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Registration No. 33- 83604
811-8746
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. 5
ALLMERICA SELECT SEPARATE ACCOUNT II
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Esq.
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
-----
on 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 before
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. . . . . . . . . . . . . . . . . Allmerica Financial; The Variable Account
6. . . . . . . . . . . . . . . . . The Variable Account
7. . . . . . . . . . . . . . . . . Not Applicable
8. . . . . . . . . . . . . . . . . Not Applicable
9. . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . Summary; Description of the Company, The
Variable Account and the Underlying Funds;
The Policy; Policy Termination and
Reinstatement; Other Policy Provisions
11 . . . . . . . . . . . . . . . . Summary; The Trust; VIP; T. Rowe Price;
Investment Objectives and Policies
12 . . . . . . . . . . . . . . . . Summary; The Trust; VIP; T. Rowe Price
13 . . . . . . . . . . . . . . . . Summary; The Trust; VIP; T. Rowe Price;
Investment Advisory Services to the Trust;
Investment Advisory Services to VIP;
Investment Advisory Services to T. Rowe
Price; Charges and Deductions
14 . . . . . . . . . . . . . . . . Summary; Application for a Policy
15 . . . . . . . . . . . . . . . . Summary; Application for a Policy;
Payments; Allocation of Net Payments
16 . . . . . . . . . . . . . . . . The Variable Account; The Trust; VIP;
T. Rowe Price ; Payments; Allocation of Net
Payments
17 . . . . . . . . . . . . . . . . Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Policy Termination
and Reinstatement
18 . . . . . . . . . . . . . . . . The Variable Account; The Trust; VIP;
T. Rowe Price; Payments
19 . . . . . . . . . . . . . . . . Reports; Voting Rights
20 . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . Summary; Policy Loans; Other Policy
Provisions
22 . . . . . . . . . . . . . . . . Other Policy Provisions
23 . . . . . . . . . . . . . . . . Not Required
24 . . . . . . . . . . . . . . . . Other Policy Provisions
25 . . . . . . . . . . . . . . . . Allmerica Financial
26 . . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . . Allmerica Financial
28 . . . . . . . . . . . . . . . . Directors and Principal Officers of the
Company
29 . . . . . . . . . . . . . . . . Allmerica Financial
30 . . . . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . Not Applicable
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35 . . . . . . . . . . . . . . . . Distribution
36 . . . . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . Summary; Distribution
39 . . . . . . . . . . . . . . . . Summary; Distribution
40 . . . . . . . . . . . . . . . . Not Applicable
41 . . . . . . . . . . . . . . . . Allmerica Financial, Distribution
42 . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . Payments; Policy Value and Cash Surrender
Value
45 . . . . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . . . . Policy Value and Cash Surrender Value;
Federal Tax Considerations
47 . . . . . . . . . . . . . . . . Allmerica Financial
48 . . . . . . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . . The Variable Account
51 . . . . . . . . . . . . . . . . Cover Page; Summary; Charges and
Deductions; The Policy; Policy Termination
and Reinstatement; Other Policy 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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SELECT LIFE
(INDIVIDUAL FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICIES)
Allmerica Financial Life Insurance and Annuity Company ("Company") issues the
Select Life individual flexible payment variable life insurance policies
("Policies") described in this prospectus. The Policies are funded through
Allmerica Select Separate Account II ("Variable Account"), a separate investment
account of the Company. The Policies permit allocations to the following funds
of Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund
("VIP") and T. Rowe Price International Series, Inc. ("T. Rowe Price")
(Certain Funds may not be available in all states):
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FUND MANAGER
Select Emerging Markets Fund Schroder Capital Management International
Inc.
Select International Equity Fund Bank of Ireland Asset Management (U.S.)
Limited
T. Rowe Price International Stock Rowe Price-Fleming International, Inc.
Portfolio
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio Fidelity Management and Research Company
Select Growth and Income Fund John A. Levin & Co., Inc.
Fidelity VIP Equity-Income Portfolio Fidelity Management and Research Company
Fidelity VIP High Income Portfolio Fidelity Management and Research Company
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
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Policy owners may, within limits, choose the amount of initial payment and vary
the frequency and amount of future payments. The Policy allows partial
withdrawals and full surrender of the Policy's surrender value, within limits.
The Policies are not suitable for short-term investment because of the
substantial nature of the surrender charge. If you think about surrendering the
Policy, consider the lower deferred sales charges that apply during the first
two years from the date of issue or an increase in face amount.
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH THE POLICY. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF ALLMERICA
INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND AND T. ROWE PRICE
INTERNATIONAL SERIES, 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.
THE SECURITIES AND EXCHANGE HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE POLICIES ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
POLICIES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
CORRESPONDENCE MAY BE MAILED TO
ALLMERICA SELECT, P.O. BOX 8179,
BOSTON, MA 02266-8179
DATED MAY 1, 1998
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
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TABLE OF CONTENTS
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SPECIAL TERMS......................................................................... 4
SUMMARY............................................................................... 7
PERFORMANCE INFORMATION............................................................... 16
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND THE UNDERLYING FUNDS............ 22
INVESTMENT OBJECTIVES AND POLICIES.................................................... 23
INVESTMENT ADVISORY SERVICES.......................................................... 24
THE POLICY............................................................................ 27
Applying for a Policy............................................................... 27
Free-Look Period.................................................................... 28
Conversion Privilege................................................................ 29
Payments............................................................................ 29
Allocation of Net Payments.......................................................... 30
Transfer Privilege.................................................................. 30
Death Benefit....................................................................... 31
Guaranteed Death Benefit Rider...................................................... 32
Level Option and Adjustable Option.................................................. 32
Change to Level Option or Adjustable Option......................................... 34
Change in Face Amount............................................................... 35
Policy Value........................................................................ 35
Payment Options..................................................................... 37
Optional Insurance Benefits......................................................... 37
Surrender........................................................................... 37
Partial Withdrawal.................................................................. 38
Paid-up Insurance Option............................................................ 38
CHARGES AND DEDUCTIONS................................................................ 39
Payment Expense Charge.............................................................. 39
Monthly Insurance Protection Charges................................................ 39
Charges Against or Reflected in the Assets of the Variable Account.................. 41
Surrender Charge.................................................................... 42
Partial Withdrawal Costs............................................................ 43
Transfer Charges.................................................................... 44
Charge for Change in Face Amount.................................................... 44
Other Administrative Charges........................................................ 44
POLICY LOANS.......................................................................... 44
Preferred Loan Option............................................................... 45
Loan Interest Charged............................................................... 45
Repayment of Outstanding Loan....................................................... 45
Effect of Policy Loans.............................................................. 46
Policies Issued in Connection with TSA Plans........................................ 46
POLICY TERMINATION AND REINSTATEMENT.................................................. 46
Termination......................................................................... 46
Reinstatement....................................................................... 47
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OTHER POLICY PROVISIONS............................................................... 48
Policy Owner........................................................................ 48
Beneficiary......................................................................... 48
Assignment.......................................................................... 48
Limit on Right to Challenge Policy.................................................. 48
Suicide............................................................................. 48
Misstatement of Age or Sex.......................................................... 49
Delay of Payments................................................................... 49
FEDERAL TAX CONSIDERATIONS............................................................ 49
The Company and the Variable Account................................................ 49
Taxation of the Policies............................................................ 50
Policy Loans........................................................................ 50
Policies Issued in Connection with TSA Plans........................................ 50
Modified Endowment Policies......................................................... 51
VOTING RIGHTS......................................................................... 52
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY....................................... 53
DISTRIBUTION.......................................................................... 54
SERVICES.............................................................................. 54
REPORTS............................................................................... 54
LEGAL PROCEEDINGS..................................................................... 55
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 55
FURTHER INFORMATION................................................................... 56
MORE INFORMATION ABOUT THE FIXED ACCOUNT.............................................. 56
General Description................................................................. 56
Fixed Account Interest.............................................................. 56
Transfers, Surrenders, Partial Withdrawals and Policy Loans......................... 56
INDEPENDENT ACCOUNTANTS............................................................... 57
FINANCIAL STATEMENTS.................................................................. 57
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE..................................... A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS............................................. B-1
APPENDIX C -- PAYMENT OPTIONS......................................................... C-1
APPENDIX D -- ILLUSTRATIONS........................................................... D-1
APPENDIX E -- COMPUTING MAXIMUM SURRENDER CHARGES..................................... E-1
</TABLE>
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SPECIAL TERMS
AGE: how old the Insured is on the birthday closest to a Policy anniversary.
ALLMERICA FINANCIAL: Allmerica Financial Life Insurance and Annuity Company.
"We," "our" and "us" and "the Company" refer to Allmerica Financial in this
Prospectus.
BENEFICIARY: the person or persons you name to receive the net death benefit
when the Insured dies.
DATE OF ISSUE: the date the Policy was issued, used to measure the monthly
processing date, Policy months, Policy years and Policy anniversaries.
DEATH BENEFIT: the amount payable when the Insured dies prior to the final
payment date, before deductions for any outstanding loan and partial
withdrawals, partial withdrawal costs, and due and unpaid monthly insurance
protection charges.
EVIDENCE OF INSURABILITY: information, including medical information, used to
decide the Insured's underwriting class.
FACE AMOUNT: the amount of insurance coverage applied for. The initial face
amount is shown in your Policy.
