriate
to reflect the substitution or change. If we consider it to be in the best
interests of certificate owners, the Variable Account may be operated as a
management company under the 1940 Act, or it may be deregistered under that Act
in the event registration no longer is required, or it may be combined with
other separate accounts.
Federal Tax Consideration - We intend to make a charge for any effect which the
income, assets or existence of the Variable Account may have upon its tax. The
Variable Account presently is not subject to tax, but we may assess a charge for
taxes if the Variable Account at any time becomes subject to tax.
TRANSFERS OF VALUE
You may transfer amounts between the General Account and the sub-accounts or
among the sub-accounts by sending us a written request. Once during the first 24
months after the date of issue and during the first 24 months after an increase
in the face amount, you may transfer, without charge, all or part of the
certificate value in the Variable Account to the General Account of this
certificate. If you do so, future payments will be allocated to the General
Account unless specified otherwise. All other transfers are subject to the
following rules, and will be permitted only with our consent.
If we consent to a transfer, the minimum and maximum amounts that may be
transferred will be determined by us according to our then current rules. In
addition, we reserve the right to limit the number of transfers that may be made
in each certificate year, and to establish other reasonable rules restricting
transfers.
If a transfer would reduce the certificate value in the sub-account from which
the transfer is to be made to less than the then current minimum balance
required by us for such sub-account, we reserve the right to include such
remaining value in the amount transferred.
There will be no charge for the first six transfers per certificate year. A
transfer charge of up to $25 will be imposed on each additional transfer and
deducted from the amount that is transferred.
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Transfers as a result of a certificate loan or repayment thereof are not subject
to these rules.
SURRENDER AND PARTIAL WITHDRAWAL OF VALUE
Surrender - Upon written request while the insured is living the certificate may
be surrendered by you for its surrender value as of the date the request is
received in our Principal Office. The certificate will terminate on that date.
You may elect to receive the surrender value in a lump sum or under a payment
option.
Surrender Value - Except as otherwise provided in the paid-up insurance option,
the surrender value is the certificate value less the sum of the debt.
Partial Withdrawals - You may withdraw a portion of the surrender value by
written request while a certificate is in force other than as paid-up insurance.
Partial withdrawals may not be made during the first certificate year. The
amount of a partial withdrawal may not be less than the minimum partial
withdrawal amount shown in the Certificate Schedule. The partial withdrawal
transaction charge, if any, is shown in the Certificate Schedule. In addition,
the withdrawal charge, if any, deducted from the certificate value is shown in
the Certificate Schedule.
Under Death Benefit Option 1, the face amount and certificate value will be
reduced by the amount of the partial withdrawal, and the certificate value will
be reduced further by the partial withdrawal transaction charge. No partial
withdrawal may reduce the face amount to less than the Minimum Face Amount shown
in the Certificate Schedule.
Under Death Benefit Option 2, the certificate value will be reduced by the
amount of the partial withdrawal and the partial withdrawal transaction charge.
We may defer any transfer from the Variable Account or payment of any amount
payable on surrender, partial withdrawal, transfer, certificate loan, or death
of the insured allocated to the Variable Account during any period when (a)
trading on the NYSE is restricted as determined by the SEC, or the NYSE is
closed for other than weekends and holidays, or (b) the SEC by order has
permitted such suspension, or (c) an emergency exists, as determined by the SEC,
such that
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disposal of portfolio securities or valuation of assets of the Variable Account
is not reasonably practicable.
We may defer the portion of any transfer from the General Account or payment of
any portion of the amount payable on surrender, partial withdrawal or
certificate loan allocated to the General Account for not more than six months
from the day the written request and the certificate, if required, are received
by us. No deferral shall be made without reasonable grounds, nor shall such
deferral extend beyond any deferral period allowed by law or regulation. If such
payments are deferred for 30 days or more, the amount deferred will earn
interest during the period of deferment at a rate not less than 3% per year. No
payment to pay premiums on certificates with us will be deferred.
CERTIFICATE LOANS
Certificate Loans - On request you may borrow on the sole security of the
certificate.
Amount Available - You may borrow any amount up to the certificate's loan value.
Except as otherwise provided in the paid-up insurance option, the maximum loan
value in the first certificate year is 75% of the certificate value reduced by
applicable surrender charges, monthly deductions and interest on debt to the end
of the certificate year. The loan value in the second certificate year and
thereafter is 90% of an amount equal to certificate value reduced by applicable
surrender charges. There is no minimum limit on the amount of the loan.
You may allocate a certificate loan among the General Account and the
sub-accounts. If no such allocation is made, we will allocate the loan pro rata
on the date we receive your loan request. Certificate value in each sub-account
equal to the certificate loan allocated to each sub-account will be transferred
to the General Account to secure the debt.
Loan Interest - Interest accrues daily at the interest rate shown in the
Certificate Schedule. Interest is payable at the end of each certificate year or
on a proportionate basis for such shorter period as the debt may exist. Interest
not paid when due will be added to the loan principal and bear interest at the
same rate of interest. If the resulting loan principal exceeds the certificate
value in the General Account, we will transfer certificate value equal to that
excess debt from the certificate value in each sub-account to the General
Account as security for the excess debt. We will allocate the amount transferred
among the sub-accounts pro rata.
Repayment of Debt - Debt may be repaid at any time prior to the lapse of a
certificate.
Foreclosure - If the debt exceeds the certificate value (or the net cash value
if a certificate is in force as paid-up insurance), the certificate will
terminate. A notice of such pending termination will be mailed to your last
known address and to any assignee. If the excess debt is not paid within 62
1029-94 24
<PAGE>
days after this notice is mailed, the certificate will terminate with no value.
PAID-UP INSURANCE OPTION
Benefit - This is insurance, usually for a reduced amount, for the lifetime of
the insured with no further premiums due. The amount of paid-up insurance is the
amount that the surrender value of the certificate can purchase for a net single
premium at the insured's age and underwriting class on the date this option is
elected. The amount of paid-up insurance may not exceed the death benefit in
effect on the date this option is elected. In the event that the surrender value
exceeds the net single premium for the death benefit on the date this option is
elected, the excess will be paid to you.
Basis of Values - The Table of Guaranteed Net Single Premiums per $1,000 of
Insurance is shown in the Certificate Schedule.
Exercise of Option - This option may be elected by written request before the
final premium payment date. We will issue supplemental specification pages and
endorse the certificate as "paid up" effective as of the monthly processing date
following receipt of the written request. The supplemental specification pages
will show:
o the effective date,
o the death benefit,
o guaranteed cash values, and
o riders.
If the insured dies prior to the effective date, we will pay the death proceeds
in effect under this certificate on the date of death.
Effect on the Certificate - After the certificate is endorsed as paid up, no
further premiums may be paid. If the death benefit option in effect when the
certificate becomes paid up is Option 2, it will be changed to Option 1. You may
not:
o change the death benefit option to Option 2,
o increase or decrease the face amount,
o make partial withdrawals, or
1029-94 25
<PAGE>
o transfer funds to the Variable Account.
You may make certificate loans or surrender the certificate for its net cash
value. Riders will continue only with our consent.
The guaranteed cash value of the paid-up insurance equals the net single premium
for the paid-up insurance at the insured's attained age. The net single premium
is determined on the same basis as is used for the purchase price of the paid-up
insurance. The net cash value is the cash value less any debt. The loan value of
paid-up insurance is the amount that, with interest at the certificate loan
interest rate, equals the cash value of the paid-up certificate as of the next
certificate anniversary. The certificate loan interest rate is shown in the
Certificate Schedule.
TERMINATION OF CERTIFICATE
Termination of Insurance - Prior to the insured's death, the certificate will
terminate on the first to occur of the following:
o the certificate lapses,
o the foreclosure date, or
o the surrender of the certificate is requested.
If the insured ceases to be in an eligible class of employees, you may continue
this certificate by paying premiums directly to us.
Continuation of Insured's Coverage After Termination of the Policy - If the
group policy is terminated any certificate then in effect will remain in force
under the discontinued policy, provided it is not cancelled or surrendered by
you.
1029-94 26
<PAGE>
PAYMENT OF PROCEEDS
Payment of Proceeds - 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
currently being offered by us. If you make no election, we will pay the benefits
in a single sum. Information regarding the payment options available will be
furnished to you or your beneficiary upon request. A certificate will be
provided to the payee describing the payment option selected.
If a payment option is selected, the beneficiary, when filing proof of claim,
may pay to us any amount that would otherwise be deducted from the proceeds.
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 the Certificate Owner and Beneficiary provision, you may change any
option selection before the proceeds become payable. If you make no selection,
the beneficiary may select an option when the proceeds become payable.
1029-94 27
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
Home Office: DOVER, DELAWARE
Principal Office: 440 LINCOLN STREET, WORCESTER, MA 01653
1-800-782-8386
GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CERTIFICATE
Death benefits payable in the event of an insured's death. Adjustable death
benefits may be increased or decreased. Coverage may expire prior to the Final
Premium Payment Date if premiums paid or the earnings credited are insufficient
to continue coverage to such date. Some benefits reflect investment results.
Flexible premiums payable to age 95. Nonparticipating.
1029-94
<PAGE>
SMA LIFE ASSURANCE COMPANY
===========================Children's Insurance Rider===========================
This Certificate Rider is evidence that the insured is covered for this benefit
under the rider attached to the group policy if it is shown in the Certificate
Schedule. The insured under the certificate is the insured under the rider.
"Insured child" is defined below.
=====================================Benefit====================================
Benefit--We will pay the children's insurance benefit upon receipt of due proof
that an insured child died while coverage under the rider was in force. The
amount of the children's insurance benefit is shown in the Certificate Schedule.
Unless requested otherwise, the beneficiary under the rider is the owner.
Insured Child Description--"Acquired" means born, legally adopted or attained
the status of stepchild.
"Insured Child" means an acquired child of the insured who:
o is named in the enrollment form for the rider and on the date of the
enrollment form has not reached his or her 18th birthday; or
o is acquired during the insured's lifetime after the date of the enrollment
form but before such child's 18th birthday.
No child can be an insured child while under the age of 14 days. A person will
cease to be an insured child on the certificate anniversary nearest the earlier
of the insured child's 25th birthday and/or the insured's 65th birthday.
Period of Term Insurance--The term insurance on each insured child will begin on
the effective date of coverage under the rider if the child is an insured child
on such date; otherwise the term insurance will begin on the date the insured
child is acquired and is 14 days old. The term insurance will expire on the
date the child ceases to be an insured child.
Paid-Up Term Insurance--If the insured dies while the rider is in force, the
term insurance in force on each insured child will be converted to paid-up term
insurance. The paid-up term insurance on each child will terminate on the date
the child ceases to be an insured child. Coverage under the rider may be
surrendered at any time while the paid-up term insurance is in force for its net
reserve on the date of surrender. However, if the rider is surrendered within 30
days after a certificate anniversary, the value will not be less than the net
reserve on such anniversary. We will furnish a statement of the values for the
coverage under the rider upon request.
Form 1082-94 1
<PAGE>
===================================Conversion===================================
Conversion--The owner may convert the insurance on the life of an insured child
if such request is made:
o within 60 days before the term insurance on the life of an insured child
expires;
o during the insured child's lifetime; and
o while the coverage under the rider is in force.
The owner may convert to a new individual policy. Evidence of insurability will
not be required.
New Policy Description--The new policy will be issued:
o on any form of individual life insurance, other than term, being issued on
the date of issue of the new policy;
o on the life of the insured child only; and
o at the insured child's age and for the premium rates in use on the date of
issue of the new policy.
The face amount may not be less than our minimum issue limit. The face amount
may not be more than 5 times the amount of insurance under the rider on the
insured child. The new policy will not become binding unless the first premium
is paid during the lifetime of the insured child and within 31 days after the
expiration of the term insurance under the rider.
The date of issue of the new policy will be the day after the expiration of the
term insurance under the rider.
The new policy will be subject to any assignments outstanding against the rider.
Riders will be available on the new policy subject to evidence of insurability
and our consent. The time periods of the suicide and incontestability provisions
of the new policy will expire on the same date as such provisions in the rider
would have expired.
=====================================General====================================
Incontestability--Except for failure to pay the charges, coverage under the
rider cannot be contested after it has been in force, during the insured's
lifetime, for two years from its effective date. The insurance on any insured
child named in the enrollment form cannot be contested after it has been in
force, during the insured child's lifetime, for two years from the effective
date of coverage under the rider.
Misstatement of Age--If the age of a child has been misstated and if the child
would not have been an insured child upon his or her death if the age had been
correctly stated, no benefit will be payable if the child dies. Any benefit paid
to the beneficiary because of the death of such child will be repaid to us. If
the age of the insured has been misstated, the termination date of the insured
child's coverage will be based upon the insured's correct age.
Form 1082-94 2
<PAGE>
Termination--Coverage under the rider will terminate on the first to occur of:
o the end of the grace period of a required premium in default; or
o the termination or maturity of the certificate except as provided in the
Paid-Up Term Insurance provision; or
o the day before the certificate anniversary nearest the insured's age 65; or
o the end of the certificate month following a request for termination.
General--The Certificate Schedule will show the effective date of coverage under
the rider.
Charges for this Certificate Rider are payable as part of the monthly deduction
due under the certificate. The monthly charge is shown in the Table of Cost of
Insurance Rates for the Children's Insurance Rider. Charges are payable until
the certificate anniversary nearest the insured's age 65.
Except as otherwise provided, all conditions and provisions of the policy apply
to the rider.
Executed at Worcester, Massachusetts.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1082-94 3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
=========================Accidental Death Benefit Rider=========================
This Certificate Rider is evidence that the insured is covered for this benefit
under the rider attached to the group policy if it is shown in the Certificate
Schedule. The insured under the certificate is the insured under the rider.
Benefit--We will pay the accidental death benefit when the principal office
receives due proof that:
o the insured's death resulted directly and solely from accidental drowning
or accidental bodily injury evidenced by a visible contusion or wound on
the exterior of the body or by internal injuries shown by an autopsy; and
o the insured's death occurred within 90 days after such injury; and
o the insured's injury and death occurred while coverage under the rider was
in force.
If the accidental injury occurred while the insured was a fare paying passenger
in or on a public conveyance operated by a common carrier for passenger service,
the accidental death benefit will be doubled.
Unless requested otherwise, the benefit will be paid to the beneficiary entitled
to the proceeds under the certificate and will be paid in the same manner.
Exclusions--The rider does not cover death which results directly or indirectly
from:
o suicide or attempted suicide, while sane or insane; or
o the commission of a felony by the insured; or
o war, declared or undeclared, or any act of war; or
o travel or flight in or descent from any aircraft if the insured;
o is a pilot, officer or member of the crew; or
o is traveling or flying for the purpose of descent from such aircraft
while in flight; or
o is giving or receiving any kind of training or instructions; or
o has duties aboard such aircraft.
o any physical or mental infirmity, illness or disease; or
o the entry into the body by any means, whether voluntary or involuntary,
of:
o any excitant or hallucinogen; or
Form 1080-94
<PAGE>
o any narcotic, hypnotic or sedative, unless use is as prescribed by a
physician acting within the scope of his license; or
o any poison or poisonous substance; or
o any gas or fumes, other than involuntarily in the course of employment.
Claim--Written notice of claim must be sent to the principal office within 91
days after the insured's death. Failure to furnish notice within such time will
not void a claim if it is shown that notice was given as soon as was reasonably
possible.
If a claim under the rider is denied, any other death benefits may be paid under
the certificate without prejudice to the claim for, or the defense to, the
accidental death benefit.
Incontestability--Except for failure to pay the charges, coverage under the
rider cannot be contested after it has been in force, during the insured's
lifetime, for two years from its effective date.
Termination--The coverage under the rider will terminate on the first to occur
of:
o the end of the grace period of a required premium in default; or
o the termination or maturity of the certificate while the insured is alive;
or
o the day before the certificate anniversary nearest the insured's age 70; or
o the end of the certificate month following a request for termination.
General--The Certificate Schedule will show:
o the amount of the charges for the rider; and
o the effective date of coverage under the rider; and
o the accidental death benefit amount.
Charges for this Certificate Rider are payable as part of the monthly deduction
due under the certificate. The monthly charge is shown in the Table of Cost of
Insurance Rates for the Accidental Death Benefit Rider. Charges are payable
until the certificate anniversary nearest the insured's age 70.
Except as otherwise provided, all conditions and provisions of the policy apply
to the rider.
Executed at Worcester, Massachusetts.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1080-94
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
=============================Waiver of Premium Rider============================
This Certificate Rider is evidence that the insured is covered for this benefit
under the rider attached to the group policy if it is shown in the Certificate
Schedule. The insured under the certificate is the insured under the rider.
Benefit--While the insured is totally disabled, we will add to the certificate
value the waiver of premium benefit. This benefit is the larger of:
o the amount shown in Certificate Schedule; or
o the monthly deduction applicable to the face amounts and other riders
covered by the rider.
The waiver of premium benefit is subject to:
o our receipt of due proof of such total disability; and
o evidence the total disability;
o began while the rider was in force; and
o began before the certificate anniversary nearest age 65; and
o has continued for at least 4 months; and
o the other terms and conditions of the rider.
The benefit will begin with the certificate month following the date total
disability begins or the certificate anniversary nearest age 5, if later. The
benefit will not be provided for any period more than one year prior to the date
we receive written notice of claim. We will credit the certificate value with
any benefit which applies to the time during which benefits are payable.
If the insured's total disability occurs before the certificate anniversary
nearest age 60, the benefit will end when total disability ends. If the total
disability occurs on or after the certificate anniversary nearest age 60, the
benefit will continue during such total disability but not beyond the
certificate anniversary nearest age 65 or two years, whichever is longer.
Benefits will cease on the next monthly processing date following the end of a
period of total disability.
Definitions of Total Disability--Total disability means the insured is unable to
engage in an occupation as a result of disease or bodily injury. "Occupation"
means to attend school if the insured is not old enough to legally end his or
her formal education. Otherwise "occupation" means:
Form 1085-94 1
<PAGE>
o during the first 60 months of disability, the occupation of the insured
when such disability began; and
o thereafter, any occupation for which the insured is or becomes reasonably
fitted by training, education or experience.
Total loss of the following as a result of disease or bodily injury shall be
deemed total disability:
o speech; or
o hearing in both ears; or
o sight of both eyes; or
o the use of both hands; or
o the use of both feet; or
o the use of one hand and one foot.