FINAL PAYMENT DATE: the Policy anniversary nearest the Insured's 95th birthday.
After this date, no payments may be made. The net death benefit is the policy
value less any outstanding loan, unless the Guaranteed Death Benefit Rider is in
effect. If the Guaranteed Death Benefit Rider is in effect, the death benefit is
the greater of:
- the Face Amount as of the Final Payment Date; or
- the Policy Value as of the date due proof of death is received by the
Company.
FIXED ACCOUNT: a guaranteed account of the general account that guarantees
principal and a fixed interest rate.
FUNDS (UNDERLYING FUNDS): the following investment portfolios of Allmerica
Investment Trust: Select Emerging Markets Fund, the Select International Equity
Fund, Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select
Value Opportunity Fund, Select Growth Fund, Select Strategic Growth Fund, Select
Growth and Income Fund, Select Income Fund and Money Market Fund; the following
investment portfolios of Variable Insurance Products Fund: Fidelity VIP Growth
Portfolio, Fidelity VIP Equity-Income Portfolio and Fidelity VIP High Income
Portfolio; and the T. Rowe Price International Stock Portfolio of T. Rowe Price
International Series, Inc.
GENERAL ACCOUNT: all our assets other than those held in a separate investment
account.
GUIDELINE ANNUAL PREMIUM: used to compute the maximum surrender charge and
illustrate accumulations in Appendix D. The guideline annual premium is the
annual amount that would be payable through the final payment date for the
specified Level Option death benefit. We assume that:
- The timing and amount of payments are fixed and paid at the start of the
Policy year
- Monthly insurance protection charges are based on the Commissioners 1980
Standard Ordinary Mortality Tables, Smoker or Non-Smoker (Mortality Table
B for unisex policies)
- Net investment earnings are at an annual effective rate of 5.0%
- Fees and charges apply as set forth in the Policy and any Policy Riders
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GUIDELINE MINIMUM SUM INSURED: the minimum death benefit required to qualify the
Policy as "life insurance" under federal tax laws. The guideline minimum sum
insured is the PRODUCT of:
- The policy value TIMES
- A percentage based on the Insured's age
INSURANCE PROTECTION AMOUNT: the death benefit less the policy value.
ISSUANCE AND ACCEPTANCE: the date we mail the Policy if the application or
enrollment form is approved with no changes requiring your consent; otherwise,
the date we receive your written consent to any changes.
LOAN VALUE: the maximum amount you may borrow under the Policy.
MINIMUM MONTHLY PAYMENT: a monthly amount shown in your Policy. If you pay this
amount, we guarantee that your Policy will not lapse before the 49th monthly
processing date from the Date of Issue or increase in Face Amount, within
limits.
MONTHLY PROCESSING DATE: the date, shown in your Policy, when monthly insurance
protection charges are deducted.
NET DEATH BENEFIT: BEFORE the Final Payment Date, the net death benefit is:
- The death benefit under either the Level Option or Adjustable Option MINUS
- Any outstanding loan on the Insured's death and partial withdrawals,
partial withdrawal costs, and due and unpaid monthly insurance protection
charges
After the final payment date, the net death benefit generally is:
- The policy value MINUS
- Any outstanding loan
If the Guaranteed Death Benefit Rider is in effect, after the Final Payment
Date, the death benefit is the greater of:
- the Face Amount as of the Final Payment Date; or
- the Policy Value as of the date due proof of death is received by the
Company.
NET PAYMENT: your payment less a payment expense charge.
OUTSTANDING LOAN: all unpaid Policy loans plus loan interest due or accrued.
PAID-UP INSURANCE: life insurance coverage for the life of the Insured, with no
further premiums due.
POLICY CHANGE: any change in the Face Amount, the addition or deletion of a
Rider, or a change in death benefit option (Level Option or Adjustable Option).
POLICY OWNER: the person who may exercise all rights under the Policy, with the
consent of any irrevocable beneficiary. "You" and "your" refer to the Policy
owner in this Prospectus.
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POLICY VALUE: the total value of your Policy. It is the SUM of the:
- Value of the units of the sub-accounts credited to your Policy PLUS
- Accumulation in the fixed account credited to the Policy
PREMIUM: a payment you must make to us to keep the Policy in force.
PRINCIPAL OFFICE: our office at 440 Lincoln Street, Worcester, Massachusetts
01653.
PRO-RATA ALLOCATION: an allocation among the Fixed Account and the Sub-Accounts
in the same proportion that, on the date of allocation, the Policy Value in the
Fixed Account and the Policy value in each sub-account bear to the total Policy
Value.
SUB-ACCOUNT: a subdivision of the variable account investing exclusively in the
shares of a fund.
SURRENDER VALUE: the amount payable on a full surrender. It is the policy value
less any outstanding loan and surrender charges.
UNDERWRITING CLASS: the insurance risk classification that we assign the Insured
based on the information in the application or enrollment form and other
evidence of insurability we consider. The Insured's underwriting class will
affect the monthly insurance protection charge and the payment required to keep
the Policy in force.
UNIT: a measure of your interest in a Sub-Account.
VALUATION DATE: any day on which the net asset value of the shares of any funds
and unit values of any sub-accounts are computed. Valuation dates currently
occur on:
- Each day the New York Stock Exchange is open for trading
- Other days (other than a day during which no payment, partial withdrawal
or surrender of a Policy was received) when there is a sufficient degree
of trading in a fund's portfolio securities so that the current net asset
value of the sub-accounts may be materially affected
VALUATION PERIOD: the interval between two consecutive valuation dates.
VARIABLE ACCOUNT: Allmerica Select Separate Account II, one of our separate
investment accounts.
WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Principal Office.
6
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SUMMARY
WHAT IS THE POLICY'S OBJECTIVE?
The objective of the Policy is to give permanent life insurance protection and
help you build assets tax-deferred. Features available through the Policy
include:
- A net death benefit that can protect your family
- Payment options that can guarantee an income for life
- A personalized investment portfolio
- Experienced professional investment advisers
- Tax deferral on earnings
While the Policy is in force, it will provide:
- Life insurance coverage on the Insured
- Policy value
- Surrender rights and partial withdrawal rights
- Loan privileges
- Optional insurance benefits available by Rider
The Policy combines features and benefits of traditional life insurance with the
advantages of professional money management. However, unlike the fixed benefits
of ordinary life insurance, the policy value and the Adjustable Option death
benefit will increase or decrease depending on investment results. Unlike
traditional insurance policies, the Policy has no fixed schedule for payments.
Within limits, you may make payments of any amount and frequency. While you may
establish a schedule of payments ("planned payments"), the Policy will not
necessarily lapse if you fail to make planned payments. Also, making planned
payments will not guarantee that the Policy will remain in force.
WHO ARE THE KEY PERSONS UNDER THE POLICY?
The Policy is a contract between you and us. Each Policy has a Policy Owner
(you), an Insured (you or another individual you select) and a beneficiary. As
policy owner, you make payments, choose investment allocations and select the
Insured and beneficiary. The Insured is the person covered under the Policy. The
beneficiary is the person who receives the net death benefit when the Insured
dies.
WHAT HAPPENS WHEN THE INSURED DIES?
We will pay the net death benefit to the beneficiary when the Insured dies while
the Policy is in effect. You may choose between two death benefit options. Under
the Level Option, the death benefit is the face amount (the insurance applied
for) or the guideline minimum sum insured (the minimum death benefit federal tax
law requires), whichever is greater. Under the Adjustable Option, the death
benefit is either the sum of the face amount and policy value or the guideline
minimum sum insured, whichever is greater. The net death benefit is the death
benefit less any outstanding loan and partial withdrawals, partial withdrawal
costs, and due and unpaid monthly insurance protection charges. However, after
the final payment date, the net death benefit is
7
<PAGE>
the policy value less any outstanding loan. The beneficiary may receive the net
death benefit in a lump sum or under a payment option we offer.
An optional Guaranteed Death Benefit Rider is available ONLY AT ISSUE OF THE
POLICY. (The Guaranteed Death Benefit Rider may not be available in all states).
If this Rider is in effect, the Company:
- guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account; and
- provides a guaranteed net death benefit.
In order to maintain the Guaranteed Death Benefit Rider, certain minimum premium
payment tests must be met on each policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in Face Amount, as
described below. In addition, a one-time administrative charge of $25 will be
deducted from Policy Value when the Rider is elected. Certain transactions,
including policy loans, partial withdrawals, and changes in Sum Insured Options,
can result in the termination of the Rider. IF THIS RIDER IS TERMINATED, IT
CANNOT BE REINSTATED. FOR MORE INFORMATION, SEE "GUARANTEED DEATH BENEFIT
RIDER."
CAN I EXAMINE THE POLICY?
Yes. You have the right to examine and cancel your Policy by returning it to us
or to one of our representatives on or before the LATEST of:
- 45 days after the application or enrollment form for the Policy is signed
- 10 days after you receive the Policy (20 days when state law so requires
for the replacement of insurance and 30 days for California citizens age
60 and older)
- 10 days after we mail to you a notice of withdrawal right
If your Policy provides for a full refund under its "Right to Examine Policy"
provision as required in your state, your refund will be the GREATER of:
- Your entire payment OR
- The policy value PLUS deductions under the Policy or by the funds for
taxes, charges or fees
If your Policy does not provide for a full refund, you will receive:
- Amounts allocated to the fixed account PLUS
- The policy value in the variable account PLUS
- All fees, charges and taxes which have been imposed
After an increase in face amount, a right to cancel the increase also applies.