Risks Not Covered--No benefit will be provided if total disability results,
directly or indirectly, from:
o an act of war, whether such war is declared or undeclared, and the insured
is a member of the armed forces of a country or combination of countries;
or
o any bodily injury occurring or disease first manifesting itself prior to
the effective date of coverage under the rider. However, no claim for total
disability commencing after two years from the effective date of coverage
will be denied on the ground that the disease or impairment not excluded
from coverage by name or specific description existed prior to the
effective date of coverage under the rider.
Notice and Proof of Claim--Written notice of claim must be sent to the principal
office:
o during the lifetime of the insured; and
o while the insured is totally disabled; and
o not later than 12 months after coverage under the rider terminates.
Proof of claim must be sent to the principal office within 6 months of the
notice of claim. Failure to give notice and proof within the time required will
not void or reduce any claim if it can be shown that notice and proof were given
as soon as was reasonably possible.
Proof of continued total disability must be furnished upon our request. Failure
to do so will end the benefit. Such proof will include an authorization to
disclose facts concerning the insured's health and may include medical exams of
the insured conducted by physicians we choose. Such medical exam will be at our
expense. After total disability has continued for 24 months, proof will not be
required more than once a year nor after the certificate anniversary nearest age
65.
Form 1085-94 2
<PAGE>
Benefit Changes--The benefit may be changed by written request. Any increase is
subject to:
o evidence of insurability;
o the insured must be under age 60 and insurable according to our
underwriting rules; and
o payment to us of the amount needed to keep the certificate in force if the
surrender value is less than all charges due on the certificate.
No increases, when added to the existing benefit, may exceed the following
limits:
------------------------------------------
Maximum Benefit Table
------------------------------------------
Monthly Benefit
Attained per $1,000
Age Face Amount
------------------------------------------
0-19 $1.00
20-29 1.25
30-39 2.00
40-49 3.00
50-54 4.00
55 and above 5.50
------------------------------------------
The waiver of premium benefit will be reduced if it exceeds the maximum benefit
after the face amount of the certificate is reduced. The monthly benefit may not
exceed the amount shown in the Maximum Benefit Table.
The effective date of the changed benefit will be the first monthly processing
date on or after the date all conditions are met. New certificate pages,
including a Supplemental Insurance Charge Table will be issued. These pages will
include the effective date of the change, the amount of the change and the
insured's underwriting class.
Incontestability--Except for failure to pay the monthly deduction, this rider
cannot be contested after the end of the following time periods:
o the initial benefit cannot be contested after coverage under the rider has
been in force during the insured's lifetime and without the occurrence of
the total disability of the insured for 2 years from the effective date of
coverage; and
o an increase in the benefit cannot be contested after the increased benefit
has been in force during the insured's lifetime and without the occurrence
of the total disability of the insured for two years from its effective
date.
Termination:--Coverage under this rider will terminate on the first to occur of:
o the end of the grace period of a required premium in default; or
o the termination of the certificate; or
Form 1085-94 3
<PAGE>
o the day before the certificate anniversary nearest age 65, except as
provided in the benefit provision; or
o the end of the certificate month following a request for termination.
Rider Charge--Charges for this Certificate Rider are paid as a part of the
monthly deduction due under the certificate.
The monthly charge is the waiver charge shown in the Table of Cost of Insurance
Rates for the Waiver of Premium Rider multiplied by the greater of:
o the monthly cost of insurance charges applicable to the face amount and
other riders covered by this rider; or
o one-half of the waiver of premium benefit shown in the Certificate
Schedule.
General--The Certificate Schedule will show the effective date of coverage under
the rider.
When an increase in the face amount or an additional rider is applied for,
waiver of premium coverage must also be requested. We reserve the right to
decline issuance of the waiver of premium coverage for the increased face amount
or additional rider benefit.
If total disability begins during the grace period of a required premium, such
premium will be payable.
The waiver of premium benefit will not reduce any amount payable under the
certificate.
Executed at Worcester, Massachusetts.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1085-94 4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
===============================Other Insured Rider==============================
This Certificate Rider is evidence that the insured is covered for this benefit
under the rider attached to the group policy if it is shown in the Certificate
Schedule. The insured under the certificate is the insured under the rider.
"Other Insured" is each person other than the insured who is covered under the
rider.
=====================================Benefit====================================
Benefit--We will pay the term insurance benefit upon receipt of due proof that
an "other insured" died prior to his or her term expiry date while coverage
under the rider is in force. Unless otherwise requested, the term insurance
benefit will be paid to the owner.
An Other Insured Certificate Schedule Page shows for each "other insured":
o the name and age;
o the administrative charge, if any;
o the term insurance benefit;
o the effective date of term insurance; and
o the term expiry date.
============================Benefit Change Provisions===========================
Change Provisions--The owner may change the amount of term insurance with
respect to each "other insured" if such request is made:
o during the lifetime of the "other insured"; and
o by written request while coverage under the group policy is in force.
Increase--Any increase in the amount of term insurance is subject to:
o evidence of insurability;
o the "other insured" must be under age 81 and insurable according to our
underwriting rules;
o payment of an administrative charge not greater than the amount shown in
the Certificate Schedule; and
o payment to us of the amount needed to keep the certificate in force if the
surrender value of the certificate is less than all charges due on the
certificate.
Form 1081-94 1
<PAGE>
The effective date of the increased amount of term insurance will be the first
monthly processing date on or following the date all the conditions are met. A
supplemental Other Insured Certificate Schedule will be issued. This schedule
will include the following information for the additional amount of term
insurance:
o the name of the "other insured";
o the effective date of the increased term insurance;
o the amount of the increase in the term insurance; and
o [the minimum monthly factor,] maximum premiums and cost of insurance rates.
No increase may be less than our minimum limit in effect on the date of the
request.
Decrease--A request to decrease the amount of term insurance on an "other
insured" will be effective on the monthly processing date following the date of
the written request. Such term insurance will be decreased or eliminated in the
following order:
o first, the most recent increase;
o second, the next most recent increase successively; and
o finally, the original amount of term insurance.
A supplemental Other Insured Certificate Schedule will be issued. This schedule
will include the following information:
o the name of the "other insured";
o the effective date of the decrease in the amount of term insurance; and
o the amount of the decrease in the term insurance and the benefit remaining
in force; and
o [the minimum monthly factor and] cost of insurance rates.
Term insurance on an "other insured" may not be reduced to less than our minimum
issue limit.
We reserve the right to establish a minimum limit for the amount of any
decrease.
===================================Conversion===================================
Conversion--The owner may convert the insurance on the life of an "other
insured" if such request is made:
o prior to the "other insured's" age 71;
o during the "other insured's" lifetime; and
Form 1081-94 2
<PAGE>
o while coverage under the rider is in force.
Evidence of insurability will not be required.
New Policy Description--The new policy will be a flexible premium adjustable
life insurance policy. The new policy will be issued:
o on the life of the "other insured" only;
o for the same underwriting class which applies to the "other insured" under
the rider; and
o at the "other insured's" age and for the rates in use on the date of issue
of the new policy.
The date of issue of the new policy will be the monthly processing date
following the date conversion is requested and the first premium is paid. Term
insurance for the "other insured" ends when coverage under the new policy
begins.
The face amount may not be less than our minimum issue limit. The face amount
may not exceed the face amount in effect on the date conversion is requested.
The owner will pay an amount equal to the premium on the new policy. Riders will
be available on the new policy subject to evidence of insurability and our
consent. The time periods of the suicide and incontestability provisions of the
new policy will expire on the same date as such provisions in the rider would
have expired. The new policy will be subject to any assignments outstanding
against the rider.
=====================================General====================================
Owner--The owner of the certificate is the owner of coverage under the rider.
However, if the insured is the owner of the certificate at the time of the
insured's death and there is no contingent owner named, each "other insured"
will become the owner of the term insurance on his or her life.
Conversion Following Insured's Death--If the insured dies while coverage under
the group policy and rider are in force, the owner may convert any "other
insured" insurance within 90 days after the insured's death.
Conversion is subject to the conversion provisions. Term insurance will continue
on the life of each covered "other insured" during the conversion period. This
term insurance will begin on the date of the insured's death and will end on the
first to occur of:
o the expiration of the conversion period; or
o the date of issue of the conversion policy.
Incontestability--Except for failure to pay the charges, term insurance with
respect to each "other insured" cannot be contested after the expiration of the
following time periods:
o the initial term insurance benefit cannot be contested after the term
insurance has been in force during the "other insured's" lifetime for two
years from the effective date of coverage; and
Form 1081-94 3
<PAGE>
o an increase in the term insurance as a result of a request by the owner
which includes evidence of insurability cannot be contested after the
increased amount has been in force during the "other insured's" lifetime
for two years from its effective date.
Suicide Exclusion--The risk of suicide of an "other insured," while sane or
insane, within two years of the effective date of the initial term insurance is
not assumed. The beneficiary will receive the sum of the insurance charges paid.
The risk of the suicide of an "other insured," while sane or insane within two
years of the effective date of any increase in the term insurance amount as a
result of a request by the owner which includes evidence of insurability is also
not assumed to the extent of such increase. The beneficiary will receive the
insurance charges paid for such increase.
Misstatement of Age--If the age of an "other insured" has been misstated, the
amount payable under the rider will be such as the charges paid on the last
monthly processing date would have purchased at the "other insured's" correct
age.
Charges--Charges for this certificate rider are payable as part of the monthly
deduction due under the certificate.
The maximum charges for each year for each "other insured" are shown in the
Other Insured Certificate Schedule. There may be no more than five "other
insured's" under the certificate rider.
Termination--The coverage under the rider will terminate on the first to occur
of:
o the end of the grace period of a required premium in default; or
o the termination or maturity of the certificate; or
o the end of the certificate month following a request for termination.
Term insurance will terminate with respect to an "other insured" on such "other
insured's" term expiry date.
General--The Certificate Schedule will show:
o the effective date of coverage under the rider; and
o the term insurance amount for each "other insured."
Except as otherwise provided, all conditions and provisions of the group policy
apply to the rider.
Executed at Worcester, Massachusetts.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1081-94 4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
OPTION TO ACCELERATE DEATH BENEFITS ENDORSEMENT
This Certificate Endorsement is evidence that the insured is covered for this
benefit under the endorsement attached to the group policy. The insured under
the certificate is the insured under the endorsement. The endorsement does not
apply to any benefits provided by rider.
Benefit--While the endorsement is in force, the owner may elect to receive a
portion of the death proceeds, called the "living benefit," prior to the
insured's death either the terminal illness option or the nursing home option,
subject to the definitions, conditions and limitations in the endorsement.
Definitions -- "Option amount" means that portion of the death benefit which the
owner elects to apply under this option. The option amount must be at least
$25,000, and may not exceed the lesser of:
o one-half of the death benefit on the date the option is elected; or
o the amount that would reduce the face amount to our minimum issue limit for
the certificate; or
o $250,000.
"Option percentage" is the option amount divided by the death benefit.
"Living benefit" is the option amount which has been reduced for interest and
other factors. It is equal to the lump sum benefit under this endorsement, and
is the amount used to determine the monthly benefit. The living benefit will not
be less than the surrender value of the certificate multiplied by the option
percentage. The following factors will be used to calculate the living benefit:
o age;
o sex, unless the certificate is issued on a unisex basis;
o life expectancy;
o certificate value;
o debt;
o rate of interest currently being credited to the certificate value
including those values which are subject to debt;
o face amount;
o current insurance charges;
o death benefit option;
End 249-94 1
<PAGE>
o administrative charges; and
o an expense charge of [$150].
An amount equal to the debt multiplied by the option percentage will be deducted
from the living benefit. The remaining debt will continue in force.
The assumptions we use to calculate the living benefit may change from time to
time. The factors used to compute the living benefit will be set and changed
only prospectively; this is, based on changes in future expectations. We will
not change these factors to recoup any prior losses or distribute past gains
under the endorsement.
"Eligible nursing home" means an institution or special nursing unit of a
hospital which meets at least one of the following requirements:
1. it is Medicare - approved as a provider of skilled nursing care services; or
2. it is licensed as a skilled nursing home or as an intermediate care facility
by the state in which it is located; or
3. it meets all the requirements listed below:
o it is licensed as a nursing home by the state in which it is located;
o its main function is to provide skilled, intermediate or custodial
nursing care;
o it is engaged in providing continuous room and board accommodations to 3
or more persons;
o it is under the supervision of a registered nurse (RN) or licensed
practical nurse (LPN);
o it maintains a daily medical record of each patient; and
o it maintains control and records for all medications dispensed.
Institutions which primarily provide residential facilities are not eligible
nursing homes.
"Proof of claim satisfactory to us" will include:
o a request signed by the insured to disclose all facts concerning the
insured's health;
o records of the attending physician, including a prognosis of the insured;
and
o if requested by us, and at our expense, a medical examination of the
insured, conducted by a physician of our choice.
Conditions -- Upon written request, the owner may elect to receive payment under
one of the accelerated death benefit options subject to the following
conditions:
End 249-94 2
<PAGE>
o coverage under the policy is in force;
o a written consent has been given by any collateral assignee, irrevocable
beneficiary and the insured if other than the owner; and
o the insured qualifies for the option elected.
Terminal Illness Option -- If the owner provides proof of claim satisfactory to
us that the insured's life expectancy is 12 months or less, the owner may elect
to receive equal monthly payments for 12 months. For each $1,000 of living
benefit, each payment will be at least [$85.21]. This assumes an annual interest
rate of [5]%.
If the insured dies before all the payments have been made, we will pay the
beneficiary in one sum the present value of the remaining payments due under
this option calculated at the interest rate we used to determine those payments.
If the owner does not wish to receive monthly payments, the owner may elect to
receive an amount equal to the living benefit in a lump sum.
Nursing Home Option -- If:
1. the insured is confined to an eligible nursing home and has been confined
there continuously for the preceding six months; and
2. proof of claim satisfactory to us is provided that the insured is
expected to remain in the nursing home until death; then
the owner may elect level monthly payments for the number of years shown in the
table that follows. For each $1,000 of living benefit, each payment will be at
least the minimum amount shown in that table. The table assumes an annual
interest rate of [5]%.
If the insured dies before all the payments have been made, we will pay the
beneficiary in one sum the present value of the remaining payments under this
option calculated at the interest rate we used to determine those payments.
The owner may elect a longer payment period than that shown in the table. If the
owner does, monthly payments will be reduced so that the present value of the
monthly payment for the longer payment period is equal to the present value of
the payments for the period shown in the table, calculated at an interest rate
of at least [5]%.
We reserve the right to set a maximum monthly benefit, which will not be less
than $[5,000].
If the owner does not wish to receive monthly payments, the owner may elect to
receive an amount equal to the living benefit in a single sum.
End 249-94 3
<PAGE>
<TABLE>
<CAPTION>
Payment Minimum Monthly Payment Minimum Monthly Payment Minimum Monthly
Period In Payment for each Period In Payment for each Period In Payment for each
Years $1,000 of Living Benefit Years $1,000 of Living Benefit Years $1,000 of Living Benefit
<S> <C> <C> <C> <C> <C>
[1 $85.21 11 $9.77 21 $6.33
2 $43.64 12 $9.16 22 $6.17
3 $29.80 13 $8.64 23 $6.02
4 $22.89 14 $8.20 24 $5.88
5 $18.74 15 $7.82 25 $5.76
6 $15.99 16 $7.49 26 $5.65
7 $14.02 17 $7.20 27 $5.54
8 $12.56 18 $6.94 28 $5.45
9 $11.42 19 $6.71 29 $5.36
10 $10.51 20 $6.51 30 $5.28]
</TABLE>
Effect on Certificate -- The death benefit of the certificate will be decreased
by the option amount. Such decrease will be effective on the monthly processing
date following the date of the written request. Existing insurance will be
decreased or eliminated in the following order:
o first, the most recent increase;
o second, the next most recent increases successively; and
o last, the initial face amount.
[A surrender charge applicable to the decrease in the face amount will be
waived. The amount of the charge which is waived will be:
o the surrender charge applicable to any increased face amount which is
eliminated in the order set forth above; plus
o a pro-rata share of the surrender charge applicable to a partial reduction
in an increase or in the original face amount.]
New specification pages will be issued. These pages will include the following
information:
o the effective date of the decrease;
o the amount of the decrease and the benefit remaining in force;
[o the revised surrender charge;]
[o the revised minimum monthly factor, if any;] and
o the new maximum premiums.
End 249-94 4
<PAGE>
The certificate value will be reduced in the same proportion as the reduction in
the face amount. Riders will continue in force.
Exclusion -- No benefit will be paid under the endorsement if a claim results,
directly or indirectly, from a suicide attempt or a self-inflicted injury (while
sane or insane) for any period during which a suicide exclusion is applicable.
Termination -- The coverage under the endorsement will terminate on the first to
occur of:
o the end of the grace period of a required premium in default; or
o the termination or maturity of the certificate while the insured is alive;
or
o the end of the certificate month following a request for termination.
General -- The Certificate Schedule will show the effective date of the
endorsement.
The living benefit will be made available to the owner on a voluntary basis
only. Accordingly:
(a) If the owner is required by law to exercise this option to satisfy the claim
of creditors, whether in bankruptcy or otherwise, the owner is not eligible
for this benefit.
(b) If the owner is required by a government agency to exercise this option in
order to apply for, obtain, or retain a government benefit or entitlement,
the owner is not eligible for this benefit.
Except as otherwise provided, all conditions and provisions of the policy apply
to the endorsement.