WHAT ARE MY INVESTMENT CHOICES?
You have a choice of fourteen funds:
Select Emerging Markets Fund
Managed by Shcroder Capital Management International Inc.
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<PAGE>
Select International Equity Fund
Managed by Bank of Ireland Asset Management (U.S.) Limited
T. Rowe Price International Stock Portfolio
Managed by Rowe Price-Fleming International, Inc.
Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund
Managed by T. Rowe Price Associates, Inc.
Select Value Opportunity Fund
Managed by Cramer Rosenthal McGlynn, Inc.
Select Growth Fund
Managed by Putnam Investment Management, Inc.
Select Strategic Growth Fund
Managed by Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio
Managed by Fidelity Management & Research Company
Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
Fidelity VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
Fidelity VIP High Income Portfolio
Managed by Fidelity Management & Research Company
Select Income Fund
Managed by Standish, Ayer & Wood, Inc.
Money Market Fund
Managed by Allmerica Asset Management, Inc.
This range of investment choices allows you to allocate your money among the
funds to meet your investment needs. If your Policy provides for a full refund
under its "Right to Examine Policy" provision as required in your state, we will
allocate all sub-account investments to the Money Market Fund for:
- 14 days from issuance and acceptance, except as described below
- 24 days from issuance and acceptance for replacements in states with a
20-day right to examine
- 34 days from issuance and acceptance for California citizens age 60 and
older, who have a 30-day right to examine.
After this, we will allocate all amounts as you have chosen.
The Policy also offers a fixed account. The fixed account is a guaranteed
account offering a minimum interest rate. It is part of the general account of
the Company.
WHO ARE THE INVESTMENT ADVISERS AND HOW ARE THEY SELECTED?
RogersCasey, a leading pension consulting firm, assists the Company in the
selection of the Policy's Funds, all of which are managed by experienced
investment advisers. In addition, RogersCasey assists the Trust in the
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<PAGE>
selection of investment advisers for the Funds of the Trust. RogersCasey
provides consulting services to pension plans representing over $500 billion in
total assets. In its consulting capacity, RogersCasey monitors the investment
performance of over 1800 investment advisers. Each investment adviser is
selected by using strict objective, quantitative, and qualitative criteria, with
special emphasis on the investment adviser's record in managing similar
portfolios. In consultation with RogersCasey, a committee monitors and evaluates
the ongoing performance of all of the Funds. The committee may recommend the
replacement of an investment adviser of one of the Trust's Funds, or the
addition or deletion of Funds. The committee includes members who may be
affiliated or unaffiliated with the Company and the Trust.
Allmerica Financial Investment Management Services, Inc. ("AFIMS"), an affiliate
of the Company is the investment manager of the Trust. AFIMS has entered into
agreements with investment advisers ("Sub-Advisers") selected by AFIMS and the
Trustees in consultation with RogersCasey. The Sub-Advisers (other than
Allmerica Asset Management, Inc.) are not affiliated with the Company or the
Trust. In addition, Rogers, Casey Sponsor Services, Inc., a wholly owned
subsidiary of RogersCasey, provides asset allocation recommendations that may be
utilized at no cost by registered representatives who are assisting clients in
developing diversified portfolios.
Fidelity Management and Research Company ("FMR") is the investment adviser of
VIP. FMR is one of America's largest investment management organizations and has
its principal business address at 82 Devonshire Street, Boston MA. 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.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the investment
adviser of T. Rowe Price. 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.
The following are the investment advisers of the Funds:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
- -------------------------------- ------------------------------------------------
<S> <C>
Select Emerging Markets Fund Schroder Capital Management International Inc.
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
T. Rowe Price International
Stock Portfolio Rowe Price-Fleming International, Inc.
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio Fidelity Management and Research Company
Select Growth and Income Fund John A. Levin & Co., Inc.
Fidelity VIP Equity-Income
Portfolio Fidelity Management and Research Company
Fidelity VIP High Income
Portfolio Fidelity Management and Research Company
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>
CAN I MAKE TRANSFERS AMONG THE FUNDS AND THE FIXED ACCOUNT?
Yes. You may transfer among the funds and the fixed account, subject to our
consent and then current rules. You will incur no current taxes on transfers
while your money is in the Policy.
10
<PAGE>
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, within limits.
WHAT IF I NEED MY MONEY?
You may borrow up to the loan value of your Policy. You may also make partial
withdrawals and surrender the Policy for its surrender value. There are two
types of loans which may be available to you:
- A preferred loan option is available to you upon written request after the
first Policy year. It is available during Policy years 2-10 only if your
policy value, minus the surrender charge, is $50,000 or more. The option
applies to up to 10% of this amount. After the 10th Policy year, the
preferred loan option is available on all loans or on all or a part of the
loan value as you request. The guaranteed annual interest rate credited to
the policy value securing a preferred loan will be 8%.
- A non-preferred loan option is always available to you. The guaranteed
annual interest rate credited to the policy value securing a non-preferred
loan will be at least 6.0%. The current interest rate credited to
non-preferred loans is 7.2%.
We will allocate Policy loans among the sub-accounts and the fixed account
according to your instructions. If you do not make an allocation, we will make a
pro-rata allocation. We will transfer the policy value in each sub-account equal
to the Policy loan to the fixed account.
A request for a preferred loan or partial withdrawal after the Final Payment
Date or the foreclosure of an outstanding loan will terminate a Guaranteed Death
Benefit Rider. See "GUARANTEED DEATH BENEFIT RIDER."
You may surrender your Policy and receive its surrender value. After the first
Policy year, you may make partial withdrawals of $500 or more from policy value,
subject to partial withdrawal costs. Under the Level Option, the face amount is
reduced by each partial withdrawal. We will not allow a partial withdrawal if it
would reduce the face amount below $40,000. A surrender or partial withdrawal
may have tax consequences. See "TAXATION OF THE POLICIES."
CAN I MAKE FUTURE CHANGES UNDER MY POLICY?
Yes. There are several changes you can make after receiving your Policy, within
limits. You may:
- Cancel your Policy under its right-to-examine provision
- Transfer your ownership to someone else
- Change the beneficiary
- Change the allocation of payments, with no tax consequences under current
law
- Make transfers of policy value among the funds
- Adjust the death benefit by increasing or decreasing the face amount
- Change your choice of death benefit options between the Level Option and
Adjustable Option
- Add or remove optional insurance benefits provided by Rider
11
<PAGE>
CAN I CONVERT MY POLICY INTO A NON-VARIABLE POLICY?
Yes. You can convert your Policy without charge during the first 24 months after
the date of issue or after an increase in face amount. On conversion, we will
transfer the policy value in the variable account to the fixed account. We will
allocate all future payments to the fixed account, unless you instruct us
otherwise.
WHAT CHARGES WILL I INCUR UNDER MY POLICY?
The following charges will apply to your Policy under the circumstances
described. Some of these charges apply throughout the Policy's duration. Other
charges apply only if you choose options under the Policy.
- From each payment, we will deduct a payment expense charge, currently
4.0%. The payment expense charge has three parts:
PREMIUM TAX DEDUCTION--A current premium tax deduction of 2.5% of
payments represents our average expenses for state and local premium
taxes.
DEFERRED ACQUISITION COSTS ("DAC TAX") DEDUCTION--A current DAC tax
deduction of 1.0% of payments helps reimburse us for federal taxes
imposed on our deferred acquisition costs of the Policies.
FRONT-END SALES LOAD--From each payment, we will deduct a front-end sales
load of 0.5% of the payment. This charge partially compensates us for
Policy sales expenses.
- We deduct the following monthly charge from policy value:
MONTHLY INSURANCE PROTECTION CHARGE--This charge is the cost of
insurance, including optional insurance benefits provided by Rider.
- The following expenses are charged against or reflected in the variable
account:
ADMINISTRATIVE CHARGE--We deduct this charge during the first ten Policy
years only. It is a daily charge at an annual rate of 0.15% of the
average daily net asset value of each sub-account. This charge helps
compensate us for our expenses in administering the variable account and
is eliminated after the tenth Policy year.
MORTALITY AND EXPENSE RISK CHARGE--We impose a daily charge at a current
annual rate of 0.65% of the average daily net asset value of each
sub-account. This charge compensates us for assuming mortality and
expense risks for variable interests in the Policies. Our Board of
Directors may increase this charge, subject to state and federal law, to
an annual rate no greater than 0.80%.
FUND EXPENSES--The funds incur investment advisory fees and other
expenses, which are reflected in the variable account. The levels of fees
and expenses vary among the funds.
- Charges designed to reimburse us for Policy administrative costs apply
under the following circumstances:
CHARGE FOR CHANGE IN FACE AMOUNT--For each increase or decrease in face
amount, we deduct a charge of $50 from policy value. This charge is for
the underwriting and administrative costs of the change.
CHARGE FOR OPTIONAL GUARANTEED DEATH BENEFIT RIDER--A one time
administrative charge of $25 will be deducted from Policy Value when the
Rider is elected.
TRANSFER CHARGE--Currently, the first 12 transfers of policy value in a
Policy year are free. A current transfer charge of $10, never to exceed
$25, applies for each additional transfer in the same Policy year. This
charge is for the costs of processing the transfer.