Executed at Worcester, Massachusetts.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
End 249-94 MA 5
<PAGE>
PARTICIPATION AGREEMENT
AMONG
ALLMERICA INVESTMENT TRUST
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
AND
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DATED AS OF
FEBRUARY 25, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase of Fund Shares 4
ARTICLE II Representations and Warranties 5
ARTICLE III Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI Diversification 9
ARTICLE VII Potential Conflicts 10
ARTICLE VIII Indemnification 11
ARTICLE IX Applicable Law 15
ARTICLE X Termination 15
ARTICLE XI Notices 17
ARTICLE XII Miscellaneous 17
SCHEDULE A Separate Accounts and Variable Products A-1
SCHEDULE B Portfolios of Allmerica Investment Trust B-1
SCHEDULE C Proxy Voting Procedures C-1
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 25th day of February, 1998 by
and among: ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(hereinafter the "Company"), a Delaware corporation, on its own behalf and on
behalf of each separate account of the Company set forth on Schedule A
hereto, as may be amended from time to time (each such account hereinafter
referred to as the "Account"); ALLMERICA INVESTMENT TRUST, an unincorporated
Massachusetts business trust (hereinafter the "Fund"), and ALLMERICA
INVESTMENT MANAGEMENT COMPANY, INC. (hereinafter the "Adviser"), a
Massachusetts corporation
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation
and/or pay-out provisions (hereinafter referred to individually and/or
collectively as "Variable Products") and (ii) the investment vehicle for
certain qualified pension and retirement plans (hereinafter "Qualified
Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Products enter into participation
agreements with the Fund and the Adviser (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of
securities and other assets (each such series hereinafter referred to as a
"Portfolio"), any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto; and
WHEREAS, the Fund has applied for an order from the Securities and
Exchange Commission, granting Participating Insurance Companies and Variable
Insurance Product separate accounts exemptions from the provisions of
Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940,
as amended (hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws and manages each of the certain portfolios of the Fund and
retains Sub-Advisers for the daily investment and reinvestment of the assets
of each portfolio; and
WHEREAS, Allmerica Investments, Inc. (the "Distributor") is registered
as a broker/dealer under the Securities Exchange Act of 1934, as amended
(hereinafter the "1934 Act"), is a member in good standing of the National
Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, the Company has registered or will register certain Variable
Products under the 1933 Act; and
3
<PAGE>
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid Variable Products, and the Company has registered or will register
each Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account,
shares in the Portfolios set forth in Schedule B attached to this Agreement,
to fund certain of the aforesaid Variable Insurance Products and the Fund is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereto agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of such order. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee of an order prior to the close of
regular trading on the New York Stock Exchange ("NYSE") shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
10:00 a.m. Eastern time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset
value per share by the Company and its Accounts on those days on which the
Fund calculates its net asset value pursuant to rules of the Securities and
Exchange Commission and the Fund shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open
for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee of
a request prior to the close of regular trading on the NYSE shall constitute
receipt by the Fund, provided that the Fund receives notice of such request
for redemption on the next following Business Day.
4
<PAGE>
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.6. The Company shall pay for Fund shares no later than the next
Business Day after an order to purchase Fund shares is made in accordance
with the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to make such net asset
value per share available by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Variable Products are
or will be registered under the 1933 Act; that the Variable Products will be
issued and sold in compliance in all material respects with all applicable
federal and state laws, and that the sale of the Variable Products shall
comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law,
that it has legally and validly established each Account as a segregated
asset account under Section 2932 of the Delaware Insurance Code, and that it
has registered or, prior to any issuance or sale of the Variable Products,
will register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Variable Products.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws, and that
the Fund is and shall make every effort to remain registered under the 1940
Act. The Fund shall amend the registration statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify
the shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision)
5
<PAGE>
and that it will notify the Company promptly upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Company represents that the Variable Products are currently
treated as life insurance policies or annuity contracts under applicable
provisions of the Code, that it will make every effort to maintain such
treatment, and that it will notify the Fund immediately upon having a
reasonable basis for believing that the Variable Products have ceased to be
so treated or that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have its board of Trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.8. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund
in compliance in all material respects with the laws of its state of domicile
and any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its Trustees, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid blanket fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage, in an amount not less $5 million. The
aforesaid, which includes coverage for larceny and embezzlement, shall be
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Distributor promptly in writing in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS;
VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the
Company, in lieu of providing printed copies, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's prospectus and
statement of additional
6
<PAGE>
information, and such other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year)
to have the prospectus for the Variable Products and the Fund's prospectus
printed together in one document, and to have the statement of additional
information for the Fund and the statement of additional information for the
Variable Products printed together in one document. Alternatively, the
Company may print the Fund's prospectus and/or its statement of additional
information in combination with other fund companies' prospectuses and
statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. For any prospectuses and statements of
additional information provided by the Company to the existing owners of
Variable Products who currently own shares of one or more of the Fund's
Portfolios, in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film or computer diskettes in lieu of
receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of x and y where x is the
number of such prospectuses distributed to owners of the Variable Products
who currently own shares of one or more of the Fund's Portfolios, and y is
the Fund's per unit cost of typesetting and printing the Fund's prospectus.
The same procedures shall be followed with respect to the Fund's statement of
additional information. The Company agrees to provide the Fund or its
designee with such information as may be reasonably requested by the Fund to
assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those
actually distributed to existing owners of the Variable Products.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distribution to contract owners. The Fund or its
designee shall bear the cost of printing, duplicating, and mailing of these
documents to current contract owners, and the Company shall bear the cost for
such documents used for purposes other than distribution to current contract
owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Fund and the Company shall follow the procedures, and
shall have the corresponding
7
<PAGE>
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible
for ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set
forth on Schedule C, which standards will also be provided to the other
Participating Insurance Companies, if any.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, including Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable
cost, the printing, assembling and/or distribution of the communications in
accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least fifteen
Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Variable Products other than the information
or representations contained in the registration statement or prospectus for
the Fund shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
Fund, or in sales literature or other promotional material approved by the
Fund or its designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate
account(s) is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to
such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Variable Products, other than the information or
representations contained in a registration statement or prospectus for the
Variable Products, as such registration statement and prospectus may be
amended or supplemented from time to time, or in published reports for each
Account which are in the public domain or approved by the Company for
distribution to contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission
of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature
8
<PAGE>
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Fund or its shares, which are relevant to the Company or the Variable
Products.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
investment in the Fund under the Variable Products.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Distributor may make payments to the Company or to the distributor
for the Variable Products if and in amounts agreed to by the Distributor in
writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, other than expenses assumed by the
Adviser under the Management Agreement between the Fund and the Adviser or by
another party. The Fund shall see to it that all its shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of printing
a prospectus that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Fund's shares.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Variable Products
in such a manner as to ensure that the Variable Products will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within
the grace period afforded by Regulation 1.817-5.
9
<PAGE>
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Variable Insurance Product owners;
or (f) a decision by a Participating Insurance Company to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. Each of the Company and the Adviser will report any potential or
existing conflicts of which it is aware to the Board. Each of the Company
and the Adviser will assist the Board in carrying out its responsibilities
under SEC rules and regulations. The Adviser, and the participating
insurance companies and participating qualified plans will at least annually
submit to the Board such reports, materials, or data as the Board may
reasonably request so that the Board may fully carry out the obligations
imposed upon by the conditions contained in the Shared Funding Exemptive
Order, and said reports, materials, and data will be submitted more
frequently if deemed appropriate by the Board.
7.3. If it is determined by a majority of the Board, or a majority of
its members who are not "interested persons" of the Fund, the Adviser or the
Company as that term is defined in the 1940 Act (hereinafter "disinterested
members"), that a material irreconcilable conflict exists, the Company and
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (I.E., annuity contract
owners, life insurance policy owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account (at the Company's expense); provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the
10
<PAGE>
Company will withdraw the affected Account's investment in the Fund and
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required
by the foregoing material irreconcilable conflict as determined by a majority
of the disinterested members of the Board. Until the end of the foregoing
six month period, the Distributor and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Variable Products. The Company shall not be required by Section 7.3
to establish a new funding medium for the Variable Products if an offer to do
so has been declined by vote of a majority of contract owners materially
adversely affected by the irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding, or if the Fund obtains a Shared Exemptive Order which
requires provisions that are materially different from the provisions of this
Agreement, then (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, or to the terms of
the Shared Exemptive Order, to the extent applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
the Adviser, each of their respective officers, employees, and Trustees or
Directors, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Variable Products and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Variable
Products or contained in the Variable Products or sales
literature for the Variable Products (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the registration statement or
prospectus for the Variable Products or in the Variable
Products or sales literature (or any amendment or
11
<PAGE>
supplement) or otherwise for use in connection with the sale of the
Variable Products or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control and other than statements or representations
authorized by the Fund or an Adviser) or unlawful conduct of
the Company or persons under its control, with respect to the
sale or distribution of the Variable Products or Fund shares;
or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
12
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Products or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company, each of its directors,
officers, and employees, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of shares of the Portfolio that it manages or the
Variable Products and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Products or Portfolio
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Products not supplied by the Fund or persons under its
control and other than statements or representations authorized by
the Company) or unlawful conduct of the Fund, Adviser(s) or
Distributor or persons under their control, with respect to the
sale or distribution of the Variable Products or Portfolio shares;
or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Variable Products, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Adviser; as limited by and in accordance
with the provisions of Sections 8.2(b) and 8.2(c) hereof.
13
<PAGE>
8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
8.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Adviser in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Adviser
of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or
sale of the Variable Products or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (hereinafter collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof), litigation or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund, as limited and in accordance with the
provisions of Sections 8.3(b) and 8.3(a);
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as may arise from such Indemnified Party's gross
negligence, bad faith, or willful misconduct the performance of
14
<PAGE>
such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it
may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to
such party of the Fund's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this
Agreement, the issuance or sale of the Variable Products, with
respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to,
the Shared Funding Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
10.1(a) termination by any party for any reason by at least sixty (60)
days advance written notice delivered to the other parties; or
10.1(b) termination by the Company by written notice to the Fund and
the Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Variable Products; or
10.1(c) termination by the Company by written notice to the Fund and
the Adviser with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Variable Products issued or to be issued
by the Company; or
15
<PAGE>
10.1(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
10.1(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio fails to
meet the diversification requirements specified in Article VI hereof; or
10.1(f) termination by the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, or
10.1(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in good
faith, that either the Fund or the Adviser has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
10.2. Notwithstanding any termination of this Agreement, the Fund shall,
at the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Variable Products in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Variable Products").
Specifically, without limitation, the owners of the Existing Variable Products
shall be permitted to direct reallocation of investments in the Portfolios of
the Fund, redemption of investments in the Portfolios of the Fund and/or
investment in the Portfolios of the Fund upon the making of additional purchase
payments under the Existing Variable Products. The parties agree that this
Section 10.2 shall not apply to any termination under Article VII and the effect
of such Article VII termination shall be governed by Article VII of this
Agreement.
10.3. The provisions of Article VIII Indemnification shall survive any
termination of this Agreement pursuant to this Article X Termination.
10.4. The Company shall not redeem Fund shares attributable to the
Variable Products (as distinct from Fund shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement contract owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Variable Products, the Company
shall not prevent contract owners from allocating payments to a Portfolio that
was otherwise available under the Variable Products without first giving the
Fund 90 days prior written notice of its intention to do so.
16
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when hand delivered or sent by
registered or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Allmerica Investment Trust
440 Lincoln Street
Worcester, MA 01653
Attention: George M. Boyd, Esq.
If to Adviser:
Allmerica Investment Management Company, Inc.
440 Lincoln Street
Worcester, MA 01653
Attention: Abigail M. Armstrong, Esq.
If to the Company:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Richard M. Reilly, President
ARTICLE XII. MISCELLANEOUS
12.1. A copy of the Fund's Agreement and Declaration of Trust, as may be
amended from time to time, is on file with the Secretary of the Commonwealth of
Massachusetts. Notice is hereby given that this instrument is executed by the
Fund's Trustees as Trustees and not individually, and the Fund's obligations
under this Agreement are not binding upon any of the Trustees or Shareholders of
the Fund, but are binding only upon the assets and property of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Variable Products and all information reasonably identified
as confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
17
<PAGE>
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company controlled by or
under common control with the Adviser, if such assignee is duly licensed and
registered to perform the obligations of the Adviser under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified above.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Joseph W. MacDougall, Jr.
--------------------------------------
NAME: Joseph W. MacDougall, Jr.
TITLE: Vice President
ALLMERICA INVESTMENT TRUST
By: /s/ Thomas P. Cunningham
--------------------------------------
NAME: Thomas P. Cunningham
TITLE: Vice President & Treasurer
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
By: /s/ Richard F. Betzler, Jr.
--------------------------------------
NAME: Richard F. Betzler, Jr.
TITLE: Vice President
18
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND VARIABLE PRODUCTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
VARIABLE LIFE PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
VEL VEL ('87) 33-14672 811-5183
VEL VEL ('91) 33-90320 811-5183
VEL II VEL ('93) 33-57792 811-7466
VEL VEL (Plus) 33-42687 811-5183
Inheiritage Inheiritage 33-70948 811-8120
Select Inheiritage
Allmerica Select Separate Account II Select Life 33-83604 811-8746
Group VEL Group VEL 33-82658 811-08704
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
VARIABLE ANNUITY PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
VA-K ExecAnnuity Plus 91 33-39702 811-6293
ExecAnnuity Plus 93
Allmerica Advantage
Allmerica Select Separate Account Allmerica Select Resource I 33-47216 811-6632
Allmerica Select Resource II
Separate Accounts VA-A, VA-B, VA-C, Variable Annuities (discontinued)
VA-G, VA-H
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF
ALLMERICA INVESTMENT TRUST
Select Emerging Markets Fund
Select International Equity Fund
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Strategic Growth Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
- - The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Variable Products and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
- - Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
- - Note: The number of proxy statements is determined by the activities
described above. The Company will use its best efforts to call in the
number of Customers to the Fund, as soon as possible, but no later than
two weeks after the Record Date.
- - The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 3.43 of the Agreement to which
this Schedule relates.
- - The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
- name (legal name as found on account registration)
address
- fund or account number
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
C-1
<PAGE>
- - During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
- cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
- - The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
- - Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including,) the
meeting, counting backwards.
- - Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
- - Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
- - If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
- - There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
C-2
<PAGE>
- - The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review
and approve tabulation format.
- - Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
- - A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
- - The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
- - All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
C-3
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into this 1st day of May, 1991 by
and among SMA LIFE ASSURANCE COMPANY, (hereinafter the "Company"), a Delaware
corporation, on its own behalf and on behalf of each segregated asset account
of the Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"), and the
VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
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<PAGE>
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to one or more variable life and annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as
a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to
-2-
<PAGE>
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life and variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
-3-
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Fund will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 2932 of the Delaware Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares
-4-
<PAGE>
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as endowment, annuity or life insurance contracts, under applicable provisions
of the Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-l under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-l Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-l, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-l to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
-5-
<PAGE>
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(l) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund, in an amount not less than the minimal coverage as required currently
by entities subject to the requirements of Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.12. The Company represents and warrants that it will not purchase
Fund shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; provided however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase hereunder by the
Company of Fund shares derived from the sale of such Contract.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
-6-
<PAGE>
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to stockholders and other communications to
stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule C
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee object to such use within fifteen Business
Days after receipt of such material.
-7-
<PAGE>
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee object to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the Securities and Exchange Commission.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
-8-
<PAGE>
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation ss.1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations.
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<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
-10-
<PAGE>
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
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<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the Registration Statement or prospectus for the Contracts
or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
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<PAGE>
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company: or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
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<PAGE>
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
8.l(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the
Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the
Company for use in the Registration Statement or prospectus
for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
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<PAGE>
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and
in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is
applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to
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<PAGE>
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
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<PAGE>
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written
notice to the other parties; or
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<PAGE>
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the
requirements of the Contracts as determined by the Company,
provided however, that such termination shall apply only to
the Portfolio(s) not reasonably available. Prompt notice of
the election to terminate for such cause shall be furnished by
the Company; or
(c) at the option of the Fund in the event that formal
administrative proceedings are instituted against the Company
by the NASD, the Securities and Exchange Commission, the
Insurance Commissioner or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Contracts, with respect to the operation of any
Account, or the purchase of the Fund shares, provided,
however, that the Fund determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this
Agreement; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department or
any other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying
investment media. The Company will give 30 days' prior written
notice to the Fund of the date of any proposed vote to replace
the Fund's shares; or
(f) at the option of the Company, in the event any of the
Fund's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes
the use of such shares as the underlying investment media of
the Contracts issued or to be issued by the Company; or
(g) at the option of the Company, if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if
the Company reasonably believes that the Fund may fail to so
qualify; or
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<PAGE>
(h) at the option of the Company, if the Fund fails to meet
the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Fund or the Underwriter, if
(1) the Fund or the Underwriter, respectively, shall
determine, in their sole judgment reasonably exercised in good
faith, that the Company has suffered a material adverse change
in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity will have a material adverse impact
upon the business and operations of either the Fund or the
Underwriter, (2) the Fund or the Underwriter shall notify the
Company in writing of such determination and its intent to
terminate this Agreement, and (3) after considering the
actions taken by the Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund or the Underwriter shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business or financial condition
or is the subject of material adverse publicity and such
material adverse change or material adverse publicity will
have a material adverse impact upon the business and
operations of the Company, (2) the Company shall notify the
Fund and the Underwriter in writing of such determination and
its intent to terminate the Agreement, and (3) after
considering the actions taken by the Fund and/or the
Underwriter and any other changes in circumstances since the
giving of such notice, such determination shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination; or
(k) at the option of either the Fund or the Underwriter, if
the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such
notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(k)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
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<PAGE>
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) In the event that any termination is based upon the
provisions of Article VII, or the provision of Section 10.1(a),
10.1(i), 10.1(j) or 10.1(k) of this Agreement, such prior written
notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.5. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in either Account) except (i) as necessary to implement Contract Owner initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"). Upon request, the Company will promptly
furnish to the Fund and the Underwriter the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Fund and the Underwriter)
to the effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
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ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
SMA Life Assurance
440 Lincoln Street
Worcester, Massachusetts 01605
Attention: Sheila B. St. Hilaire
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
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<PAGE>
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable life insurance operations of the Company are
being conducted in a manner consistent with the California Variable Life
Insurance Regulations and any other applicable law or regulations.
12.7 The Fund and Underwriter agree that to the extent any advisory
or other fees received by the Fund, the Underwriter or the Adviser are
determined to be unlawful in legal or administrative proceedings under the 1973
NAIC model variable life insurance regulation in the states of California,
Colorado, Maryland or Michigan, the Underwriter shall indemnify and reimburse
the Company for any out of pocket expenses and actual damages the Company has
incurred as a result of any such proceeding; provided however that the
provisions of Section 8.2(b) of this and 8.2(c) shall apply to such
indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Fund and/or the Underwriter under this
Agreement.