12
<PAGE>
OTHER ADMINISTRATIVE CHARGES--We reserve the right to charge for other
administrative costs we incur. While there are no current charges for
these costs, we may impose a charge for
- Changing net payment allocation instructions
- Changing the allocation of monthly insurance protection charges among the
various sub-accounts
- Providing a projection of values
- The charges below apply only if you surrender your Policy or make partial
withdrawals:
SURRENDER CHARGE--This charge applies only on a full surrender or
decrease in face amount within ten years of the date of issue or of an
increase in face amount. The maximum surrender charge has two parts:
- A deferred administrative charge of $8.50 per thousand dollars of the
initial face amount or increase
- A deferred sales charge of 28.5% of payments received or associated with
the increase up to the guideline annual premium for the increase
The maximum surrender charge is level for the first 24 Policy months, then
reduces by 1/96th per month, reaching zero after 10 Policy years. During the
first two years following the date of issue or increase, the actual
surrender charge may be less than the maximum surrender charge calculated
above.
PARTIAL WITHDRAWAL COSTS--We deduct from the policy value the following for
partial withdrawals:
- A transaction fee of 2.0% of the amount withdrawn, not to exceed $25, for
each partial withdrawal for processing costs
- A partial withdrawal charge of 5.0% of a withdrawal exceeding the "Free
10% Withdrawal," described below
The partial withdrawal charge does not apply to:
- That part of a withdrawal equal to 10% of the policy value in a Policy
year less prior free withdrawals made in the same Policy year ("Free 10%
Withdrawal")
- Withdrawals when no surrender charge applies.
We reduce the Policy's outstanding surrender charge, if any, by partial
withdrawal charges that we previously deducted.
WHAT ARE THE EXPENSES AND FEES OF THE FUNDS?
The following table shows the expenses of the Funds for 1997. For more
information concerning fees and expenses, see the prospectuses of the Funds.
13
<PAGE>
CHARGES OF THE UNDERLYING FUNDS -- In addition to the charges described above,
certain fees and expenses are deducted from the assets of the Underlying Funds.
The levels of fees and expenses vary among the Underlying Funds. The following
table shows the expenses of the Underlying Funds for 1997. For more information
concerning fees and expenses, see the prospectuses of the Underlying Funds.
<TABLE>
<CAPTION>
TOTAL FUND
EXPENSES
MANAGEMENT FEE (AFTER ANY
(AFTER ANY OTHER FUND APPLICABLE
UNDERLYING FUND VOLUNTARY WAIVER) EXPENSES REIMBURSEMENTS)
- --------------------------------------------------------- ----------------------- --------------- ---------------------
<S> <C> <C> <C>
Select Emerging Markets Fund @........................... 1.35% 0.65% 2.00%(1)
Select International Equity Fund......................... 0.92%* 0.20% 1.12%(1)(3)
T. Rowe Price International Stock Portfolio.............. 1.05% 0.00% 1.05%
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 Growth Fund....................................... 0.85% 0.08% 0.93%(1)(3)
Select Strategic Growth Fund @........................... 0.85% 0.13% 0.98%(1)
Fidelity VIP Growth Portfolio............................ 0.60% 0.09% 0.69%(2)
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 High Income Portfolio....................... 0.59% 0.12% 0.71%
Select Income Fund....................................... 0.58%* 0.13% 0.71%(1)
Money Market Fund........................................ 0.27% 0.08% 0.35%(1)
</TABLE>
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fee ratios shown in the table above have been
adjusted to assume that the revised rates took effect on January 1, 1997.
@ 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
that 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 Select Growth
Fund, 1.10% for the Select Growth and Income, 1.00% for the Select Income
Fund, and 0.60% for the Money Market 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, 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.
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.
14
<PAGE>
(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,
and 0.67% for Fidelity VIP Growth 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 expenses ratios would have been 0.93% for the
Select Aggressive Growth Fund, 0.98% for the Select Value Opportunity Fund,
1.10% for the Select International Equity Fund, 0.91% for the Select Growth
Fund, 0.98% for the Select Value Opportunity Fund, and 0.74% for the Select
Growth and Income Fund.
WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY POLICY?
The Policy will not lapse if you fail to make payments unless:
- The Surrender Value is insufficient to cover the next monthly insurance
protection charge and loan interest accrued or
- The outstanding loan exceeds Policy Value less surrender charges
There is a 62-day grace period in either situation.
If you make payments at least equal to minimum monthly payments, we guarantee
that your Policy will not lapse before the 49th monthly processing date from
date of issue or increase in face amount, within limits. If the Guaranteed Death
Benefit Rider is in effect, the Policy will not lapse regardless of the
investment performance of the Variable Account. For more information, see
"Guaranteed Death Benefit Rider."
You may reinstate your Policy within three years after the grace period, within
limits.
CAN I ELECT PAID-UP INSURANCE WITH NO FURTHER PREMIUMS DUE?
Yes. The Policy provides a paid-up insurance option. If this option is elected,
we will provide paid-up insurance coverage, usually having a reduced face
amount, for the life of the Insured with no more premiums being due under the
Policy. If you elect this option, policy owner rights and benefits will be
limited.
CAN THE POLICIES BE ISSUED IN CONNECTION WITH TSA PLANS?
The Policies may be issued in connection with Code Section 403(b) tax-sheltered
annuity plans ("TSA Plans") of certain public school systems and organizations
that are tax exempt under Section 501(c)(3) of the Code. A Policy issued in
connection with a TSA Plan will be endorsed to reflect the restrictions imposed
on assignment, premium payments, withdrawals, and surrender under Code Section
403(b). The Policyowner may terminate the endorsement at any time. However, the
termination of the endorsement may cause the Policy to fail to qualify under
Code Section 403(b). See "FEDERAL TAX CONSIDERATIONS -- Policies Issued in
Connection With TSA Plans." A Policy issued in connection with a TSA Plan may
also have limitations on Policy loans. See "POLICY LOANS -- Policies Issued in
Connection With TSA Plans".
HOW IS MY POLICY TAXED?
The Policy is given federal income tax treatment similar to a conventional fixed
benefit life insurance policy. On a withdrawal of policy value, Policy owners
currently are taxed only on the amount of the withdrawal that exceeds total
payments. Withdrawals greater than payments made are treated as ordinary income.
During the
15
<PAGE>
first 15 Policy years, however, an "interest first" rule applies to
distributions of cash required under Section 7702 of the Internal Revenue Code
("Code") because of a reduction in benefits under the Policy.
The net death benefit under the Policy is excludable from the gross income of
the beneficiary. However, in some circumstances federal estate tax may apply to
the net death benefit or the policy value.
A Policy may be considered a "modified endowment contract." This may occur if
total payments during the first seven Policy years (or within seven years of a
material change in the Policy) exceed the total net level payments payable, if
the Policy had provided paid-up future benefits after seven level payments. If
the Policy is considered a modified endowment contract, all distributions
(including Policy loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-first" basis. Also, a 10% penalty tax may be imposed on
that part of a distribution that is includible in income.
This Summary is intended to provide only a very brief overview of the more
significant aspects of the Policy. The Prospectus and the Policy provide further
detail. The Policy provides insurance protection for the named beneficiary. We
do not claim that the Policy is similar or comparable to a systematic investment
plan of a mutual fund. The Policy and its attached application or enrollment
form are the entire agreement between you and the Company.
PERFORMANCE INFORMATION
The Policies were first offered to the public in 1994. However, we may advertise
"Total Return" and "Average Annual Total Return" performance information based
on the periods that the Sub-Accounts have been in existence (Tables IA and IB),
and based on the periods that the Underlying Funds have been in existence
(Tables IIA and IIB). The results for any period prior to the Policies being
offered will be calculated as if the Policies had been offered during that
period of time, with all charges assumed to be those applicable to the
Sub-Accounts and the Funds.
Total return and average annual total return are based on the hypothetical
profile of a representative Policy owner and historical earnings and are not
intended to indicate future performance. "Total Return" is the total income
generated net of certain expenses and charges. "Average annual total return" is
net of the same expenses and charges, but reflects the hypothetical return
compounded annually. This hypothetical return is equal to cumulative return had
performance been constant over the entire period. Average annual total returns
are not the same as yearly results and tend to smooth out variations in the
Funds' return.
Performance information under the Policies is net of fund expenses, mortality
and expense risk charges, administrative charges, monthly insurance protection
charges and surrender charges. We take a representative Policy owner and assume
that:
- The Insured is a male Age 36, standard (non-smoker) underwriting class
- The Policy owner had allocations in each of the sub-accounts for the fund
durations shown, and
- There was a full surrender at the end of the applicable period
We may compare performance information for a sub-account in reports and
promotional literature to:
- Standard & Poor's 500 Composite Stock Price Index ("S&P 500")
- Dow Jones Industrial Average ("DJIA")
- Shearson Lehman Aggregate Bond Index
16
<PAGE>
- Other unmanaged indices of unmanaged securities widely regarded by
investors as representative of the securities markets
- Other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services
- Other services, companies, publications, or persons such as Morningstar,
Inc., who rank the investment products on performance or other criteria
- The Consumer Price Index
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and administrative charges, separate account
charges and fund management costs and expenses.
Performance information for any sub-account reflects only the performance of a
hypothetical investment in the sub-account during a period. It is not
representative of what may be achieved in the future. However, performance
information may be helpful in reviewing market conditions during a period and in
considering a fund's success in meeting its investment objectives.