12.8. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
SMA LIFE ASSURANCE COMPANY
By its authorized officer,
SEAL By: /s/ Bradford K. Gallagher
--------------------------------------
Title: President
--------------------------------------
Date: 7/11/91
--------------------------------------
Fund:
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
SEAL By: /s/ J. Gary Burkhead
--------------------------------------
Title: Senior Vice President
--------------------------------------
Date:
--------------------------------------
Underwriter:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
SEAL By: /s/ [Illegible] B. Kincaid
--------------------------------------
Title: President
--------------------------------------
Date: 9/5/91
--------------------------------------
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Schedule A
----------
Accounts
--------
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account VA-K November 1, 1990
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Schedule B
----------
Contracts
---------
1. Contract Form A3018-91
---------------
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<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call
in the number of Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last Annual
Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One copy
will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has
not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
-27-
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provided a standard from for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
-28-
<PAGE>
AMENDMENT NO. 1
Amendment to the Participation Agreement among SMA Life Assurance Company
(the "Company"), Variable Insurance Products Fund (the "Fund") and Fidelity
Distributors Corporation (the "Underwriter") dated May 1, 1991 (the Agreement").
WHEREAS, each of the parties is desirous of expanding the ability of
Company to participate in the qualified markets, the Company, the Underwriter
and the Fund hereby agree to amend the Agreement by deleting from Section 1.4
the reference to Section 2.12 and by deleting Section 2.12 in its entirety.
In witness whereof, each of the parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative as
of November 1, 1991.
SMA LIFE ASSURANCE COMPANY FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Bradford K. Gallagher By: /s/ Roger T. Servison
------------------------- -------------------------
Name: Bradford K. Gallagher Name: Roger T. Servison
------------------------- -------------------------
Title: President, SMA Life Assurance Co. Title: President
------------------------- -------------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J. Gary Burkhead
-------------------------
Name: J. Gary Burkhead
-------------------------
Title: Senior V.P.
-------------------------
<PAGE>
Amendment to Schedules A and B to the Participation Agreement
among
Variable Insurance Products Fund
Fidelity Distributors Corporation
and
Allmerica Financial Life Insurance and Annuity Company
WHEREAS, Allmerica Financial Life Insurance and Annuity Company (the "Company";
formerly SMA Life Assurance Company), Variable Insurance Products Fund, and
Fidelity Distributors Corporation have previously entered into a Participation
Agreement dated May 1, 1991 ("Participation Agreement"); and
WHEREAS, the Participation Agreement provides for the amendment of Schedules A
and B thereto by mutual written consent, the parties from time-to-time have so
amended Schedules A and B, and the parties now wish to consolidate said prior
amendments to Schedules A and B into a single document and to update Schedules A
and B;
NOW, THEREFORE, the parties do hereby agree:
1. To amend and update Schedule A and Schedule B to the Participation Agreement
by adopting the attached Schedule A/B, dated July 15, 1997, and by substituting
the attached Schedule A/B for any and all prior amendments to Schedule A and to
Schedule B, as may have been adopted from time-to-time.
In witness whereof, each of the parties has caused this agreement to be executed
in its name and on its behalf by its duly authorized representative as of the
date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
-------------------------
Name: Richard M. Reilly
-------------------------
Title: President
-------------------------
Date: July 16, 1997
-------------------------
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ By: /s/
------------------------- -------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
------------------------- -------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Schedule A/B to Participation Agreement dated May 1, 1991
(Dated 7/15/97)
Separate Account* Product Name Registration
- ----------------- ------------ ------------
VEL (Variable Life) VEL '87 33-14672
Policy Form 1018-87 811-5183
VEL '91 33-90320
Policy Form 1018-91 811-5183
VEL PLUS 33-42687
Policy Forms 1023-91; 811-5183
1023-93
VEL II VEL '93 33-57792
(Variable Life) Policy Form 1018-93 811-7466
Inheiritage Inheiritage 33-70948
(Variable Life) Policy Form 1026-94 811-8120
Allmerica Select Select Life 33-83604
Separate Account II Policy Form 1027-95 811-8746
(Variable Life)
Group VEL Group VEL 33-82658
(Variable Life) Policy Form 1029-94 811-8704
VA-K ExecAnnuity 33-39702
(Annuity) ExecAnnuity Plus 811-6293
Advantage
Policy Forms 3018-91;
3021-93;3025-96; 8025-96
Allmerica Select Select Resource I 33-47216
(Annuity) Select Resource II 811-6632
Policy Forms A3020-92;
A3020-95; 3025-96;
8025-96
*The Separate Accounts were authorized by vote of the Board of Directors on the
following dates: VEL - April 2, 1987; VEL II - January 21, 1993; Inheiritage -
September 15, 1993; Allmerica Select Separate Account II - October 12, 1993;
Group VEL - November 22, 1993; VA-K - November 1, 1990; Allmerica Select - March
5, 1992.
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of March,
1994 by and among SMA LIFE ASSURANCE COMPANY, (hereinafter the "Company"), a
Delaware corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
1
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as
a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the Securities and Exchange Commission.
2
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 2932 of the Delaware Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund
4
<PAGE>
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as life insurance or annuity contracts, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-l under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-l Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-l, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-l to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and
5
<PAGE>
that the Adviser shall perform its obligations for the Fund in compliance in all
material respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less $5
million. The aforesaid includes coverage for larceny and embezzlement is issued
by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
6
<PAGE>
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section l6(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
7
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-l to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
8
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report) and, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
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<PAGE>
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately
10
<PAGE>
remedies any irreconcilable material conflict, but in no event will the Fund be
required to establish a new funding medium for the Contracts. The Company shall
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action does
not adequately remedy any irreconcilable material conflict, then the Company
will withdraw the Account's investment in the Fund and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination, provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained
in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
11
<PAGE>
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for
use in the Registration Statement or prospectus for the Contracts or
in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund Shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any
12
<PAGE>
such action is brought against the Indemnified Parties, the Company
shall be entitled to participate, at its own expense, in the defense
of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund Shares or
the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of
the Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund,
13
<PAGE>
Adviser or Underwriter or persons under their control,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
14
<PAGE>
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure to comply with
the diversification requirements specified in Article VI
of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory
15
<PAGE>
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 180 (six months)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
16
<PAGE>
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b)
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision of
this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after
the notice specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts,
17
<PAGE>
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01653
Attention: Rod Vessels
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
18
<PAGE>
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as
soon as practical and in any event within 90 days after
the end of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP),
as soon as practical and in any event within 45 days
after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
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<PAGE>
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after the
filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company,
as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
SMA LIFE ASSURANCE COMPANY
By its authorized officer,
By: /s/ Richard M. Reilly
-----------------------------
Title: Vice President
--------------------------
Date: 3/14/94
---------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By: /s/ J. Gary Burkhead
-----------------------------
Title: Senior Vice President
--------------------------
Date: 3/18/94
---------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ [Illegible]
-----------------------------
Title: President
--------------------------
Date: 3/22/94
---------------------------
20
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and
Date Established by Board of Directors
Inheiritage Account, August 20, 1991
VEL II - August 20, 1991
VA-K - August 20, 1991
Contracts Funded
By Separate Account
Variable Inheiritage Form Number 1026.1-94
VEL '94 - Form Number 1018.1-94
Exec-Annuity Plus - Form Number A3018.44-94
21
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last Annual
Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
22
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One copy
will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
23
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
24
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Allmerica Investment Trust
Delaware Group Premium Fund, Inc.
25
<PAGE>
Amendment to Schedule A to Participation Agreement
among
Variable Insurance Products Fund II
Fidelity Distributors Corporation
and
Allmerica Financial Life Insurance and Annuity Company
Whereas, Allmerica Financial Life Insurance and Annuity Company (the "Company";
formerly SMA Life Assurance Company), Variable Insurance Products Fund II, and
Fidelity Distributors Corporation have previously entered into a Participation
Agreement dated March 1, 1994 ("Participation Agreement"); and
Whereas, the Participation Agreement provides for the amendment of Schedule A
thereto by mutual written consent, the parties from time-to-time have so amended
Schedule A, and the parties now wish to consolidate said prior amendments to
Schedule A into a single document and to update Schedule A;
Now, therefore, the parties do hereby agree:
1. To amend and update Schedule A to the Participation Agreement by adopting the
attached Schedule A, dated July 15, 1997, and by substituting the attached
Schedule A for and any all prior amendments to Schedule A, as may have been
adopted from time-to-time.
In witness whereof, each of the parties has caused this agreement to be executed
in its name and on its behalf by its duly authorized representative as of the
date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
-------------------------------
Name: Richard M. Reilly
-----------------------------
Title: President
----------------------------
Date: July 16, 1997
------------------------------
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ By: /s/
------------------------------ ------------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date
--------------------------- ---------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Schedule A, as amended, to Participation Agreement Dated March 1, 1994
(Dated 7/15/97)
Separate Account* Product Name Registration
- ----------------- ------------ ------------
VEL VEL '87 33-14672
(Variable Life) Policy Form 1018-87 811-5183
VEL '91 33-90320
Policy Form 1018-91 811-5183
VEL PLUS 33-42687
Policy Forms 1023-91; 811-5183
1023-93
VEL II VEL '93 33-57792
(Variable Life) Policy Form 1018-93 811-7466
Inheiritage Inheiritage 33-70948
(Variable Life) Policy Form 1026-94 811-8120
Group VEL Group VEL 33-82658
(Variable Life) Policy Form 1029-94 811-8704
VA-K ExecAnnuity 33-39702
(Annuity) ExecAnnuity Plus 811-6293
Advantage
Policy Forms 3018-91;
3021-93;3025-96; 8025-96
*The Separate Accounts were authorized by vote of the Board of Directors on the
following dates: VEL - April 2, 1987; VEL II - January 21, 1993; Inheiritage -
September 15, 1993; Group VEL - November 22, 1993; VA-K - November 1, 1990.
<PAGE>
PARTICIPATION AGREEMENT
Among
DELAWARE GROUP PREMIUM FUND, INC.
And
SMA LIFE ASSURANCE COMPANY
And
DELAWARE DISTRIBUTORS, INC.
THIS AGREEMENT, made and entered into this 23 day of December, 1991
by and among DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under
the laws of Maryland (the "Fund"), SMA LIFE ASSURANCE COMPANY, a Delaware
corporation (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as in effect at the
time this Agreement is executed and such other separate accounts that may be
added to Schedule 1 from time to time in accordance with the provisions of
Article XI of this Agreement (each such account referred to as the "Account"),
and DELAWARE DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred
<PAGE>
to as "Product owners") to be offered by insurance companies which have entered
into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, the common stock of the Fund (the "Fund shares") consists
of separate series ("Series") issuing separate classes of shares ("Series
shares"), each such class representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-1A to register itself as an open-end
management investment company (File No. 811-5162) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No.
33-14363) under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed or will file a registration statement
with the SEC to register under the 1933 Act certain variable annuity contracts
described in Schedule 2 to this Agreement as in effect at the time this
Agreement is executed and such other variable annuity contracts and variable
life insurance policies which may be added to Schedule 2 from time to time in
accordance with Article XI of this Agreement
- 2 -
<PAGE>
(such policies and contracts shall be referred to herein collectively as the
"contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
WHEREAS, the Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered the
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by the Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Delaware Management Company, Inc. (the "Investment
Manager") is registered as an investment adviser
- 3 -
<PAGE>
under the 1940 Act and any applicable state securities laws and serves as an
investment manager to the Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of the
Account to fund the Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those Series
shares which the Company orders on behalf of the Account, executing such orders
on a daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net asset
value on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of Fund shares of any Series, if such
action is required by law or by
- 4 -
<PAGE>
regulatory authorities having jurisdiction or if, in the sole discretion of the
Fund Board acting in good faith and in light of its fiduciary duties under
Federal and any applicable state laws, suspension or termination is necessary
and in the best interests of the shareholders of any Series (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full
or fractional shares of the Fund held by the Account or the Company, executing
such requests at the net asset value on a daily basis in accordance with Section
1.4 of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund may
delay redemption of Fund shares of any Series to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the then currently
effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of receiving redemption
and purchase requests from the Account (but not from the general account of the
Company), and receipt on any Business Day by the Company as such limited agent
of the Fund prior to the time prescribed in the current Fund Prospectus (which
as of the date of execution of this Agreement is 4 p.m.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund receives
notice of such
- 5 -
<PAGE>
redemption or purchase request by 11:00 a.m. Eastern Time on the next following
Business Day. For purposes of this Agreement, "Business Day" shall mean any day
on which the New York Stock exchange is open for trading or as otherwise
provided in the Fund's then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Series on the
same day that it places an order with the Fund to purchase those Series shares.
Payment for Series shares will be made by the Account or the Company in Federal
Funds transmitted to the Fund by wire to be received by 11:00 a.m. on the day
the Fund is properly notified of the purchase order for Series shares (unless
sufficient proceeds are available from redemption of shares of other Series). If
Federal Funds are not received on time, such funds will be invested, and Series
shares purchased thereby will be issued, as soon as practicable.
(c) Payment for Series shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by wire on the
day the Fund is notified of the redemption order of Series shares (unless
redemption proceeds are applied to the purchase of shares of other Series),
except that the Fund reserves the right to delay payment of redemption proceeds,
but in no event may such payment be delayed longer than the period permitted
under Section 22(e) of the 1940 Act. Neither the Fund nor the Distributor shall
bear any responsibility whatsoever for the proper disbursement or
- 6 -
<PAGE>
crediting of redemption proceeds; the Company alone shall be responsible for
such action.
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any Series shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Series shares so issued as payment of such dividends
and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, any Series, the Distributor, nor the Investment Manager nor
any of
- 7 -
<PAGE>
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by the Company to the Fund, the Distributor or the Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all
amounts available for investment under the Contracts (other than those listed on
Schedule 3) shall be invested only in the Fund and/or allocated to the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if: (a) such other investment company is
advised by the Fund's investment adviser; (b) the Fund and/or the Distributor,
in their sole discretion, consents to the use of such other investment company;
(c) there is a substitution of the Fund made in accordance with Section 10.1(e)
of this Agreement; or (d) this Agreement is terminated pursuant to Article X of
this Agreement. The Company also agrees that it will not take any action to
operate the Account as a management investment company under the 1940 Act
without the Fund's and Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be
sold only to Participating Insurance Companies and their separate accounts. The
Fund and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares of any Series will
be sold to the general public.
- 8 -
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts (i) that the Contracts
be offered and sold in compliance in all material respects with all applicable
Federal and state laws and (ii) that at the time it is issued each Contract is a
suitable purchase for the applicant therefor under applicable state insurance
laws. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it has
legally and validly authorized the Account as a separate account under Title 18,
Section 2932 of the Delaware Insurance Code, and has registered or, prior to the
issuance of any Contracts, will register the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a separate account
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The
- 9 -
<PAGE>
Fund further represents and warrants that it is a corporation duly organized and
in good standing under the laws of Maryland.
2.3. The Fund represents that it currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain such qualification (under Subchapter M or any successor or similar
provision), and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.4. The Fund represents that it will comply with Section 817(h) of
the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Delaware, to the extent required to
perform this Agreement and with any investment restrictions set forth on
Schedule 4, as
- 10 -
<PAGE>
amended from time to time by the Company in accordance with Section 6.6. The
Fund, however, makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. The Company alone shall be responsible for informing the Fund of any
investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that the Distributor is
duly registered as a broker-dealer under the 1934 Act, a member in good standing
with the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager,
represents and warrants that the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940 and is in
compliance with applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-l under the 1940 Act.
-11-
<PAGE>
ARTICLE III. Prospectuses and Proxy Statements; Sales Material and Other
Information
3.1. The Distributor shall provide the Company (at its expense) with
as many copies of the current Fund Prospectus as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide the
Fund Prospectus (including a final copy of the new prospectus as set in type at
the Distributor's expense) and other assistance as is reasonably necessary in
order for the Company to have a new Contracts Prospectus printed together with
the Fund Prospectus in one document (the cost of such printing to be shared
equally by the Company and the Distributor).
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Distributor (or, in
the Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. The Fund (at its cost) shall provide the Company with copies of
its proxy material, shareholder reports and other communications to the Company.
3.4. The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce or
encourage Contract owners to (a) change the Fund's investment adviser or
contract with any
- 12 -
<PAGE>
sub-investment adviser, or (b) change, modify, substitute, add or delete the
Fund or other investment media.
3.5. The Company shall furnish each piece of sales literature or
other promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund or the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund or
the Distributor. The Fund and the Distributor agree to respond to any request
for approval on a prompt and timely basis. Failure to respond shall not relieve
the Company of the obligation to obtain the prior written permission of the Fund
or the Distributor.
3.6. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund and the Distributor agree to respond to any
request for permission on a prompt and timely basis. Failure to respond shall
not relieve the Company of the obligation to obtain the prior written permission
of the Fund or the Distributor.
- 13 -
<PAGE>
3.7. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
Failure to respond shall not relieve the Fund or the Distributor of the
obligation to obtain the prior written permission of the Company.
3.8. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, promptly after the filing of such
document with the SEC or other regulatory authorities.
3.9. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts
- 14 -
<PAGE>
Prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Contracts or those
Sub-Accounts of the Account to which Contract purchase payments and value are
allocable, promptly after the filing of such document with the SEC or other
regulatory authorities.
3.10. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
3.11. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape dis-
- 15 -
<PAGE>
play, signs or billboards, motion pictures or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract owners;
(b) vote Fund shares of each Series attributable to Contract
owners in accordance with instructions or proxies timely
received from such Contract owners;
(c) vote Fund shares of each Series attributable to Contract
owners for which no instructions have been received in
the same proportion as Fund shares of such Series for
which instructions have been timely received; and
(d) vote Fund shares of each Series held by the Company on
its own behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion
as Fund shares of such Series for which instructions
have been timely received.
- 16 -
<PAGE>
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with other Participating Insurance Companies.
ARTICLE V. Fees and Expenses
5.1. The Fund and Distributor shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Series
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then the Distributor may make payments to the
Company in amounts agreed to by the Company and the Distributor in writing.
Currently, no such payments are contemplated. The Fund currently does not intend
to make any payments to finance distribution expenses pursuant to Rule 12b-l
under the 1940 Act or in contravention of such rule, although it may make
payments pursuant to Rule 12b-1 in the future.
5.2. All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Sections 1.4 and 3.1 of this Agreement (or Article
VII, as it may be amended), the Company shall not bear any of the expenses for
the cost of registration and qualification of the Fund shares under Federal and
any state securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement,
- 17 -
<PAGE>
Fund proxy materials and reports, setting the Prospectus in type, setting in
type and printing and distributing the Fund proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
Federal or state securities law, all taxes on the issuance or transfer of Fund
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. Compliance Undertakings
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect for
so long as Fund shares are sold the continuous offering of Fund shares as
described in the
- 18 -
<PAGE>
then currently effective Fund Prospectus. The Fund shall register and qualify
Fund shares for sale to the extent required by applicable securities laws of the
various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably probable that such Contract would be a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. The Company shall amend Schedule 4 when appropriate in order to
inform the Fund of any applicable investment restrictions with which the Fund
must comply.
ARTICLE VII. Potential Conflicts
The parties to this Agreement acknowledge that the Fund intends to
file an application with the SEC to request an order granting relief from
various provisions of the 1940 Act and the rules thereunder to the extent
necessary to permit Fund shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies. The parties to this Agreement
- 19 -
<PAGE>
agree that any conditions or undertakings that may be imposed on the Company,
the Fund and/or the Distributor by virtue of such order shall be incorporated
herein by this reference, as of the date such order is granted, as though set
forth herein in full, and such parties agree to comply with such conditions and
undertakings to the extent applicable to each such party. The Fund and the
Distributor will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Fund, the
Distributor and each person who controls or is associated with the Fund or the
Distributor within the meaning of such terms under the federal securities laws
and any officer, trustee, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any
- 20 -
<PAGE>
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify
shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Fund or the Distributor (or a person authorized
in writing to do so on behalf of the Fund or the Distributor)
for use in the Contracts Registration Statement, Contracts
Prospectus or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its control
with respect to the sale or distribution of the Contracts or
Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company; or
(d) arise as a result of any failure by the Company to provide the
services and furnish the materials or
- 21 -
<PAGE>
to make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares
on a timely basis in accordance with the procedures set forth
in Article I.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company
and each person who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
- 22 -
<PAGE>
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission or alleged statement or alleged omission was made in
reliance upon and in conformity with information furnished in
writing by the Company to the Fund or the Distributor for use
in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the
Fund or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by the Distributor or the
Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Distributor or the Fund or persons under their
control) or wrongful conduct of the Distributor or persons
under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information
furnished in writing by the Distributor or the Fund to the
Company (or a person authorized in writing to do so on behalf
of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
- 23 -
<PAGE>
requirements specified in Article VI of this Agreement); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
- 24 -
<PAGE>
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of
- 25 -
<PAGE>
the state of Delaware, without giving effect to the principles of conflicts of
laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written
notice to the other parties, such termination to be effective no earlier than
one year following the date on which the first Contract is issued to the public;
or
(b) at the option of the Company if shares of any Series are
not reasonably available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for such cause shall
be furnished by the Company, said termination to be effective ten days after
receipt of notice unless the Fund makes available a sufficient number of Fund
shares to meet the requirements of the Contracts within said ten-day period; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body
- 26 -
<PAGE>
regarding the Company's duties under this Agreement or related to the sale of
the Contracts, the operation of the Account, the administration of the Contracts
or the purchase of Fund shares, or an expected or anticipated ruling, judgment
or outcome which would, in the Fund's reasonable judgment, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the affected Series and the written approval of the Distributor
(unless otherwise required by applicable law), to substitute the shares of
another investment company for the corresponding Series shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) by either the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of disinterested Fund Board members,
that an irreconcilable material conflict exists among the interests of (i) all
Product owners or (ii) the interests of the Participating Insurance Companies
investing in the Fund; or
- 27 -
<PAGE>
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or under any
successor or similar provision, or if the Company reasonably believes based on
an opinion of counsel satisfactory to the Fund that the Fund may fail to so
qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and any
regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole judgment
exercised in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or (2) the
Company shall have been the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations of
either the Fund or the Distributor; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that the Fund or the
Distributor shall have been the subject of material adverse publicity which is
likely to have a material
- 28 -
<PAGE>
adverse impact upon the business and operations of the Company; or
(m) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another insurance
company pursuant to an assumption reinsurance agreement) unless the
non-assigning party consents thereto or unless this Agreement is assigned to an
affiliate of the Distributor.
10.2. Notice Requirement. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the effective
date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date of
termination.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written notice shall
be given at least sixty (60) days
- 29 -
<PAGE>
before the date of any proposed vote to replace the Fund's shares.
10.3. Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor may, at the
option of the Fund, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Fund desires pursuant to the
terms and conditions of this Agreement as provided in paragraph (b) below, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if the Fund or Distributor so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the
- 30 -
<PAGE>
Distributor and the Fund will continue to make Fund shares available after such
termination. If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect except for
Section 10.1(a) and thereafter either the Fund or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon prior written
notice to the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more than six
months.
(c) The parties agree that this Section 10.4 shall not apply
to any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. Applicability to New Accounts and New Contacts
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in the
Fund. The provisions of this Agreement shall be equally applicable to each such
class of contracts or policies, unless the context otherwise requires.
- 31 -
<PAGE>
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Delaware Group Premium Fund, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to the Company:
Charles W. Grover II
Vice President, Individual Insurance Marketing
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01605
If to the Distributor:
Mr. Michael P. Drennan
Vice President
Delaware Distributors, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
ARTICLE XIII. Miscellaneous
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
- 32 -
<PAGE>
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
- 33 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
SMA LIFE ASSURANCE COMPANY
(Company)
Date: 12/23/, 1991 By: /s/ Charles W. Grover, II
-----------------------------
Name: Charles W. Grover, II
Title: Vice President, Ind. Ins.
Marketing
DELAWARE GROUP PREMIUM FUND, INC.
(Fund)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
DELAWARE DISTRIBUTORS, INC.
(Distributor)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
<PAGE>
Schedule 1
Separate Accounts of SMA Life Assurance Company
Investing in the Fund
As of December 23, 1991
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K
of SMA Life Assurance Company November 1, 1990
<PAGE>
Schedule 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of December 23, 1991
Individual Variable Annuity Policies
funded by sub-accounts of Separate Account VA-K
and investing in shares of
Delaware Group Premium Fund, Inc.
<PAGE>
Schedule 3
Variable Contracts
Excluded from Section 1.8
As of December 23, 1991
Individual Variable Annuity Policies Marketed
under the name "ExecAnnuity Plus"
<PAGE>
Schedule 4
Investment Restrictions
Applicable to the Fund
As of December 23, 1991
None
<PAGE>
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT (the "Amendment Agreement") to the Participation
Agreement dated December 23, 1991 (the "Participation Agreement") by and among
DELAWARE GROUP PREMIUM FUND, INC. (the "FUND"), SMA LIFE ASSURANCE COMPANY
("SMA"), on its own behalf and on behalf of each separate account of SMA, and
DELAWARE DISTRIBUTORS, INC. (the "DISTRIBUTOR") is made as of the first day of
April, 1994 by and among the FUND, the DISTRIBUTOR, SMA, on its own behalf and
on behalf of each separate account of SMA named in Schedule 1 to this Amendment
Agreement as in effect as of the time this Amendment Agreement is executed and
such other separate accounts of SMA that may be added to Schedule 1 from time to
time in accordance with the provisions of Article XI of the Participation
Agreement (each such account referred to as the "SMA Account"), and STATE MUTUAL
LIFE ASSURANCE COMPANY OF AMERICA ("STATE MUTUAL"), on its own behalf and on
behalf of each separate account of STATE MUTUAL named in Schedule 1 to this
Amendment Agreement as in effect as of the time this Amendment Agreement is
executed and such other separate accounts of STATE MUTUAL that may be added to
Schedule 1 from time to time in accordance with the provisions of Article XI of
the Participation Agreement (each such account referred to as the "STATE MUTUAL
Account").
WHEREAS, the FUND, SMA, and the DISTRIBUTOR previously entered into the
Participation Agreement; and
<PAGE>
WHEREAS, the FUND, SMA, and the DISTRIBUTOR wish to add STATE MUTUAL as a
party to the Participation Agreement to enable STATE MUTUAL to purchase shares
of common stock issued by the various series of the FUND on behalf of the STATE
MUTUAL Account;
NOW THEREFORE, for consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the FUND, the
DISTRIBUTOR, SMA, and STATE MUTUAL agree as follows:
1. Effective as of the date hereof, STATE MUTUAL shall be a party to the
Participation Agreement and shall independently be entitled to the same rights
and subject to the same obligations, covenants, conditions, undertakings and
liabilities under the Participation Agreement as SMA.
2. Effective as of the date hereof, STATE MUTUAL hereby makes, on its own
behalf and in respect of the STATE MUTUAL Account and Contracts (as defined in
the Participation Agreement) issued by STATE MUTUAL and not on behalf of SMA nor
in respect of the SMA Account or Contracts issued by SMA, the representations
and warranties set forth in Sections 2.1 and 2.5 of the Participation Agreement.
3. Effective as of the date hereof, all references in the Participation
Agreement to "the Company" shall hereafter be references to "SMA and/or STATE
MUTUAL, as the case may be."
2
<PAGE>
4. Effective as of the date hereof, the term "the Account" in the
Participation Agreement shall hereafter be read to include the SMA Account
and/or the STATE MUTUAL Account, as the case may be.
5. Effective as of the date hereof, except as otherwise set forth herein,
the term "Contracts" in the Participation Agreement shall hereafter be read to
include Contracts issued by SMA and/or Contracts issued by STATE MUTUAL, as the
case may be.
6. Schedules 1, 2, and 3 to the Participation Agreement are hereby amended
and restated in their entirety as set forth on Schedules 1, 2, and 3,
respectively, to this Amendment Agreement.
7. All references in the Participation Agreement to the "Investment
Manager" shall hereafter be references to Delaware Management Company, Inc. or
Delaware International Advisers Ltd., as appropriate.
8. With respect to the termination provisions set forth in Article X of
the Participation Agreement, (i) any notice provided by or option exercised by
SMA shall be operative solely with respect to SMA, and (ii) any notice provided
by or option exercised by STATE MUTUAL shall be operative solely with respect to
STATE MUTUAL.
9. All notices to be provided to any party to the Participation Agreement,
as amended, shall be sent in accordance with Article XII of the Participation
Agreement at the address of such party set forth below or at such other address
as such party may from time to time specify in writing to the other parties:
3
<PAGE>
If to the FUND:
Delaware Group Premium Fund, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to SMA:
Lila M. Weihs
Director, Annuity Products
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01653
If to the DISTRIBUTOR:
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Michael P. Drennan, Vice President
If to STATE MUTUAL:
Lila M. Weihs
Director, Annuity Products
State Mutual Life Assurance Company of the America
440 Lincoln Street
Worcester, MA 01653
10. All other provisions of the Participation Agreement not amended by
this Amendment Agreement shall remain in full force and effect as set forth in
the Participation Agreement.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
Agreement to be executed in its name and on its behalf by its duly authorized
officer as of the date first set forth above.
STATE MUTUAL LIFE ASSURANCE SMA LIFE ASSURANCE COMPANY
COMPANY OF AMERICA
By: /s/ Richard M. Reilly By: /s/ Richard M. Reilly
--------------------------- ---------------------------
Name: Richard M. Reilly Name: Richard M. Reilly
Title: Vice President Title: Vice President
DELAWARE GROUP PREMIUM DELAWARE DISTRIBUTORS, INC.
FUND, INC.
By: /s/ By: /s/
--------------------------- ---------------------------
Name: Name:
Title: Title:
5
<PAGE>
SCHEDULE 1
Separate Accounts of SMA Life Assurance Company
and State Mutual Life Assurance Company of America
Investing in the Fund
As of April 1, 1994
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K November 1, 1990
of SMA Life Assurance Company
Separate Account VEL June 3, 1987
of SMA Life Assurance Company
Separate Account VEL II January 21, 1993
of SMA Life Assurance Company
Separate Account Inheiritage* September 15, 1993
of SMA Life Assurance Company
Separate Account VA-K of August 20, 1991
State Mutual Life Assurance
Company of America
Separate Account VEL-II August 20, 1991
of State Mutual Life Assurance
Company of America
Separate Account Inheiritage* August 20, 1991
of State Mutual Life Assurance
Company of America
* Regulatory approvals are pending for the Inheiritage products.
<PAGE>
SCHEDULE 2
(continued)
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of April 1, 1994
State Mutual Life Assurance Company of America
Individual Delaware Medallion Variable Annuity Contracts funded by sub-accounts
of Separate Account VA-K and investing in shares of Delaware Group Premium Fund,
Inc.
Individual ExecAnnuity Plus Variable Annuity Contracts funded by sub-accounts of
Separate Account VA-K and investing in shares of the International Equity Series
of Delaware Group Premium Fund, Inc.
Individual VEL II Variable Life Insurance Policies funded by sub-accounts of
Separate Account VEL II and investing in shares of the International Equity.
Series of Delaware Group Premium Fund, Inc.
Individual Inheiritage* Variable Life Insurance Policies funded by sub-accounts
of Separate Account Inheiritage and investing in shares of the International
Equity Series of Delaware Group Premium Fund, Inc.
* Regulatory approvals are currently pending for the Inheiritage product.
<PAGE>
SCHEDULE 3
Variable Contracts
Excluded from Section 1.8
As of April 1, 1994
SMA Life Assurance Company
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL"
Individual Variable Life Insurance Policies Marketed under the name "VEL Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage" *
State Mutual Life Assurance Company of America
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage"*
*Regulatory approvals are currently pending for the Inheiritage product.
<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of May, 1995 by
and among SMA LIFE ASSURANCE COMPANY (hereinafter, the "Company"), a Delaware
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the T.
ROWE PRICE INTERNATIONAL SERIES, INC., a corporation organized under the laws of
Maryland (hereinafter referred to as the "Fund") and T. ROWE PRICE INVESTMENT
SERVICES, INC. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has filed an application to obtain an order from the
Securities and Exchange Commission ("SEC") granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T) (b)(15) thereunder, if and to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
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WHEREAS, Rowe Price-Fleming International, Inc. (hereinafter referred to
as the "Adviser") is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use reasonable efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated
<PAGE>
- 3 -
Portfolios will be sold to the general public. The Fund and the Underwriter will
not sell Fund shares to any insurance company or separate account unless an
agreement containing provisions substantially the same as Articles I and VII of
this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 3:00 p.m. Baltimore time. If payment in Federal Funds for
any purchase is not received or is received by the Fund after 3:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions. The Fund shall use its best efforts to furnish
advance notice of the day such dividends and distributions are expected to be
paid.
<PAGE>
- 4 -
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Fund; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents to the use of such other investment company, such consent
not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Delaware insurance laws and has registered or, prior to any issuance or sale of
the Contracts, will register the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Delaware to the extent required to perform this Agreement.
<PAGE>
- 5 -
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and any applicable state
and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Fund are covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund, in an amount not less than $5 million. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Fund and the Underwriter in the event that such coverage no
longer applies.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of the
Fund's current prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus as set in type at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus
printed together in one document.
The Underwriter shall bear the expense of printing copies of its
current prospectus that will be distributed to existing Contract owners and the
Company shall bear the expense of printing copies of the Fund's prospectus that
are used in connection with offering the Contracts issued by the Company.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
<PAGE>
- 6 -
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Underwriter, at the Company's expense,
shall provide the Company with copies of the Fund's annual and semi-annual
reports to shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company (at the Company's
expense) to print such shareholder communications for distribution to Contract
owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least fifteen calendar days prior
to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within fifteen calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
<PAGE>
- 7 -
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
fifteen calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object to
the continued use of such material and no such material shall be used if the
Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
<PAGE>
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ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing (in accordance with
Section 3.1) and distributing the Fund's prospectus to owners of Contracts
issued by the Company and of distributing the Fund's proxy materials and reports
to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that the
Contracts will be treated as annuity or life insurance contracts, whichever is
appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation ss.1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees
<PAGE>
- 9 -
that any prospectus offering a contract that is a "modified endowment contract"
as that term is defined in Section 7702A of the Code (or any successor or
similar provision), shall identify such contract as a modified endowment
contract.
ARTICLE VII. Potential Conflicts. The following provisions apply effective upon
(a) the issuance of the Shared Funding Exemptive Order, and (b) investment in
the Fund by a separate account of a Participating Insurance Company supporting
variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
<PAGE>
- 10 -
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent the Shared Funding Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in the Shared
Funding Exemptive Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation
<PAGE>
- 11 -
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the Registration Statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company or persons under its control)
or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would
<PAGE>
- 12 -
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of its
obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or SAI or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by
or on behalf of the
<PAGE>
- 13 -
Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter
or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
<PAGE>
- 14 -
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
<PAGE>
- 15 -
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
- 16 -
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares, provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(j) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.11
hereof and at the time such notice was given
<PAGE>
- 17 -
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however, any
termination under this Section 10.1(j) shall be effective
forty-five days after the notice specified in Section 1.11 was
given.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
T. Rowe Price International Series, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
SMA Life Assurance Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Eric S. Levy
<PAGE>
- 18 -
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Terrie Westren
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
<PAGE>
- 19 -
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: SMA LIFE ASSURANCE COMPANY
By its authorized officer
By: /s Ruben P. Moreno
------------------------------------
Title: VP Finance
---------------------------------
Date: 5/2/95
----------------------------------
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ [Illegible]
------------------------------------
Title: Vice President
---------------------------------
Date: April 26, 1995
----------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ [Illegible]
------------------------------------
Title: Vice President
---------------------------------
Date: April 26, 1995
----------------------------------
<PAGE>
SCHEDULE A
Pending issuance of the Shared Funding Order, the Underwriter shall not
sell to the Company, and the Fund shall not make available for purchase to the
Company, shares of the Designated Portfolio for variable life insurance
Contracts supported wholly or partially by the Accounts.
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
-------------------------------------- ---------------- ---------------------
<S> <C> <C>
Separate Account VA-K of SMA Life Assurance ExecAnnuity Plus T. Rowe Price International Series, Inc.
Company, November 1, 1990 33-39702 o T. Rowe Price International
811-6293 Stock Portfolio
Allmerica Select Separate Account of SMA Life Allmerica Select T. Rowe Price international Series, Inc.
Assurance Company, March 5, 1992 33-47216 o T. Rowe Price International Stock
811-6632 Portfolio
VEL Account of SMA Life Assurance Company, April VEL '87 T. Rowe Price international Series, Inc.
27, 1987 33-14672 o T. Rowe Price International
811-5183 Stock Portfolio
VEL Account of SMA Life Assurance Company, April VEL '91 T. Rowe Price international Series, Inc.
27, 1987 33-90320 o T. Rowe Price International
811-5183 Stock Portfolio
VEL Account of SMA Life Assurance Company, April VEL Plus T. Rowe Price international Series, Inc.
27, 1987 33-42687 o T. Rowe Price International
811-5183 Stock Portfolio
VEL II Account of SMA Life Assurance Company, VEL '93 T. Rowe Price international Series, Inc.