In advertising, sales literature, publications or other materials, we may give
information on various topics of interest to Policy owners and prospective
Policy owners. These topics may include:
- The relationship between sectors of the economy and the economy as a whole
and its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation and automatic account rebalancing)
- The advantages and disadvantages of investing in tax-deferred and taxable
investments
- Customer profiles and hypothetical payment and investment scenarios
- Financial management and tax and retirement planning
- Investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Policies and the
characteristics of and market for the financial instruments.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, 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/heath
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 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.
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.
17
<PAGE>
TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNTS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE POLICY
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insured
is male, Age 36, standard (nonsmoker) Premium Class, that the Face Amount of the
Policy is $250,000, that an annual premium payment of $3,000 (approximately one
Guideline Annual Premium) was made at the beginning of each Policy year, that
all premiums were allocated to each Sub-Account individually, and that there was
a full surrender of the Policy at the end of the applicable period.
<TABLE>
<CAPTION>
10 YEARS
OR LIFE
ONE-YEAR OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select International Equity Fund -100.00% N/A -19.41%
T. Rowe Price International Stock Portfolio -100.00% N/A -34.66%
Select Aggressive Growth Fund -98.19% N/A -9.12%
Select Capital Appreciation Fund -100.00% N/A -9.80%
Select Value Opportunity Fund N/A N/A N/A
Select Growth Fund -84.61% N/A -3.95%
Select Strategic Growth Fund N/A N/A N/A
Fidelity VIP Growth Portfolio -93.97% N/A -8.77%
Select Growth and Income Fund -94.82% N/A -7.93%
Fidelity VIP Equity-Income Portfolio -89.88% N/A -8.93%
Fidelity VIP High Income Portfolio -99.10% N/A -17.92%
Select Income Fund -100.00% N/A -26.87%
Money Market Fund -100.00% N/A -30.76%
</TABLE>
The inception dates for the Sub-Accounts are: 5/1/95 for Money Market, for
Select Aggressive Growth, for Select Growth, for Select Growth and Income, for
Select Income, for Select Value Opportunity, for Select International Equity,
for the Select Capital Appreciation, for Fidelity VIP Equity-Income, for
Fidelity VIP Growth and for Fidelity VIP High Income; and 8/23/95 for the T.
Rowe Price International Stock. 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 SUB-ACCOUNTS
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The performance information is net of total
Underlying Fund expenses, all Sub-Account charges, and premium tax and expense
charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE POLICY OR SURRENDER
CHARGES. It is assumed that an annual premium payment of $3,000 (approximately
one Guideline Annual Premium) was made at the beginning of each Policy year and
that ALL premiums were allocated to EACH Sub-Account individually.
<TABLE>
<CAPTION>
10 YEARS
OR LIFE
ONE-YEAR OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select International Equity Fund 3.81% N/A 13.81%
T. Rowe Price International Stock Portfolio 2.27% N/A 7.78%
Select Aggressive Growth Fund 17.76% N/A 22.45%
Select Capital Appreciation Fund 13.37% N/A 21.87%
Select Value Opportunity Fund N/A N/A N/A
Select Growth Fund 33.00% N/A 26.90%
Select Growth Fund 33.00% N/A 26.90%
Fidelity VIP Growth Portfolio 22.50% N/A 22.75%
Select Growth and Income Fund 21.54% N/A 23.47%
Fidelity VIP Equity-Income Portfolio 27.09% N/A 22.61%
Fidelity VIP High Income Portfolio 16.73% N/A 15.04%
Select Income Fund 8.30% N/A 7.74%
Money Market Fund 4.63% N/A 4.64%
</TABLE>
The inception dates for the Sub-Accounts are: 5/1/95 for Money Market, for
Select Aggressive Growth, for Select Growth, for Select Growth and Income, for
Select Income, for Select Value Opportunity, for Select International Equity,
for the Select Capital Appreciation, for Fidelity VIP Equity-Income, for
Fidelity VIP Growth, and for Fidelity VIP High Income; and 8/23/95 for the T.
Rowe Price International Stock. 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 POLICY
The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insured
is male, Age 36, standard (nonsmoker) Premium Class, that the Face Amount of the
Policy is $250,000, that an annual premium payment of $3,000 (approximately one
Guideline Annual Premium) was made at the beginning of each Policy year, that
ALL premiums were allocated to EACH Sub-Account individually, and that there was
a full surrender of the Policy at the end of the applicable period.
<TABLE>
<CAPTION>
10 YEARS
ONE-YEAR OR LIFE
TOTAL 3 OF FUND
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select International Equity Fund -100.00% N/A -8.86%
T. Rowe Price International Stock Portfolio -100.00% N/A -11.58%
Select Aggressive Growth Fund -98.19% N/A 9.48%
Select Capital Appreciation Fund -100.00% N/A -9.57%
Select Value Opportunity Fund -92.77% N/A 4.17%
Select Growth Fund -84.61% N/A 6.04%
Select Strategic Growth Fund N/A N/A N/A
Fidelity VIP Growth Portfolio -93.97% N/A 12.49%
Select Growth and Income Fund -94.82% N/A 4.93%
Fidelity VIP Equity-Income Portfolio -89.88% N/A 12.00%
Fidelity VIP High Income Portfolio -99.10% N/A 7.96%
Select Income Fund -100.00% N/A -4.82%
Money Market Fund -100.00% N/A 0.60%
</TABLE>
The inception dates for the Underlying Funds are: 4/29/85 for Money Market;
8/21/92 for Select Aggressive Growth, Select Growth, Select Growth and Income,
and Select 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 and 3/31/94 for the T. Rowe Price International Stock. The Select
Emerging Markets Fund and Select Strategic Growth Fund commenced operations in
February, 1998.
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 POLICY CHARGES AND SURRENDER CHARGES
The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses, all Sub-Account charges, and premium tax and
expense charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE POLICY OR
SURRENDER CHARGES. It is assumed that an annual premium payment of $3,000
(approximately one Guideline Annual Premium) was made at the beginning of each
Policy year and that ALL premiums were allocated to EACH Sub-Account
individually.
<TABLE>
<CAPTION>
10 YEARS
OR LIFE
ONE-YEAR OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A
Select International Equity Fund 3.81% N/A 10.25%
T. Rowe Price International Stock Portfolio 2.27% N/A 7.20%
Select Aggressive Growth Fund 17.76% N/A 18.61%
Select Capital Appreciation Fund 13.37% N/A 21.90%
Select Value Opportunity Fund 23.85% N/A 15.99%
Select Growth Fund 33.00% N/A 15.44%
Select Strategic Growth Fund N/A N/A N/A
Fidelity VIP Growth Portfolio 22.50% N/A 16.25%
Select Growth and Income Fund 21.54% N/A 14.43%
Fidelity VIP Equity-Income Portfolio 27.09% N/A 15.78%
Fidelity VIP High Income Portfolio 16.73% N/A 11.91%
Select Income Fund 8.30% N/A 5.66%
Money Market Fund 4.63% N/A 4.95%
</TABLE>
The inception dates for the Underlying Funds are: 4/29/85 for Money Market;
8/21/92 for Select Aggressive Growth, Select Growth, Select Growth and Income,
and Select 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 and 3/31/94 for the T. Rowe Price International Stock. The Select
Emerging Markets Fund and Select Strategic Growth Fund commenced operations in
February, 1998.
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 VARIABLE ACCOUNT,
AND THE UNDERLYING FUNDS
THE COMPANY
The Company is a life insurance company organized under the laws of Delaware in
1974. As of December 31, 1997, the Company had over $9.4 billion in assets. We
are an indirect, wholly owned subsidiary of First Allmerica Financial Life
Insurance Company, formerly named State Mutual Life Assurance Company of America
("First Allmerica"), which in turn is a wholly-owned subsidiary of Allmerica
Financial Corporation. First Allmerica was organized under the laws of
Massachusetts in 1844 and is the fifth oldest life insurance company in America.
Our principal office is 440 Lincoln Street, Worcester, Massachusetts 01653,
Telephone 1-800-366-1492. We are subject to the laws of the state of Delaware,
to regulation by the Commissioner of Insurance of Delaware, and to other laws
and regulations where we are licensed to operate.
The Company is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNT
The variable account is a separate investment account with fourteen
sub-accounts. Each sub-account invests in a fund of the Trust, VIP or T. Rowe
Price. The assets used to fund the variable part of the Policies are set aside
in sub-accounts and are separate from our general assets. We administer and
account for each sub-account as part of our general business. However, income,
capital gains and capital losses are allocated to each sub-account without
regard to any of our other income, capital gains or capital losses. Under
Delaware law, the assets of the variable account may not be charged with any
liabilities arising out of any other business of ours.
Our Board of Directors authorized the variable account by vote on October 12,
1993. The variable account meets the definition of "separate account" under
federal securities laws. It is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940 ("1940 Act"). This registration does not involve SEC supervision of the
management or investment practices or policies of the Variable Account or of the
Company. We reserve the right, subject to law, to change the names of the
Variable Account and the sub-accounts.
Each sub-account has two sub-divisions. One sub-division applies to Policies
during the first ten Policy years, which are subject to the administrative
charge. After the tenth Policy year, we automatically allocate a Policy to the
second sub-division to which the charge does not apply.
THE TRUST
The Trust is an open-end, diversified management investment company registered
with the SEC under the 1940 Act. This registration does not involve SEC
supervision of the investments or investment policy of the Trust or its separate
investment portfolios.