January 21, 1993 33-57792 o T. Rowe Price International
811-7466 Stock Portfolio
Inheiritage Account of SMA Life Assurance Company, Variable Inheiritage T. Rowe Price international Series, Inc.
September 15, 1993 33-70948 o T. Rowe Price International
811-8120 Stock Portfolio
Group VEL Account of SMA Life Assurance Company, Group VEL T. Rowe Price international Series, Inc.
November 22, 1993 33-82658 o T. Rowe Price International
811- Stock Portfolio
Allmerica Select Separate Account II of SMA Life Select VEL T. Rowe Price international Series, Inc.
Assurance Company, October 12, 1993 33-83604 o T. Rowe Price International Stock
811- Portfolio
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into this 15th day of April, 1996 by and
among Allmerica Financial Life Insurance and Annuity Company (hereinafter the
"Insurance Company"), a Delaware corporation, on its own behalf and on behalf of
each segregated asset account of the Insurance Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a
Maryland corporation (the "Company") and INVESCO FUNDS GROUP, INC.
"INVESCO"), a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and
Exchange Commission (the "Commission"), dated December 29, 1993 (File No.
812-8590), granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Company to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (the "Mixed and Shared Funding
Exemptive Order"); and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the, "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and as a
broker dealer under the Securities Exchange Act of 1934, as amended, (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
1
<PAGE>
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable [annuity/life insurance]
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. Sale of Company Shares
1.1. INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided that the Company receives notice of such order by 8:00
a.m., Mountain Time, on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Company calculates its net asset value pursuant to the rules of the
Commission.
1.2. The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund.
1.3. The Company and INVESCO agree that shares of the Company will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Fund will be sold to the general public.
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1.4. The Company and INVESCO will not sell Company shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 8:00 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund offered by the then-current prospectus of the Company in accordance
with the provisions of that prospectus. The Insurance Company agrees that all
net amounts available under the Contracts shall be invested in the Company, in
such other Funds advised by INVESCO as may be mutually agreed to in writing by
the parties hereto, or in the Insurance Company's general account, provided that
such amounts may also be invested in an investment company other than the
Company if (a) the other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Funds of the Company; or (b) the Insurance
Company gives the Company and INVESCO 45 days written notice of its intention to
make the other investment company available as a funding vehicle for the
Contracts; or (c) the other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Insurance
Company so informs the Company and INVESCO prior to their signing this
Agreement; or (d) the Company or INVESCO consents to the use of the other
investment company.
1.7. The Insurance Company shall pay for Company shares by 9:00 a.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon receipt by the Company of the federal funds so wired, such funds
shall cease to be the responsibility of the Insurance Company and shall become
the responsibility of the Company. Payment of aggregate redemption proceeds
(aggregate redemptions of a Fund's shares by an Account) of less than $1 million
for a given Business Day will be made by wiring federal funds to the Insurance
Company on the next Business Day after receipt of the redemption request.
Payment of aggregate redemption proceeds of $1 million or more will be by wiring
federal funds within seven days after receipt of the redemption request.
Notwithstanding the foregoing, in the event that one or more Funds has
insufficient cash on hand to pay aggregate redemptions on the next Business Day,
and if such Fund has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one Business Day, but in no event
more than seven calendar days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the Commission under Section
22(e) of the 1940 Act), the Company shall be permitted to delay sending
redemption proceeds to the Insurance Company by the same number of days that the
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Company is delaying sending redemption proceeds to the other shareholders of the
Fund.
Redemptions of up to the lesser of $250,000 or 1% of the net asset value
of the Fund whose shares are to be redeemed in any 90-day period will be made in
cash. Redemptions in excess of that amount in any 90-day period may, in the sole
discretion of the Company, be in-kind redemptions, with the securities to be
delivered in payment of redemptions selected by the Company and valued at the
value assigned to them in computing the Fund's net asset value per share.
1.8. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash, The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 6:00 p.m.,
Mountain Time.
ARTICLE II. Representations and Warranties
2.1. The Insurance Company represents and warrants that the Contracts are,
or will be, registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with applicable state insurance suitability requirements. The Insurance
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under Section 2932 of the Delaware Insurance Code and
has registered, or prior to any issuance or sale of the Contracts will register,
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
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as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
2.3. The Company represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain that
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as [annuity/life insurance/endowment/modified endowment]
contracts, under applicable provisions of the Code and that it will make every
effort to maintain such treatment and that it will notify the Company and
INVESCO immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Company undertakes
to have a board of directors, a majority of whom are not interested persons of
the Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. INVESCO represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the Commission. INVESCO
further represents that it will sell and distribute the Company shares in
accordance with the laws of the State of Delaware and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado and
any applicable state and federal securities laws.
2.10, The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities dealing with the money and/or securities of the Company
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are, and shall continue to be at all times, covered by a blanket fidelity bond
or similar coverage for the benefit of the Company in an amount not less than
the minimum coverage required currently by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. That fidelity bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than the minimum coverage
required currently for entities subject to the requirements of Rule 17g-1 of the
1940 Act or related provisions or may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Insurance Company further represents
and warrants that the employees of Insurance Company, or such other persons
designated by Insurance Company, listed on Schedule C have been authorized by
all necessary action of Insurance Company to give directions, instructions and
certifications to the Company and INVESCO on behalf of Insurance Company. The
Company and INVESCO are authorized to act and rely upon any directions,
instructions and certifications received from such persons unless and until they
have been notified in writing by the Insurance Company of a change in such
persons, and the Company and INVESCO shall incur no liability in doing so.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request. If requested by the Insurance
Company in lieu thereof, the Company shall provide such documentation (including
a final copy of the new prospectus as set in type at the Company's expense) and
other assistance as is reasonably necessary in order for the Insurance Company
once each year (or more frequently if the prospectus for the Company is amended)
to have the prospectus for the Contracts and the Company's prospectus printed
together in one document (at the Insurance Company's expense).
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the Company), at its expense, shall print and
provide the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to stockholders and other communications
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to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company, a sub-adviser of one of the Funds, or
INVESCO is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
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Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company and/or
its separate account(s), is named at least fifteen calendar days prior to its
use. No such material shall be used if the Insurance Company or its designee
object to such use within ten calendar days after receipt of that material.
4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as that registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5, The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
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4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of the California Insurance Department. However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Company and INVESCO shall pay no fee or other compensation to the
Insurance Company under this agreement, except that if the Company or any Fund
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then INVESCO may make payments to the Insurance Company if and in
amounts agreed to by INVESCO in writing, subject to review by the board of
directors of the Company. No such payments shall be made directly by the
Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Company or
INVESCO, in accordance with applicable state laws prior to their sale. The
Company shall bear the expenses for the cost of registration and qualification
of the Company's shares, preparation and filing of the Company's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Company's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
ARTICLE VI. Diversification
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
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state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The Board shall
promptly inform the Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof. The Board shall have sole
authority to determine whether an irreconcilable material conflict exists and
such determination shall be binding upon the Insurance Company.
7.2 The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Insurance Company to inform the Board whenever
Contract owner voting instructions are to be disregarded. Such responsibilities
shall be carried out by Insurance Company with a view only to the interests of
the Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Company, INVESCO, or any
sub-adviser to any of the Funds (the "Independent Directors"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Company or any Fund and reinvesting those
assets in a different investment medium, including (but not limited to) another
Fund of the Company, or submitting the question whether such segregation should
be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (e.g., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2), establishing a new registered management
investment company or managed separate account and obtaining approval thereof by
the Commission.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's election, to withdraw the
affected Account's investment in the Company and terminate this Agreement with
respect to that Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Directors. Any such
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withdrawal and termination must take place within six (6) months after the
Company gives written notice that this provision is being implemented, and until
the end of that six month period INVESCO and the Company shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the Board informs the Insurance Company in writing that it has determined that
the state insurance regulator's decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Directors. Until the end of the
foregoing six month period, INVESCO and the Company shall continue to accept and
implement orders by the Insurance Company for the purchase (and redemption) of
shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict, In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Insurance Company will withdraw the Account's investment in
the Company and terminate this Agreement within six (6) months after the Board
informs the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited to the
extent required by the material irreconcilable conflict, as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
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ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to the Insurance Company by or on behalf of the Company for
use in the registration statement or prospectus for the Contracts or
in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or shares of the Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Company not supplied by the Insurance Company, or persons under its
control) or wrongful conduct of the Insurance Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Company Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Company or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
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necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company: or
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
13
<PAGE>
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Company's shares or the Contracts or the
operation of the Company.
8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Company (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if the
statement or omission or alleged statement or omission was made in
reliance upon and in conformity with information furnished in
writing to INVESCO or the Company by or on behalf of the Insurance
Company for use in the registration statement or prospectus for the
Company or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Company shares: or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by INVESCO or persons under its control) or
wrongful conduct of the Company, INVESCO or persons
14
<PAGE>
under their control, with respect to the sale or distribution of
the Contracts or shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished in writing to the Insurance Company by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this Agreement or
arise out of or result from any other material breach of this
Agreement by INVESCO; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b) INVESCO shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c) INVESCO shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified INVESCO in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve INVESCO of its
obligations hereunder except to the extent that INVESCO has been prejudiced by
such failure to give notice. In addition, any failure by the Indemnified Party
to notify INVESCO of any such claim shall not relieve INVESCO from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, INVESCO will be entitled to
participate,
15
<PAGE>
at its own expense, in the defense thereof. INVESCO also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action; provided, however, that if the Indemnified Party shall have reasonably
concluded that there may be defenses available to it which are different from or
additional to those available to INVESCO, INVESCO shall not have the right to
assume said defense, but shall pay the costs and expenses thereof (except that
in no event shall INVESCO be liable for the fees and expenses of more than one
counsel for Indemnified Parties in connection with any one action or separate
but similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from INVESCO to the
Indemnified Party of INVESCO's election to assume the defense thereof, and in
the absence of such a reasonable conclusion that there may be different or
additional defenses available to the Indemnified Party, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
INVESCO will not be liable to that party under this Agreement for any legal or
other expenses subsequently incurred by that party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Company
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith, willful misconduct, or reckless
disregard of duty of the Board or any member thereof, are related to the
operations of the Company and:
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
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8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
will be entitled to participate, at its own expense, in the defense thereof, The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company, the Company shall not have the right to assume said defense, but shall
pay the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from the Company to the Indemnified Party of the
Company's election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Company will not
be liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
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9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice
to the other parties; provided, however such notice shall not be
given earlier than one year following the date of this Agreement; or
(b) at the option of the Insurance Company to the extent that shares
of Funds are not reasonably available to meet the requirements of
the Contracts as determined by the Insurance Company, provided
however, that such a termination shall apply only to the Fund(s) not
reasonably available. Prompt written notice of the election to
terminate for such cause shall be furnished by the Insurance
Company; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or
any other regulatory body regarding the Insurance Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Company's shares,
provided, however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the
Insurance Company to perform its obligations under this Agreement;
or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or
INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Insurance Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Company
or INVESCO to perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the
Contracts for which those Fund shares had been selected to serve as
the underlying investment media. The Insurance Company will give at
least 30 days' prior written notice to the Company of the date of
any proposed vote to replace the Company's shares; or
18
<PAGE>
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or exemptions therefrom, or
such law precludes the use of those shares as the underlying
investment media of the Contracts issued or to be issued by the
Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the
Code or under any successor or similar provision, or if the
Insurance Company reasonably believes that the Company may fail to
so qualify; or
(h) at the option of the Insurance Company, if the Company fails to
meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or INVESCO, if (1) the
Company or INVESCO, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity
and that material adverse change or material adverse publicity will
have a material adverse impact upon the business and operations of
either the Company or INVESCO, (2) the Company or INVESCO shall
notify the Insurance Company in writing of that determination and
its intent to terminate this Agreement, and (3) after considering
the actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the determination
of the Company or INVESCO shall continue to apply on the sixtieth
(60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised
in good faith, that either the Company or INVESCO has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Insurance Company,
(2) the Insurance Company shall notify the Company and INVESCO in
writing of the determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the
Company and/or INVESCO and any other changes in circumstances since
the giving of such a notice, the determination shall continue to
apply on the sixtieth (60th) day following the giving of the notice,
which sixtieth day shall be the effective date of termination; or
(k) at the option of either the Company or INVESCO, if the Insurance
Company gives the Company and INVESCO the written notice specified
in Section 1.6(b) hereof and at the time that notice was given there
was no notice of termination outstanding under any other
19
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provision of this Agreement; provided, however any termination under
this Section 10.1(k) shall be effective forty five (45) days after
the notice specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon the provisions
of Article VII, or the provisions of Section 10.1(a), 10.1(i),
10.1(j), or 10.1(k) of this Agreement, the prior written notice
shall be given in advance of the effective date of termination as
required by those provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1(c) or 10.1(d) of this Agreement, the prior written
notice shall be given at least ninety (90) days before the effective
date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Company, redeem investments in the
Company and/or invest in the Company upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section 10.4
shall not apply to any terminations under Article VII and the effect of Article
VII terminations shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
company will promptly furnish to the Company and INVESCO the opinion of counsel
for the Insurance Company (which counsel shall be reasonably satisfactory to the
Company and INVESCO) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption.
ARTICLE XI. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set forth
below or at such other address as the other party may from time to time specify
in writing.
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If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
440 Lincoln Street
Worcester, MA 01653
Attention: Abigaill M. Armstrong, Secretary
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written consent
of the others.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Insurance Company:
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By its authorized officer,
By: /s/ Jerome F. Weihs
------------------------------
Title: Vice-President
---------------------------
Date: April 15, 1996
----------------------------
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
------------------------------
Title: Treasurer
---------------------------
Date: April 17, 1996
----------------------------
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
------------------------------
Title: Senior Vice-President
---------------------------
Date: April 17, 1996
----------------------------
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Schedule A
Accounts
Name of Account Date of Resolution of Insurance Company's
Board which Established the Account
Group VEL Account November 22, 1993
23
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Schedule B
Contracts
1. Contract Form 1029-94
24
<PAGE>
Schedule C
Persons Authorized to Give Instructions to the Company and INVESCO
NAME ADDRESS AND PHONE NUMBER
ALLMERICA FINANCIAL
SEPARATE ACCOUNTS S134
440 LINCOLN STREET
(1) DANIEL J. MAHONEY WORCESTER, MA 01653
------------------------- -----------------------------
Print or Type Name
/s/ Daniel J. Mahoney Phone: 508-855-4330
------------------------- -----------------------------
Signature
(2) SEBRINA M. DEBERADINIS SAME
------------------------- -----------------------------
Print or Type Name
/s/ Sebrina M. Deberadinis Phone: 508-855-6447
------------------------- -----------------------------
Signature
(3) VICTORIA A. ABBOTT SAME
------------------------- -----------------------------
Print or Type Name
/s/ Victoria A. Abbott Phone: 508-855-2124
------------------------- -----------------------------
Signature
(4) DONNA M. MURPHY SAME
------------------------- -----------------------------
Print or Type Name
/s/ Donna M. Murphy Phone: 508-855-2126
------------------------- -----------------------------
Signature
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Schedule D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time INVESCO will inform the Insurance Company of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best
efforts to call in the number of Customers to INVESCO, as soon as
possible, but no later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Insurance Company by the Company. The Insurance
Company, at its expense, shall produce and personalize the Voting
Instruction cards. The Legal Department of INVESCO ("INVESCO Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Company).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
4. During this time, INVESCO Legal will develop, produce, and the Company
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Insurance Company). Contents of envelope sent
to customers by Insurance Company will include:
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a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company)
addressed to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
6. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation time to the
Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but not including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
3. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) INVESCO Legal
must review and approve tabulation format.
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11. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provided a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers, In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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LETTER AGREEMENT
June 4, 1997
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
Ladies and Gentlemen:
Effective as of October 1, 1996, this letter sets forth the agreement
("Agreement") between Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company) ("Company A") and First Allmerica
Financial Life Insurance Company (formerly known as State Mutual Life Assurance
Company of America) ("Company B") (each a "Company" and collectively "you,"
"your" or the "Companies"), on the one hand, and Rowe Price-Fleming
International, Inc. ("RPFI") (referred to as "we," or "RPFI") on the other ,
concerning certain administrative services to be provided by each of you, with
respect to the T. Rowe Price International Series, Inc. (the "Fund").
1. THE FUND. The Fund is a Maryland Corporation registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended (the "Act") as an open-end diversified management
investment company. The Fund serves as a funding vehicle for variable
annuity contracts and variable life insurance contracts and, as such,
sells its shares to insurance companies and their separate accounts. With
respect to various provisions of the Act, the SEC requires that owners of
variable annuity contracts and variable life insurance contracts be
provided with materials and rights afforded to shareholders of a
publicly-available SEC-registered mutual fund.
2. THE COMPANIES. Company A is a Delaware life insurance company, and Company
B is a Massachusetts life insurance company. Each Company issues
variable annuity contracts (the "Contracts") supported by one or more
separate accounts (individually a "Separate Account" and collectively the
"Separate Accounts") which are registered with the SEC as unit investment
trusts, or which are properly exempt from registration. Each of the
Companies has entered into a participation agreement with the Fund
(individually a "Participation Agreement" and collectively the
"Participation Agreements") pursuant to which each Company purchases shares
of the T. Rowe Price International Stock Portfolio of the Fund for the
Separate Accounts supporting the Company's Contracts.
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Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 2
3. RPFI. RPFI serves as the investment adviser to the T. Rowe Price
International Series, Inc. RPFI supervises and assists in the overall
management of the Fund's affairs under an investment management agreement
with the Fund (the "Management Agreement"), subject to the overall
authority of the Fund's Board of Directors in accordance with Maryland law.
Under the Management Agreement, RPFI is compensated for providing
investment advisory and certain administrative services (either directly or
through affiliates).
4. ADMINISTRATIVE SERVICES. You have agreed to assist us, as we may request
from time to time, with the provision of administrative services to the
Fund, as they may relate to the investment in a Fund by the Separate
Accounts. It is anticipated that such services may include (but shall not
be limited to): the mailing of Fund reports, notices, proxies and proxy
statements and other informational materials to holder of the Contracts
supported by the Separate Accounts; the maintenance of separate records for
each holder of the Contracts reflecting shares purchased and redeemed and
share balances; the preparation of various reports for submission to Fund
directors; the provision of advice and recommendations concerning the
operation of the series of the Funds as funding vehicles for the Contracts;
the provision of shareholder support services with respect to the Separate
Account portfolios serving as funding vehicles for the Contracts; telephone
support for holders of Contracts with respect to inquiries about the Fund;
and the provision of other administrative services as shall be mutually
agreed upon from time to time.
5. PAYMENT FOR ADMINISTRATIVE SERVICES. In consideration of the
administrative services to be provided by each of the Companies, we
shall make payments to each of the Companies on a quarterly basis
("Payments") from our assets, including our bona fide profits as investment
adviser to the Fund, an amount equal to 15 basis points (0.15%) per annum
of the average aggregate net asset value of shares of the Fund held by
the Separate Accounts under the Participation Agreements, PROVIDED,
HOWEVER, that such payments shall only be payable with respect to the Fund
for each calendar quarter during which the aggregate dollar value of shares
of the Fund purchased pursuant to a Participation Agreement by the
insurance companies in the aggregate exceeds $50,000,000. Subject to the
terms of paragraph 6 hereof, RPFI shall be responsible for payments due
pursuant to this Paragraph 5 with respect to the purchase of shares of the
Fund managed by RPFI. For purposes of computing the payment to each
Company contemplated under this Paragraph 5, the average aggregate net
asset value of shares of the Fund held by the Separate Accounts over a
quarterly period shall be computed by totaling each Separate Account's
aggregate investment (share net asset value multiplied by total number of
shares held by the Separate Account) on each business day during the
calendar quarter, and dividing by the total number of business days during
such quarter. The Payments contemplated by this Paragraph 5 shall be
calculated by RPFI at the end of each calendar quarter and will be paid to
each Company within 30 business days thereafter.
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 3
6. UNIFIED PAYMENT PROCEDURE. You have agreed that in order to simplify the
procedure by which Payments required to be made by RPFI pursuant to
Paragraph 5 hereof are made to the Companies, the obligations of RPFI to
make such Payments to each Company can be fulfilled by the remittance of a
single, unified Payment (the "Unified Payment"). The Unified Payment shall
be made by RPFI to Company A, accompanied by a written statement setting
forth the respective amounts due to each of the Companies. Company A in
turn, agrees that it will remit Company B's portion of each Unified Payment
to Company B as soon as practicable after Company A's receipt of such
Unified Payment, unless a different arrangement is agreed to between
Company A and Company B. Company B agrees that the obligation of RPFI to
make payments to it pursuant to paragraph 5 hereof shall be satisfied upon
receipt of the applicable Unified Payment by Company A.
7. NATURE OF PAYMENTS. The parties to this Agreement recognize and agree that
RPFI's payments to the Companies relate to administrative services only and
do not constitute payment in any manner for investment advisory services or
for costs of distribution of the Contracts or of Fund shares; and further,
that these payments are not otherwise related to investment advisory or
distribution services or expenses, or administrative services which RPFI is
required to provide to owners of the Contracts pursuant to the terms
thereof. You represent that you may legally receive the payments
contemplated by the Agreement.
8. TERM. This Agreement shall remain in full force and effect for an initial
term of two years, and shall automatically renew for successive one-year
periods unless any party informs each of the other parties upon 60-days
written notice of its intent not to continue this Agreement. This
Agreement and all obligations hereunder shall terminate automatically with
respect to a Company and its relationship with a Fund upon the redemption
of the Company's and its Separate Accounts investment in the Fund, or upon
termination of the Company's Participation Agreement with the Fund.
9. AMENDMENT. This Agreement may be amended only upon mutual agreement
of all of the parties hereto in writing.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall together
constitute one and the same instrument.
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 4
If this Agreement is consistent with your understanding of the matters we
discussed concerning your administrative services, kindly sign below and return
a signed copy to us.
Very truly yours,
ROWE PRICE-FLEMING
INTERNATIONAL, INC.
By: /s/ Nancy M. Morris
------------------------------------------
Name: Nancy M. Morris
----------------------------------------
Title: Vice President
----------------------------------------
Acknowledged and Agreed to:
ALL MERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
------------------------------
Title: President
------------------------------
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
------------------------------
Title: Vice President
------------------------------
<PAGE>
November 15, 1997
Mr. Richard M. Reilly
President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Dear Mr. Reilly:
We are pleased to have entered into an agreement with Allmerica Financial
Life Insurance and Annuity Company (the "Company") dated November 15, 1997,
providing for the purchase by the Company of shares of Morgan Stanley
Universal Funds, Inc. (the "Fund") for its separate accounts to fund variable
annuity contract and variable life policy benefits ("Participation
Agreement").
In recognition of the fact that the Company will provide various administrative
services in connection with the issuance of variable annuity contracts and
variable life insurance policies and the fact that we (or our affiliates), as
investment advisers and administrators to the Fund will not incur administrative
expenses that we would otherwise incur in servicing large numbers of investors
in the Fund (such as shareholder communication, record keeping and postage
expenses), we will pay to the Company, during the term of the Participation
Agreement, an annual fee of .15% of the assets invested in the then offered
portfolios of the Fund under the variable life and variable annuity contracts
sold by the Company (excluding all assets invested during the guarantee (free
look) periods available under the contracts).
Payment will be made on a quarterly basis during the month following the end of
each quarter.
If you agree to the foregoing, please sign the enclosed copy of this letter
and return it to Blair Garff at Morgan Stanley Asset Management, Inc., 1221
Avenue of the Americas, New York, New York 10020.
<PAGE>
Sincerely,
Morgan Stanley Asset Management, Inc.
By: /s/ Jeffrey Margolis
----------------------------------
Name: Jeffrey Margolis
Title: Principal
Miller, Anderson & Sherrerd, LLP
By: /s/ Marna C. Whittington
----------------------------------
Name: Marna C. Whittington
Title: Managing Director
AGREED
Allmerica Financial Life Insurance and Annuity Company
By: /s/ Richard M. Reilly
----------------------------------
Name: Richard M. Reilly
Title: President
<PAGE>
PARTICIPATION AGREEMENT
Among
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DATED AS OF
NOVEMBER 15, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 4
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV. Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 18
ARTICLE X. Termination 18
ARTICLE XI. Notices 20
ARTICLE XII. Miscellaneous 21
SCHEDULE A Separate Accounts and Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Universal Funds, Inc. B-1
SCHEDULE C Proxy Voting Procedures C-1
<PAGE>
THIS AGREEMENT, made and entered into as of the 15th day of
November, 1997 by and among ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY (hereinafter the "Company"), a Delaware corporation, on its own
behalf and on behalf of each separate account of the Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), and MORGAN STANLEY UNIVERSAL
FUNDS, INC. (hereinafter the "Fund"), a Maryland corporation, and MORGAN
STANLEY ASSET MANAGEMENT INC. and MILLER ANDERSON & SHERRERD, LLP
(hereinafter collectively the "Advisers" and individually the "Adviser"),
a Delaware corporation and a Pennsylvania limited liability partnership,
respectively.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Contracts enter into participation
agreements with the Fund and the Advisers (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, each Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Underwriter is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Purchase of Fund Shares
1.1. The Fund agrees to make available for purchase by the Company shares
of the Fund and shall execute orders placed for each Account on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
such order. For purposes of this Section 1.1, the Company shall be the designee
of the Fund for receipt of such orders from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such order by 10:00 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which
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<PAGE>
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, V, VII and Section 2.5.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Variable Insurance Products issued
by the Company, under which amounts may be invested in the Fund (hereinafter the
"Contracts"), are listed on Schedule A attached hereto and incorporated herein
by reference, as such Schedule A may be amended from time to time by mutual
written agreement of all of the parties hereto. The Company will give the Fund
and the Adviser 45 days written notice of its intention to make available in the
future, as a funding vehicle under the Contracts, any other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 2932 of the Delaware Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and
4
<PAGE>
state securities laws and that the Fund is and shall remain registered under the
1940 Act. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
5
<PAGE>
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the Contracts printed
together in one document. Alternatively, the Company may print the Fund's
prospectus and/or its statement of additional information in combination with
other fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing and
distributing Fund prospectuses and statements of additional information shall be
the expense of the Company. For prospectuses and statements of additional
information provided by the Company to its existing owners of Contracts who
currently own shares of one or more of the Fund's Portfolios, in order to update
disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
or computer diskettes in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the
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Company in an amount equal to the product of x and y where x is the number of
such prospectuses distributed to owners of the Contracts who currently own
shares of one or more of the Fund's Portfolios, and y is the Fund's per unit
cost of typesetting and printing the Fund's prospectus. The same procedures
shall be followed with respect to the Fund's statement of additional
information. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or statements of
additional information other than those actually distributed to existing owners
of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners. The Fund or its designee shall bear
the cost of printing, duplicating, and mailing these documents to Contract
owners, and the Company shall bear the cost for such documents used for purposes
other than distribution to current Contract Owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent
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with the standards set forth on Schedule C, which standards will also be
provided to the other Participating Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable cost,
the printing, assembling and/or distribution of the communications in accordance
with applicable laws and regulations.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.4. The Fund and the Advisers shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account,
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or the Contracts, other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for each Account which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, which are relevant
to the Company or the Contracts.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
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5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
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7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the
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<PAGE>
Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and each
member of the Board and officers, and each Adviser and each director and officer
of each Adviser, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in
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the registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts (or
any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control and
other than statements or representations authorized by the Fund or
an Adviser) or unlawful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the
Company to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
13
<PAGE>
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the
14
<PAGE>
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of shares of the Portfolio that it manages or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Fund by or on behalf of the
Company for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Portfolio shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the registration statement, prospectus or sales literature for
the Contracts not supplied by the Fund or persons under its control
and other than statements or representations authorized by the
Company) or unlawful conduct of the Fund, Adviser(s) or Underwriter
or persons under their control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was
made in
15
<PAGE>
reliance upon information furnished to the Company by or on behalf
of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Adviser; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). An Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
16
<PAGE>
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the terms of
this Agreement; or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Fund;
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process
17
<PAGE>
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement
of any litigation or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
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(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's determination
that shares of such Portfolio is not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the Portfolio's shares
are not registered, issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio falls to
meet the diversification requirements specified in Article VI hereof; or
(f) termination by either the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, or
(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in good
faith, that either the Fund or the Adviser has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written
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notice specified in Section 1.5 hereof and at the time such notice was given
there was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h) shall be
effective forty five (45) days after the notice specified in Section 1.5 was
given.
10.2. Notwithstanding any termination of this Agreement, the Fund shall at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing, Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to direct reallocation of
investments in the Fund, redemption of investments in the Fund and/or investment
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund 90 days
prior written notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
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If to the Fund:
Morgan Stanley Universal Funds, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Richard M. Reilly, President
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such
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<PAGE>
time as it may come into the public domain without the express written consent
of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that an Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
22
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
--------------------------------
Name: RICHARD M. REILLY
Title: PRESIDENT
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: /s/ Michael F. Klein
--------------------------------
Name: MICHAEL F. KLEIN
Title: PRESIDENT
MORGAN STANLEY ASSET MANAGEMENT INC.
By: /s/ Marna C. Whittington
--------------------------------
Name: MARNA C. WHITTINGTON
Title: MANAGING DIRECTOR
MILLER ANDERSON & SHERRERD, LLP
By: /s/ Marna C. Whittington
--------------------------------
Name: MARNA C. WHITTINGTON
Title: MANAGING DIRECTOR
24
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SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Number and Name of Contract
Date Established by Board of Directors Funded by Separate Account
- -------------------------------------- --------------------------
Group VEL Account of Allmerica Financial Group Flexible Premium Variable Life
Life Insurance and Annuity Company: Insurance Policy on Policy Form
Established November 22, 1993 1029P-94 Issued to Duke Energy
Corporation Grantor Trust (Case WG 23)
A-1
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SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS, INC.
Fixed Income Portfolio
B-1
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SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
- - The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
- - Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
- - The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
- - The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
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- name (legal name as found on account registration)
- address
- fund or account number
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
- - During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be supplied
by the Fund.)
- cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
- - The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
- - Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
- - Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
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Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
- - Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card
and is the signature needed on the Card.
- - If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
- - There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
- - The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) The Fund must
review and approve tabulation format.
- - Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
- - A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
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- - The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
- - All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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April 15, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY
FILE NO'S.: 33-82658 AND 811-08704
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 Group VEL 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 Group VEL 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 Group VEL Account equal to the reserves and other
Policy liabilities of the Policies which are supported by the Group VEL
Account are not chargeable with liabilities arising out of any other
business the Company may conduct.
3. The group 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 Group VEL
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>
April 15, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO'S.: 33-82658 AND 811-08704
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 Group VEL Account under the
Securities Act of 1933. The prospectus included in the post-effective amendment
of the Registration Statement 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 post-effective
amendment of the Registration Statement.
Sincerely,
/s/ William M. Mawdsley
William M. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
Description of Issuance, Transfer
and Redemption Procedures for Policies
Offered by the Group VEL Account of SMA Life Assurance Company
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
The Group VEL Account of SMA Life Assurance Company ("Company") is
registered under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. Within the Group VEL Account are sixteen Sub-Accounts.
Procedures apply equally to each subaccount and for purposes of this description
are defined in terms of the Group VEL Account, except where a discussion of both
the Group VEL Account and the individual Sub-Accounts is necessary. Each
Sub-Account invests in shares of a corresponding investment division of the
Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund ("VIPF"),
or Delaware Group Premium Fund, Inc. ("DGPF"), each of which is a "series" type
of mutual fund registered under the 1940 Act. The investment experience of a
Sub-Account of the Group VEL Account depends on the market performance of its
corresponding investment division of the Trust, VIPF or DGPF. Although flexible
premium variable life insurance policies funded through the Group VEL Account
may also provide for fixed benefits supported by the Company's General Account,
this description assumes that net premiums are allocated exclusively to the
Group VEL Account and that all transactions involve only the Sub-Accounts of the
Group VEL Account, except as otherwise explicitly stated herein.
I. "Public Offering Price": Purchase and Related Transactions -- Section
22(d) and Rule 22c-1
This section outlines Policy provisions and administrative procedures
which might be deemed to constitute, either directly or indirectly, a
"purchase" transaction. Because of the insurance nature of the policies,
the procedures involved necessarily differ in certain significant respects
from the purchase procedures for mutual funds and annuity plans. The chief
differences revolve around the structure of the cost of insurance charges
and the insurance underwriting process. Certain Policy provisions, such as
reinstatement and loan repayment, do not result in the issuance of a
Policy but require certain payments by the Policyowner and involve a
transfer of assets supporting Policy reserve into the Group VEL Account.
a. Insurance Charges and Underwriting Standards
Premium payments are not limited as to frequency and number, but
there are limitations as to amount. No premium payment may be less
than $100 without the Company's consent, and the total of all
premiums paid can never exceed the then current maximum premiums
determined by Internal Revenue Service rules. If at any time a
premium is paid which would result in total premiums exceeding the
current maximum premium limitations, the Company will return the
amount in excess of such maximums to the Policyowner.
The Policy will remain in force so long as the Policy value less any
outstanding debt is sufficient to pay certain monthly charges
imposed in connection with the Policy. Cost of insurance charges for
the policies will not be the same for all Policyowners. The
insurance principle of pooling and distribution of mortality risks
is based upon the assumption that each Policyowner pays a cost of
insurance charge commensurate with the Insured's mortality risk,
which is actuarially determined based upon factors such as age,
health and occupation. In the context of life insurance, a uniform
mortality charge (the "cost of insurance charge") for all Insureds
would discriminate unfairly in favor of those Insureds representing
greater mortality risks to the disadvantage of those representing
lesser risks. Accordingly, there will be a different "price" for
each actuarial category of Policyowners because different cost of
insurance rates will apply. Accordingly, while not all Policyowners
will be subject to the same cost of insurance rate, there will be a
single "rate" for all Policyowners in a given actuarial category.
The policies will be offered and sold pursuant to the Company's
underwriting standards and in accordance with state insurance laws.
Such laws prohibit unfair discrimination among Insureds, but
recognize that premiums must be based upon factors such as age,
health and occupation. Tables showing the maximum cost of insurance
charges will be delivered as part of the Policy.
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b. Application and Initial Premium Processing
Upon receipt 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 such verification procedures as
medical examinations and may require that further information be
provided by the proposed Policyowner before a determination can be
made. A Policy cannot be issued until this underwriting procedure
has been completed.
If at the time of Application a prospective Policyowner makes a
payment equal to at least one monthly deduction 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. If the application is approved, the
Policy will be issued as of the date the terms of the Conditional
Insurance Agreement were met. If the prospective Policyowner does
not wish to make any payment until the Policy is issued, upon
delivery of the Policy the Company will require payment of
sufficient premium to place the insurance in-force.
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, the initial premium held in the General Account
will be credited with interest not later than the date of receipt of
the premium at the Company's Principal Office. Not later than three
days of underwriting approval of the Policy, the amounts held in the
Company's General Account will be allocated to the Sub-Accounts
according to Policyowner's instructions, for that part of the total
amount allocated to the Group VEL Account which is less than
$10,000. If the amount allocated to the Group VEL Account exceeds
$10,000 or if the Policy provides for planned premium payments
during the first year of $5,000 semi-annually, $2,500 quarterly or
$1,000 monthly, the entire amount will remain in the General Account
until expiration of the Free Look Period, as evidenced by a delivery
receipt. Amounts remaining in the General Account will continue to
be credited interest from date of receipt of the premium at the
Principal Office.
If a Policy is not issued, the premiums will be returned to the
Applicant without interest.
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed
Policyowner in connection with payment of the initial premium and
will not dilute any benefit payable to any existing Policyowner.
Although a Policy cannot be issued until the underwriting process
has been completed, the proposed Policyowner will receive immediate
insurance coverage, if he has paid an initial premium and proves to
be insurable. If the initial premium is not paid with the
application, variability of benefits will commence within three days
of underwriting approval, subject to the restrictions indicated
above.
The Company will require that the Policy be delivered within a
specific delivery period to protect itself against anti-selection by
the prospective Policyowner resulting from a deterioration of the
health of the proposed Insured. Generally, the period will not
exceed the shorter of 30 days from the date the Policy is issued and
75 days from the date of Part 2 of the Application.
c. Premium Allocation
"Net premiums" are credited to the Policy as of the date the premium
payments are received by the Company, with the possible exception of
the first net premium. Net premiums are equal to the gross premiums
minus the tax expense charge. The tax expense charge compensates the
Company for applicable state and local taxes on premiums paid for
the Policy and for federal taxes imposed for deferred acquisition
costs ("DAC taxes"). It will be adjusted to reflect any increase or
decrease in the applicable state or local premium tax rate.