First Allmerica established the Trust as a Massachusetts business trust on
October 11, 1984. The Trust is a vehicle for the investment of assets of various
separate accounts established by the Company and affiliated insurance companies.
Shares of the Trust are not offered to the public but solely to the separate
accounts. Ten different investment portfolios of the Trust are available under
the Policies, each issuing a series of shares: the Select Emerging Markets Fund,
Select International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Value Opportunity Fund, Select Growth Fund, Select
Strategic Growth Fund, Select Growth and Income Fund, Select Income Fund and
Money Market Fund. The assets of each fund
22
<PAGE>
are held separate from the assets of the other funds. Each fund operates as a
separate investment vehicle. The income or losses of one fund have no effect on
the investment performance of another fund. The sub-accounts reinvest dividends
and/or capital gains distributions received from a fund in more shares of that
fund as retained assets.
AFIMS serves as investment manager of the Trust. AFIMS has entered into
agreements with other investment managers ("Sub-Advisers"), who manage the
investments of the funds. See "Investment Advisory Services to the Trust."
FIDELITY VIP
Fidelity VIP, managed by Fidelity Management and Research Company ("FMR"), is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on November 13, 1981 and registered with the SEC
under the 1940 Act. Three of its investment portfolios are available under the
Policies: Fidelity VIP Growth Portfolio, Fidelity VIP Equity-Income Portfolio
and Fidelity VIP High Income Portfolio.
T. ROWE PRICE
T. Rowe Price, managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"), is an open-end, diversified, management investment company
organized as a Maryland corporation in 1994 and registered with the SEC under
the 1940 Act. One of its investment portfolios is available under the
Policies:the T. Rowe Price International Stock Portfolio. T. Rowe Price
Associates, Inc., an affiliate of Price-Fleming, serves as sub-adviser to the
Select Capital Appreciation Fund of the Trust.
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of the funds is set forth below. BEFORE
INVESTING, READ CAREFULLY THE PROSPECTUSES OF THE TRUST, VIP AND T. ROWE PRICE
THAT ACCOMPANY THIS PROSPECTUS. THE PROSPECTUSES OF THE TRUST, VIP AND T. ROWE
PRICE CONTAIN MORE DETAILED INFORMATION ON THE FUNDS' INVESTMENT OBJECTIVES,
RESTRICTIONS, RISKS AND EXPENSES. Statements of Additional Information for the
funds are available on request. The investment objectives of the funds may not
be achieved. Policy value may be less than the aggregate payments made under the
Policy.
SELECT EMERGING MARKETS FUND -- seeks long-term growth of capital by investing
in the world's emerging markets. The Sub-Adviser for the Select Emerging Markets
Fund is Schroder Capital Management International Inc.
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. The Sub-Adviser for the Select International
Equity Fund is Bank of Ireland Asset Management (U.S.) Limited.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies. The Manager of the Portfolio is Rowe Price-Fleming International,
Inc.
SELECT AGGRESSIVE GROWTH FUND -- seeks above-average capital appreciation by
investing primarily in common stocks of companies that are believed to have
significant potential for capital appreciation. The Sub-Adviser for the Select
Aggressive Growth Fund is Nicholas-Applegate Capital Management, L.P.
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 will invest
primarily in common stock of industries and companies which are experiencing
favorable demand for their products and
23
<PAGE>
services, and which operate in a favorable competitive environment and
regulatory climate. The Sub-Adviser for the Select Capital Appreciation Fund is
T. Rowe Price Associates, Inc.
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. The Sub-Adviser for the Select Value Opportunity Fund
is Cramer Rosenthal McGlynn, LLC.
SELECT GROWTH FUND -- seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected for their
long-term growth potential. The Sub-Adviser for the Select Growth Fund is Putnam
Investment Management, Inc.
SELECT STRATEGIC GROWTH FUND -- seeks long-term growth of capital by investing
primarily in common stocks of established companies. The Sub-Adviser for the
Select Strategic Growth Fund is Cambiar Investors, Inc.
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 may also be found
in other types of securities, including bonds and preferred stocks.
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. The Sub-Adviser for
the Select Growth and Income Fund is John A. Levin & Co., Inc.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising S&P 500.
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 are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see the VIP
prospectus.
SELECT INCOME FUND -- seeks a high level of current income. The fund will invest
primarily in investment grade, fixed-income securities. The Sub-Adviser for the
Select Income Fund is Standish, Ayer & Wood, Inc.
MONEY MARKET FUND -- seeks to obtain maximum current income consistent with the
preservation of capital and liquidity. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Money Market Fund.
If there is a material change in the investment policy of a fund, we will notify
you of the change. If you have policy value allocated to that fund, you may
without charge reallocate the policy value to another fund or to the fixed
account. We must receive your written request within 60 days of the LATEST of
the:
- Effective date of the change in the investment policy OR
- Receipt of the notice of your right to transfer
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST.
The Trustees have responsibility for the supervision of the affairs of the
Trust. The Trustees have entered into a management agreement with AFIMS , an
indirectly wholly owned subsidiary of First Allmerica. AFIMS,
24
<PAGE>
subject to Trustee review, is responsible for the daily affairs of the Trust and
the general management of the funds. AFIMS performs 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.
The Trust bears all expenses incurred in its operation, other than the expenses
AFIMS assumes under the management agreement. Trust expenses include:
- Costs to register and qualify 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 payments and
brokerage commissions
- Fees and expenses of the Trustees who are not affiliated with AFIMS
- Expenses for proxies, prospectuses, reports to shareholders and other
expenses
Under the management agreement with the Trust, AFIMS has entered into agreements
under which each Sub-Adviser manages the investments of one or more of the
funds. Under each agreement, the Sub-Adviser is authorized to engage in
portfolio transactions on behalf of the fund, subject to the Trustees'
instructions. The terms of a Sub-Adviser agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the fund.
AFIMS, an affiliate of the Company is the investment manager of the Trust. AFIMS
has entered into agreements with investment advisers ("Sub-Advisers") selected
by AFIMS and Trustees in consultation with RogersCasey. The Sub-Advisers (other
than Allmerica Asset Management, Inc.) are not affiliated with the Company or
the Trust. In addition, Rogers, Casey Sponsor Services, Inc., a wholly owned
subsidiary of RogersCasey, provides asset allocation recommendations that may be
utilized at no cost by registered representatives who are assisting clients in
developing diversified portfolios.
25
<PAGE>
For providing its services under the management agreement, AFIMS receives 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 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 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 Growth Fund * 0.85%
Select Strategic Growth Fund * 0.85%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Select Income Fund First $50 million 0.60%
$50 - $100 million 0.55%
Over $100 million 0.45%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Select Emerging Markets Fund, the Select Growth Fund, and the Select
Strategic Growth Fund, the investment management fee does not vary according to
the level of assets in the Fund. AFIMS' fee computed for each Fund will be paid
from the assets of such Fund.
26
<PAGE>
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 Agreements, the Sub-Advisers are
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund. AFIMS is solely responsible for the payment of all fees for
investment management services to the Sub-Advisers.
AFIMS is solely responsible for the payment of all fees to Sub-Advisers for
their investment management services. Sub-Adviser fees, described in the Trust's
prospectus, in no way increase the costs that the funds, variable account and
Policy owners bear.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP
For managing investments and business affairs, each Portfolio pays a monthly fee
to FMR. The prospectus of VIP contains 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 Growth and the Fidelity VIP Equity-Income 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 0.30% for the Fidelity VIP Growth
Portfolio and 0.20% for the Fidelity VIP Equity-Income Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the Fidelity VIP High Income Portfolio may have a fee as high as 0.82%.
The Fidelity VIP Growth 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 as
high as 0.72% of its average net assets.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE
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.
THE POLICY
APPLICATION FOR A POLICY
We offer Policies to applicants 85 years old and under. After receiving a
completed application or enrollment form from a prospective Policy owner, we
will begin underwriting to decide the insurability of the proposed
27
<PAGE>
Insured. We may require medical examinations and other information before
deciding insurability. We issue a Policy only after underwriting has been
completed. We may reject an application or enrollment form that does not meet
our underwriting guidelines.
If a prospective Policy owner makes an initial payment of at least one minimum
monthly payment, we will provide fixed conditional insurance during
underwriting. The fixed conditional insurance will be the insurance applied for,
up to a maximum of $500,000, depending on age and underwriting class. This
coverage will continue for a maximum of 90 days from the date of the application
or enrollment form or, if required, the completed medical exam. If death is by
suicide, we will return only the premium paid.
If no fixed conditional insurance was in effect, on Policy delivery we will
require a sufficient payment to place the insurance in force.
If you made payments before the date of issuance and acceptance, we will
allocate the payments to the Money Market Fund within two business days of
receipt of the payments at our principal office. If the Policy is not issued and
accepted, we will return to you the GREATER of:
- Your payments OR
- The value of the amount allocated to the Money Market Fund, which will be
net of mortality and expense risk charges, administrative charges and fund
expenses.
If your application or enrollment form is approved and the Policy is issued and
accepted, we will allocate your policy value on issuance and acceptance
according to your instructions. However, if your Policy provides for a full
refund of payments under its "Right to Examine Policy" provision as required in
your state (see "THE POLICY -- Free-Look Period"), we will initially allocate
your sub-account investments to the Money Market Fund. This allocation to the
Money Market Fund will be for:
- 14 days from issuance and acceptance, except as described below
- 24 days from issuance and acceptance for replacements in states with an
extended right to examine
- 34 days from issuance and acceptance for California citizens age 60 and
older, who have an extended right to examine.