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The Policyowner may allocate net premiums among the Company's
General Account and up to seven Sub-Accounts of the Group VEL
Account. The Policyowner may change the allocation of net premiums
without charge at any time by providing written notice to the
Principal Office. The change will be effective as of the date of
receipt of the notice at the Principal Office. The Policyowner may
transfer amounts among all of the Sub-Accounts and the General
Account, subject to certain restrictions, but at no time may have
allocations in more than seven Subaccounts.
d. Repayment of Loan
A loan made under this Policy may be repaid with an amount equal to
the original loan plus loan interest.
When a loan is made, the Company will transfer from each Sub-Account
of the Group VEL Account to the General Account an amount of that
Sub-Account's Policy value equal to the loan amount allocated to the
Sub-Account. Since the Company will credit such assets with interest
at 6%, which is below the 8% interest rate charged on the loan, the
Company will retain the difference between these rates in order to
cover certain expenses and contingencies. Upon repayment of debt,
the Company will reduce the Policy value in the general account
attributable to the loan and transfer assets supporting
corresponding reserves to the Sub-Accounts according to either
Policyowner's instruction or, if none, the premium payment
allocation percentages then in effect. Loan repayments allocated to
the Group VEL Account cannot exceed Policy value previously
transferred from the Group VEL Account to secure the debt.
e. Policy Reinstatement
If the surrender value is insufficient to cover the next monthly
deduction plus loan interest accrued, or if Policy debt exceeds the
Policy value less surrender charges, the Company will notify the
Policyowner and any assignee of record. The Policyowner will then
have a grace period of 62 days, measured from the date the notice is
mailed, to make sufficient payments to prevent termination.
Failure to make a sufficient payment within the grace period will
result in termination of the Policy without any Policy value. The
death benefit payable during the grace period will be reduced by any
overdue charges. If the Insured dies during the grace period, the
death proceeds will still be payable, but any monthly deductions due
and unpaid through the Policy month in which the Insured dies will
be deducted from the death proceeds.
If the Policy has not been surrendered and the Insured is alive, the
terminated Policy may be reinstated anytime within three years after
the date of default by submitting the following to the Company: (1)
a written application for reinstatement; (2) evidence of
insurability satisfactory to the Company; and (3) a premium that,
after the deduction of the premium expense charges, is large enough
to cover the minimum amount payable, as described below.
If reinstatement is requested less than 48 months after the date of
issue or an increase in the face amount, the Policyowner must pay
the lesser of the amount shown in 1 or 2:
1. The minimum amount payable is the minimum monthly factor for
the three-month period beginning on the date of reinstatement.
2. The minimum amount payable is the sum of the amount by which
the surrender charge as of the date of the reinstatement
exceeds the Policy value on the date of default, plus
mortality deductions for the three-month period beginning on
the date of reinstatement.
If reinstatement is requested 48 months or more after the date of
issue or an increase in the face amount, the Policyowner must pay
the amount shown in 2 above.
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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 debt as of the date of default which exceeds the
surrender charge on the date of reinstatement will be forfeited to
the Company.
Policy Value on Reinstatement - The Policy value on the date of
reinstatement is:
(a) the net premium paid to reinstate the Policy increased by
interest from the date the payment was received at the
Company's Principal Office; plus
(b) 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
(c) the monthly deduction due on the date of reinstatement.
The Policyowner may not repay or reinstate any debt outstanding on
the date of default or foreclosure.
f. Correction of Misstatement of Age
If the Company discovers that the age of the Insured has been
misstated, the death benefit and any rider benefits will be those
which would be purchased by the most recent deduction for the cost
of insurance and the cost of rider benefits at the correct age.
g. Contestability
A Policy is contestable for two years, measured from the issue date,
for material misrepresentations made in the initial application for
the Policy. Policy changes may be contested for two years after the
effective date of a change, and a reinstatement may be contested for
two years after the effective date of reinstatement. No statement
will be used to contest a Policy unless it is contained in an
application.
h. Reduction in Cost of Insurance Rate Classification
By administrative practice, the Company will reduce the cost of
insurance rate classification for an outstanding Policy if new
evidence of insurability demonstrates that the Policyowner qualifies
for a lower classification. After the reduced rating is determined,
the Policyowner will pay a lower monthly cost of insurance charge
each month. If new evidence of insurability provided in connection
with an increase in face amount demonstrates that the Policyowner is
in a higher risk classification, the higher cost of insurance rate
will apply only to the increase in face amount.
II. "Redemption Procedures": Surrender and Related Transactions
The policies provide for the payment of monies to a Policyowner or
beneficiary upon presentation of a Policy. Generally, except for the
payments of death proceeds, the imposition of cost of insurance and
administrative charges, and the possible effect of a contingent surrender
charge, the payee will receive a pro rata or proportionate share of the
Group VEL Account's assets, within the meaning of the 1940 Act, in any
transaction involving "redemption procedures". The amount received by the
payee will depend upon the particular benefit for which the Policy is
presented, including, for example, the cash surrender value or death
benefit. There are also certain Policy provisions (e.g., partial
withdrawals or the loan privilege) under which the Policy will not be
presented to the Company but which will affect the Policyowner's benefits
and may involve a transfer of the assets supporting the Policy reserve out
of the Group VEL Account. Any combined transactions on the same day which
counteract the effect of each other will be allowed. The Company will
assume the Policyowner is aware of the possible conflicting nature of the
transactions and desires their combined result. If a transaction is
requested which the Company will not allow (e.g., a request for a decrease
in face amount which
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lowers the face amount below the stated minimum) the Company will reject
the whole transaction and not just the portion which causes the
disallowance. The Policyowner will be informed of the rejection and will
have an opportunity to give new instructions.
a. Surrender for Cash Values
The Company will pay the net cash surrender value within seven days
after receipt, at its Principal Office, of the Policy and a signed
request for surrender. Computations with respect to the investment
experience of each Sub-Account will be made at the close of trading
of the New York Stock Exchange on each day in which the degree of
trading in the corresponding portfolio might materially affect the
net return of the Sub-Account and on which the Company is open. This
will enable the Company to pay a net cash value on surrender based
on the next computed value after the surrender request is received.
For valuation purposes, the surrender is effective on the date the
Company receives the request at its Principal Office (although
insurance coverage ends the day the request is mailed).
The Policy value (equal to the value of all accumulations in the
Group VEL Account) may increase or decrease from day to day
depending on the investment experience of the Group VEL Account.
Calculation of the Policy value for any given day will reflect the
actual premiums paid, expenses charged and deductions taken. The
Company will deduct a charge for premium taxes and DAC taxes from
each premium payment. The balance (net premium) is allocated to the
Group VEL Account according to Policyowner's instructions. The
Company will also make monthly deductions from a Policy to cover the
cost of insurance and administrative expenses for the following
month. The monthly administration charge is only $5 and is designed
to compensate the Company for administering and maintaining a
Policy. Other possible deductions from the Policy (which will occur
on a Policy-specific basis) include a charge for partial
withdrawals, a charge for increases in face amount and a charge for
certain transfers.
In calculating the cash surrender value, a surrender charge
comprised of a contingent deferred sales load and a contingent
deferred administrative charge will be deducted from the Policy. The
duration of the surrender charge is 15 years for issue ages 0
through 50, grading down to ten years for issue ages 55 and above.
The Company will make the payment of net cash surrender value out of
its General Account and, at the same time, transfer assets from the
Group VEL Account to the General Account in an amount equal to the
Policy reserves in the Group VEL Account. If the Policy is
surrendered in the first Policy year, any unpaid first year monthly
administrative charges will be deducted at surrender, in addition to
any contingent surrender charges which may be applicable.
The maximum surrender charge calculated upon issuance of the Policy
is equal to the sum of $8.50 per thousand dollars of the initial
face amount plus from 81.375% to 46.5% of the Guideline Annual
Premium, varying according to issue age, provided, however, that in
accordance with limitations under state insurance regulations, the
amount of the Surrender Charge will not exceed a specified amount
per one thousand dollars of initial face amount, as indicated on the
Policy and in the prospectus. The maximum Surrender Charge remains
level for the first 40 Policy months and reduces by 0.5% per month
thereafter. During the first two Policy years following the date of
issue, the actual Surrender Charge imposed may be less than the
maximum. The actual Surrender Charge will be the lesser of either
the maximum Surrender Charge or the sum of $8.50 per thousand
dollars of initial face amount plus 30% of premiums paid which are
associated with the initial face amount, up to the Guideline Annual
Premium and 9% of the excess, if any, as provided in Rule 6e-3(T) of
the 1940 Act.
A separate Surrender Charge is imposed for each increase in face
amount. The maximum Surrender Charge for the increase is $8.50 per
thousand dollars of increase plus from 81.375% to 46.5% of the
Guideline Annual Premium for the increase, varying according to
issue age; provided, however, that the amount of the Surrender
Charge will not exceed a specified amount per one thousand dollars
of increase, as indicated in the Policy and prospectus. This maximum
Surrender Charge remains level for the first 40 Policy
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months following the increase and reduces by 0.5% thereafter. During
the first two Policy years following an increase in Face Amount, the
actual Surrender Charge imposed may be less than the maximum. The
actual Surrender Charge is the lesser of either the maximum
Surrender Charge or the sum of (a) $8.50 per thousand dollars of
increase, plus (b) 30% of the Policy value on the date of increase
associated with the increase in face amount, plus (c) 30% of
premiums paid (which are associated with the increase) up to the
Guideline Annual Premium and 9% of the excess, if any, as provided
in Rule 6e-3(T) of the 1940 Act. For purposes of calculating actual
Surrender Charges, premium and Policy value will be allocated to the
initial face amount and subsequent increases in face amount
according to the ratio of the respective Guideline Annual Premiums.
A Surrender Charge also will be made on a decrease in the face
amount. In the event of a decrease, the Surrender Charge imposed is
proportional to the charge that would apply to a full surrender of
the Policy. If more than one Surrender Charge is in effect, (i.e.,
pursuant to one or more increases in the face amount of a Policy),
partial surrenders will be deemed attributable to that portion of
the face amount governed by the most recent Surrender Charge. Such
charges will be the Surrender Charge applicable to any increased
face amount plus a pro rata share of the Surrender Charge applicable
to a partial reduction in the initial face amount.
b. Charges on Partial Withdrawal
After the first Policy year, partial withdrawals of surrender value
may be made. 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.
A Partial Withdrawal Charge will also be deducted from Policy value
when more than 10% of the Policy value is withdrawn in a Policy year
("excess withdrawal"). Thus, for each partial withdrawal the
Policyowner may withdraw an amount equal to 10% of the Policy value
at that time 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 excess withdrawal
will be subject to the Partial Withdrawal Charge. The Partial
Withdrawal Charge is equal to 5 percent of the excess withdrawal up
to the amount of the surrender charge(s) on the date of withdrawal.
There will be no Partial Withdrawal Charge if there is no surrender
charge on the date of withdrawal.
This amount is not cumulative from Policy year to Policy year. In
other words, if only 8% of Policy value were withdrawn in Policy
year two, the amount the Policyowner could withdraw in subsequent
Policy years would not be increased by the amount the Policyowner
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. 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 Face
Amount;
o second, the surrender charges for the next most recent increase
successively;
o last, the surrender charge for the initial face amount.
c. Death Benefit
The Company will pay a death benefit to the beneficiary within seven
days after receipt, at its Principal Office, of the Policy, due
proof of death of the Insured, and all other requirements necessary
to make payment.
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The death proceeds payable will depend on the option in effect at
the time of death. Under Option 1, the death benefit is the greater
of either the face amount of insurance or the guideline minimum sum
Insured. Under Option 2, the death benefit is the greater of either
the face amount of insurance plus Policy value or the guideline
minimum sum Insured. The guideline minimum sum Insured is calculated
by multiplying the applicable percentage from the following table
for the Insured person's age (nearest birthday) at the beginning of
the Policy year of determination to the Policy value.
GUIDELINE MINIMUM SUM Insured
TABLE
Age
of Insured on Percentage of
Date of Death Policy Value
------------- ------------
40 and less ............................... 250%
45: ....................................... 215%
50: ....................................... 185%
55: ....................................... 150%
60: ....................................... 130%
65: ....................................... 120%
70: ....................................... 115%
75: ....................................... 105%
80: ....................................... 105%
85: ....................................... 105%
90: ....................................... 105%
95: ....................................... 100%
For the ages not listed, the progression between the listed ages is
linear.
The Company will make payment of the death proceeds out of its
general account, and will transfer assets from the Group VEL Account
to the general account in an amount equal to the reserve in the
Group VEL Account attributable to the Policy. The excess, if any, of
the death proceeds over the amount transferred will be paid out of
the general account reserve maintained for that purpose.
d. Default and Options on Lapse
The duration of insurance coverage depends upon the Policy value
being sufficient to cover the monthly deductions plus loan interest
accrued. If the surrender value at the beginning of a month is less
than the deductions for that month plus loan interest accrued, a
grace period of 62 days will begin. Written notice will be sent to
the Policyowner and any assignee on the Company's records stating
that such a grace period has begun and giving the amount of premium
payment necessary to prevent termination. If sufficient payment is
not received during the grace period, the Policy will terminate
without value. Notice of such termination will be sent to the owner
and any assignee. If the Insured should die during the grace period,
an amount sufficient to cover the overdue monthly deductions and
other charges will be deducted from the death proceeds.
e. Policy Loan
The policies provide that in the first Policy year, a Policyowner
may take a loan of up to 75% of "a minus b", where "a" is Policy
value less surrender charges and "b" is monthly deductions plus
interest on loans accrued to the end of the Policy year. Thereafter,
90% of an amount equal to Policy value less surrender charges may be
borrowed. The Policy value for this purpose will be that next
computed after receipt, at the Principal Office, of a loan request.
Payment of the loan amount will be made to the Policyowner within
seven days after such receipt.
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The amount of any outstanding loan plus accrued interest is called
"debt". When a loan is made, the portion of the assets in the Group
VEL Account (which is a portion of the surrender value and which
also constitutes a portion of the reserves for the death benefit)
equal to the debt created thereby is transferred by the Company from
the Group VEL Account to the general account. Allocation of the loan
among Sub-Accounts will be according to the Policyowner's request.
If this allocation is not specified or not possible, the loan will
be allocated based on the proportion the Policy value in the General
Account, less debt, and the Policy value in each Sub-Account bears
to the total Policy value, less debt. Policy value in each
Sub-Account equal to the Policy loan allocated to such Subaccount
will be transferred to the General Account, and the number of
Accumulation Units equal to the Policy value so transferred will be
cancelled. Because of the transfer, a portion of the Policy is not
variable during the loan period and, therefore, the death benefit
and the surrender value are permanently affected by any debt,
whether or not repaid in whole or in part. The Company credits the
Policy value in the General Account attributable to the loan with a
rate of return equal to an effective annual yield of 6%, which is 2%
lower than the fixed interest rate charged on the loan.
Interest is payable in arrears at the annual rate of 8%. Interest is
payable at the end of each Policy year or on a pro rata basis for
such shorter period as the loan may exist. Loan interest is due on
each Policy anniversary. If not paid when due, it is added to the
loan principal and bears interest at the same rate of interest. If
the resulting loan principal exceeds the Policy value in the General
Account the Company will transfer Policy value equal to the excess
debt from the Policy value in each Sub-Account to the General
Account; as security for the excess debt. 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
values in all Sub-Accounts.
Failure to repay a loan will not necessarily terminate the Policy.
If the surrender value is not sufficient to cover the monthly
deductions for the cost of insurance and administrative expenses,
the Policy will go into a 62 day grace period as described above.
f. Transfers Among Subaccounts
Amounts may be transferred, upon request, at any time from any Sub-
Account of the Group VEL Account to one or more other Sub-Accounts.
Transfers from a Sub-Account of the Group VEL Account will take
effect as of the receipt of a written request at the Principal
Office. The minimum amount allowed for a transfer is the lesser of
$500 or the total value in the Sub-Account. The first six transfers
are free of charge; however, the Company will make an administrative
charge not to exceed $25 for additional transfers in a Policy year.
Transfers resulting from Policy loans, the exercise of conversion
rights, and reallocation of Policy value within 20 days of issue,
will not be subject to a transfer charge, and will not be counted
for purposes of the limitation on the number of "free" transfers
allowed in each Policy year. If a Policyowner elects to have
automatic transfers made each month, the first automatic transfer
counts as one transfer towards the six free transfers allowed in
each Policy year; each subsequent automatic transfer does not reduce
the remaining number of transfers which may be made without charge.
Transfer charges, if any, are allocated by Policyowner request to
one Sub-Account. If an allocation is not specified or not possible
the allocations will be based on the proportion that the values in
each of the Sub-Accounts of the Group VEL Account bears to the total
unloaned Policy value.
g. Right of Withdrawal Procedures
The Policy provides that the Policyowner may cancel it by returning
the Policy along with a written request for cancellation to the
Principal Office by the latest of 1) 45 days after Part I of the
application was signed, 2) 10 days after the Policyowner receives
the Policy, or 3) 10 days after the Company mails or personally
delivers a written Notice of Withdrawal Right. Upon returning the
Policy, the Policyowner will receive within seven days a refund
equal to the sum of (1) the difference between the premium,
including fees, paid and any amount allocated to the Group VEL
Account, and (2) the value of the amounts allocated to the Group VEL
Account, and (3) any fees or charges imposed on the
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amounts allocated to the Group VEL Account. Where required by State
law, the Policyowner will receive a refund equal to the sum of the
premium payments made under the Policy. The postmark date on the
envelope containing the Policy will determine whether the Policy has
been surrendered within the Company's withdrawal period.
A free look privilege also applies after a requested increase in
Face Amount. After an increase, the Company will mail or deliver
notice of the "Free Look" with respect to the increase. The
Policyowner will have the right to cancel the increase within 10
days, and receive a credit for charges which would not have been
deducted but for the increase. Such charges with respect to the
increase will be added to Policy value, unless the Policyowner
requests a refund of such charges.
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 9 to the Registration Statement of the Group VEL
Account of Allmerica Financial Life Insurance and Annuity Company on Form S-6
of our report dated February 3, 1998, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company, and our report dated
March 25, 1998, relating to the financial statements of the Group VEL Account
of Allmerica Financial Life Insurance and Annuity Company, both of which
appear in such Prospectus. We also consent to the reference to us under the
heading "Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 15, 1998