After this, we will allocate all amounts according to your investment choices.
FREE-LOOK PERIOD
The Policy provides for a free look period. You have the right to examine and
cancel your Policy by returning it to us or to one of our representatives on or
before the LATEST of:
- 45 days after the application or enrollment form for the Policy is signed
- 10 days after you receive the Policy (20 days when the law so requires for
the replacement of insurance and 30 days for California citizens age 60
and older) OR
- 10 days after we mail to you a notice of withdrawal right.
If your Policy provides for a full refund under its "Right to Examine Policy"
provision as required in your state, your refund will be the GREATER of
- Your entire payment OR
28
<PAGE>
- The policy value PLUS deductions under the Policy or by the funds for
taxes, charges or fees
If your Policy does not provide for a full refund, you will receive
- Amounts allocated to the fixed account PLUS
- The policy value in the variable account PLUS
- All fees, charges and taxes which have been imposed
- We may delay a refund of any payment made by check until the check has
cleared your bank.
After an increase in face amount, we will mail or deliver a notice of a free
look for the increase. You will have the right to cancel the increase before the
LATEST of:
- 45 days after the application or enrollment form for the increase is
signed
- 10 days after you receive the new Policy specification pages issued for
the increase or
- 10 days after we mail or deliver a notice of withdrawal rights to you
On canceling the increase, you will receive a credit to your policy value of
charges deducted for the increase. We will refund to you the amount to be
credited if you request. We will waive any surrender charge computed for the
increase.
CONVERSION PRIVILEGE
Within 24 months of the date of issue or an increase in face amount, you can
convert your Policy into a non-variable Policy by transferring all policy value
in the sub-accounts to the fixed account. The conversion will take effect at the
end of the valuation period in which we receive, at our principal office, notice
of the conversion satisfactory to us. There is no charge for this conversion. We
will allocate all future payments to the fixed account, unless you instruct us
otherwise.
PAYMENTS
Payments are payable to the Company. Payments may be made by mail to our
principal office or through our authorized representative. All payments after
the initial payment are credited to the variable account or fixed account on the
date of receipt at the principal office.
You may establish a schedule of planned payments. If you do, we will bill you at
regular intervals. Making planned payments will not guarantee that the Policy
will remain in force. The Policy will not necessarily lapse if you fail to make
planned payments. You may make unscheduled payments before the final payment
date or skip planned payments. If the Guaranteed Death Benefit Rider is in
effect, there are certain minimum payment requirements.
You may choose a monthly automatic payment method of making payments. Under this
method, each month we will deduct payments from your checking account and apply
them to your Policy. The minimum payment allowed is $50.
The Policy does not limit payments as to frequency and number. However, no
payment may be less than $100 without our consent. Payments must be sufficient
to provide a positive surrender value at the end of each Policy month or the
Policy may lapse. See "POLICY TERMINATION AND REINSTATEMENT." During the first
48 Policy months following the date of issue or an increase in face amount, a
guarantee may apply to
29
<PAGE>
prevent the Policy from lapsing. The guarantee will apply during this period if
you make payments that, when reduced by partial withdrawals and partial
withdrawal costs, equal or exceed the required minimum monthly payments. The
required minimum monthly payments are based on the number of months the Policy,
increase in face amount or policy change that causes a change in the minimum
monthly payment has been in force. MAKING MONTHLY PAYMENTS EQUAL TO THE MINIMUM
MONTHLY PAYMENTS DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE, EXCEPT
AS STATED IN THIS PARAGRAPH.
Total payments may not exceed the current maximum payment limits under federal
tax law. These limits will change with a change in face amount, the addition or
deletion of a Rider, or a change between the Level Option and Adjustable Option.
Where total payments would exceed the current maximum payment limits, we will
only accept that part of a payment that will make total payments equal the
maximum. We will return any part of the payments greater than that amount.
However, we will accept a payment needed to prevent Policy lapse during a Policy
year. See "POLICY TERMINATION AND REINSTATEMENT."
ALLOCATION OF NET PAYMENTS
The net payment equals the payment made less the payment expense charge. In the
application or enrollment form for your Policy, you decide the initial
allocation of the net payment among the fixed account and the sub-accounts. You
may allocate payments to one or more of the sub-accounts, but may not have
policy value in more than seven sub-accounts at once. The minimum amount that
you may allocate to a sub-account is 1.0% of the net payment. 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 payments by written request or
telephone request. You have the privilege to make telephone requests, unless you
elected not to have the privilege on the application or enrollment form. The
policy of the Company and its representatives and affiliates is that they will
not be responsible for losses resulting from acting on telephone requests
reasonably believed to be genuine. We will use reasonable methods to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses from unauthorized or fraudulent instructions. We
require that callers on behalf of a policy owner identify themselves by name and
identify the policy owner by name, date of birth and social security number. All
telephone requests are tape recorded. An allocation change will take effect on
the date of receipt of the notice at the principal office. No charge is
currently imposed for changing payment allocation instructions. We reserve the
right to impose a charge in the future, but guarantee that the charge will not
exceed $25.
The policy value in the sub-accounts will vary with investment experience. You
bear this investment risk. Investment performance may also affect the death
benefit. Review your allocations of payments and policy value as market
conditions and your financial planning needs change.
TRANSFER PRIVILEGE
Subject to our then current rules, you may transfer amounts among the
sub-accounts or between a sub-account and the fixed account. (You may not
transfer that portion of the policy value held in the fixed account that secures
a Policy loan.)
The transfer privilege is subject to our consent. We reserve the right to impose
limits on transfers including, but not limited to, the:
- Minimum amount that may be transferred
- Minimum amount that may remain in a sub-account following a transfer from
that sub-account
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- Minimum period between transfers involving the fixed account
- Maximum amounts that may be transferred from the fixed account
Transfers involving the fixed account are currently permitted only if:
There has been at least a ninety (90) day period since the last transfer from
the fixed account; and
The amount transferred from the fixed account in each transfer does not exceed
the lesser of $100,000 or 25% of the policy value.
These rules are subject to change by the Company.
We will make transfers at your written request or telephone request, as
described in "THE POLICY -- Allocation of Net Payments." Transfers are effected
at the value next computed after receipt of the transfer order.
You may apply for automatic transfers:
- From the Money Market sub-account to one or more of the other sub-accounts
on a monthly, quarterly or semiannual schedule
- To reallocate policy value among the sub-accounts on a quarterly,
semiannual or annual schedule.
Each automatic transfer must be at least $100. We will process automatic
transfers on the 15th of each scheduled month. If the 15th is not a business day
or is the monthly processing date, we will process the automatic transfer on the
next business day.
Currently, the first 12 transfers in a Policy year are free. After that, we will
deduct a $10 transfer charge from amounts transferred in that Policy year. We
reserve the right to increase the charge, but we guarantee the charge will never
exceed $25. We also reserve the right to limit the number of free transfers in a
Policy year to six.
The first automatic transfer counts as one transfer toward the 12 free transfers
allowed in each Policy year. Each subsequent automatic transfer is also free,
but does not reduce the remaining number of transfers that are free in a Policy
year. Any transfers made for a conversion privilege, Policy loan or material
change in investment policy will not count toward the 12 free transfers.
DEATH BENEFIT
If the Policy is in force on the Insured's death, we will, with due proof of
death, pay the net death benefit to the named beneficiary. We will normally pay
the net death benefit within seven days of receiving due proof of the Insured's
death, but we may delay payment of net death benefits. See "OTHER POLICY
PROVISIONS -- Delay of Payments." The beneficiary may receive the net death
benefit in a lump sum or under a payment option. See "APPENDIX C -- PAYMENT
OPTIONS."
Before the final payment date, the net death benefit is:
- The death benefit provided under the Level Option or Adjustable Option,
whichever is elected and in effect on the date of death PLUS
- Any other insurance on the Insured's life that is provided by Rider MINUS
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- Any outstanding loan and any partial withdrawals, partial withdrawal costs
and due and unpaid monthly insurance protection charges through the Policy
month in which the Insured dies
After the final payment date, if the Guaranteed Death Benefit Rider is not in
effect, the net death benefit is:
- The policy value MINUS
- Any outstanding loan
In most states, we will compute the net death benefit on the date we receive due
proof of the Insured's death.
GUARANTEED DEATH BENEFIT RIDER (NOT AVAILABLE IN ALL STATES)
An optional Guaranteed Death Benefit Rider is available ONLY AT ISSUE OF THE
POLICY. If this Rider is in effect, the Company:
- guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account and
- provides a guaranteed net death benefit.
In order to maintain the Guaranteed Death Benefit Rider, certain minimum premium
payment tests must be met on each Policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in Face Amount, as
described below. In addition, a one-time administrative charge of $25 will be
deducted from Policy Value when the Rider is elected. Certain transactions,
including policy loans, partial withdrawals, and changes in Sum Insured Options,
can result in the termination of the Rider. IF THIS RIDER IS TERMINATED, IT
CANNOT BE REINSTATED.
GUARANTEED DEATH BENEFIT TESTS
While the Guaranteed Death Benefit Rider is in effect, the Policy will not lapse
if the following two tests are met:
1. Within 48 months following the Date of Issue of the Policy or of any
increase in the Face Amount, the sum of the premiums paid, less any Debt,
partial withdrawals and withdrawal charges, must be greater than the minimum
monthly payment multiplied by the number of months which have elapsed since
the relevant Date of Issue; and
2. On each Policy anniversary, (a) must exceed (b), where, since the Date of
Issue:
(a) is the sum of your premiums, less any withdrawals, partial withdrawal
charges and Debt which is classified as a preferred loan; and
(b) is the sum of the minimum Guaranteed Death Benefit premiums, as shown on
the specifications page of the Policy.
GUARANTEED DEATH BENEFIT
If the Guaranteed Death Benefit Rider is in effect on the Final Premium Payment
Date, a guaranteed Death Benefit will be provided as long as the Rider is in
force. The Death Benefit will be the greater of:
- the Face Amount as of the Final Premium Payment Date; or
- the Policy Value as of the date due proof of death is received by the
Company.
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TERMINATION OF THE GUARANTEED DEATH BENEFIT RIDER
The Guaranteed Death Benefit Rider will end and may not be reinstated on the
first to occur of the following:
- foreclosure of an outstanding loan; or
- the date on which the sum of your payments does not meet or exceed the
applicable Guaranteed Death Benefit test (above); or
- any Policy change that results in a negative guideline level premium; or
- the effective date of a change from the Adjustable Death Benefit Option to
the Level Death Benefit Option, if such changes occur within 5 policy
years of the Final Payment Date; or
- a request for a partial withdrawal or preferred loan is made after the
Final Premium Payment Date.
It is possible that the Policy Value will not be sufficient to keep the Policy
in force on the first Monthly Payment Date following the date the Rider
terminates.
LEVEL OPTION AND ADJUSTABLE OPTION
The Policy provides two death benefit options: the Level Option and Adjustable
Option. You choose the desired option in the application or enrollment form. You
may change the option once per Policy year by written request. There is no
charge for a change in option.
Under the Level Option, the death benefit is the GREATER of the:
- Face amount OR
- Guideline minimum sum insured
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Under the Adjustable Option, the death benefit is the GREATER of the:
- Face amount plus policy value OR
- Guideline minimum sum insured
Under both the Level Option and Adjustable Option, the death benefit provides
insurance protection. Under the Level Option, the death benefit is level unless
the guideline minimum sum insured exceeds the face amount; then, the death
benefit varies as the policy value changes. Under the Adjustable Option, the
death benefit always varies as the policy value changes.
At any face amount, the death benefit will be greater under the Adjustable
Option than under the Level Option because the policy value is added to the face
amount and included in the death benefit. However, the monthly insurance
protection charge will be greater. Therefore, policy value will accumulate at a
slower rate than under the Level Option.
If you desire to have payments and investment performance reflected in the death
benefit, you should choose the Adjustable Option. If you desire to have payments
and investment performance reflected to the maximum extent in the policy value,
you should select the Level Option.
GUIDELINE MINIMUM SUM INSURED -- The guideline minimum sum insured is a
percentage of the policy value as set forth in "APPENDIX A -- GUIDELINE MINIMUM
SUM INSURED TABLE." The guideline minimum sum insured is computed based on
federal tax regulations to ensure that the Policy qualifies as a life insurance
contract and that the insurance proceeds will be excluded from the gross income
of the beneficiary.
ILLUSTRATION OF THE LEVEL OPTION -- In this illustration, assume that the
Insured is under the age of 40, and that there is no outstanding loan.
Under the Level Option, a Policy with a $100,000 face amount will have a death
benefit of $100,000. However, because the death benefit must be equal to or
greater than 250% of policy value, if the policy value exceeds $40,000 the death
benefit will exceed the $100,000 face amount. In this example, each dollar of
policy value above $40,000 will increase the death benefit by $2.50. For
example, a Policy with a policy value of $50,000 will have a guideline minimum
sum insured of $125,000 ($50,000 X 2.50); policy value of $60,000 will produce a
guideline minimum sum insured of $150,000 ($60,000 X 2.50); and policy value of
$75,000 will produce a guideline minimum sum insured of $187,500 ($75,000 X
2.50).
Similarly, if policy value exceeds $40,000, each dollar taken out of policy
value will reduce the death benefit by $2.50. If, for example, the policy value
is reduced from $60,000 to $50,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $150,000
to $125,000. If, however, the product of the policy value times the applicable
percentage from the table in APPENDIX A is less than the face amount, the death
benefit will equal the face amount.
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
zero and 40), the applicable percentage would be 185%. The death benefit would
not exceed the $100,000 face amount unless the policy value exceeded $54,054
(rather than $40,000), and each dollar then added to or taken from policy value
would change the death benefit by $1.85.
ILLUSTRATION OF THE ADJUSTABLE OPTION -- In this illustration, assume that the
Insured is under the age of 40 and that there is no outstanding loan.
Under the Adjustable Option, a Policy with a face amount of $100,000 will
produce a death benefit of $100,000 plus policy value. For example, a Policy
with policy value of $10,000 will produce a death benefit of
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$110,000 ($100,000 + $10,000); policy value of $25,000 will produce a death
benefit of $125,000 ($100,000 + $25,000); policy value of $50,000 will produce a
death benefit of $150,000 ($100,000 + $50,000). However, the death benefit must
be at least 250% of the policy value. Therefore, if the policy value is greater
than $66,667, 250% of that amount will be the death benefit, which will be
greater than the face amount plus policy value. In this example, each dollar of
policy value above $66,667 will increase the death benefit by $2.50. For
example, if the policy value is $70,000, the guideline minimum sum insured will
be $175,000 ($70,000 X 2.50); policy value of $80,000 will produce a guideline
minimum sum insured of $200,000 ($80,000 X 2.50); and policy value of $90,000
will produce a guideline minimum sum insured of $225,000 ($90,000 X 2.50).
Similarly, if policy value exceeds $66,667, each dollar taken out of policy
value will reduce the death benefit by $2.50. If, for example, the policy value
is reduced from $80,000 to $70,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $200,000
to $175,000. If, however, the product of the policy value times the applicable
percentage is less than the face amount plus policy value, then the death
benefit will be the current face amount plus policy value.
The applicable percentage becomes lower as the Insured's age increases. If the
Insured's age in the above example were 50, the death benefit must be at least
1.85 times the policy value. The death benefit would be the sum of the policy
value plus $100,000 unless the policy value exceeded $117,647 (rather than
$66,667). Each dollar added to or subtracted from the Policy would change the
death benefit by $1.85.
CHANGE TO LEVEL OR ADJUSTABLE OPTION
You may change the death benefit option once each Policy year by written
request. Changing options will not require evidence of insurability. The change
takes effect on the monthly processing date on or following the date of receipt
of the written request. We will impose no charge for changes in death benefit
options.
If you change the Level Option to the Adjustable Option, we will decrease the
face amount to equal:
- The death benefit MINUS
- The policy value on the date of the change
The change may not be made if the face amount would fall below $40,000. After
the change from the Level Option to the Adjustable Option, future monthly
insurance protection charges may be higher or lower than if no change in option
had been made. However, the insurance protection amount will always equal the
face amount unless the guideline minimum sum insured applies.
If you change the Adjustable Option to the Level Option, we will increase the
face amount by the policy value on the date of the change. The death benefit
will be the GREATER of:
- The new face amount or
- The guideline minimum sum insured
After the change from the Adjustable Option to the Level Option, an increase in
policy value will reduce the insurance protection amount and the monthly
insurance protection charge. A decrease in policy value will increase the
insurance protection amount and the monthly insurance protection charge.
A change in death benefit option may result in total payments exceeding the then
current maximum payment limitation under federal tax law. If this occurs, we
will pay the excess to you.
A change from the Adjustable Death Benefit option to the Level Benefit option
within five policy years of the Final Payment Date will terminate a Guaranteed
Death Benefit Rider.
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CHANGE IN FACE AMOUNT
You may increase or decrease the face amount by written request. An increase or
decrease in the face amount takes effect on the LATEST of the:
- The monthly processing date on or next following date of receipt of your
written request OR
- The date of approval of your written request, if evidence of insurability
is required
INCREASES -- You must submit with your written request for an increase
satisfactory evidence of insurability. The consent of the Insured is also
required whenever the face amount is increased. An increase in face amount may
not be less than $10,000. You may not increase the face amount after the Insured
reaches age 80. A written request for an increase must include a payment if the
surrender value is less than the sum of:
- $50 PLUS
- Two minimum monthly payments
On the effective date of each increase in face amount, we will deduct a
transaction charge of $50 from policy value for administrative costs. We will
also compute a surrender charge for the increase. An increase in the face amount
will increase the insurance protection amount and, therefore, the monthly
insurance protection charges.
After increasing the face amount, you will have the right, during a free-look
period, to have the increase canceled. See "THE POLICY -- Free-Look Period." If
you exercise this right, we will credit to your Policy the charges deducted for
the increase, unless you request a refund of these charges.
DECREASES -- You may decrease the face amount by written request. The minimum
amount for a decrease in face amount is $10,000. The minimum face amount in
force after a decrease is $40,000. We may limit the decrease or return policy
value to you, as you choose, if the Policy would not comply with the maximum
payment limitation under federal tax law. A return of policy value may result in
tax liability to you.
A decrease in the face amount will lower the insurance protection amount and,
therefore, the monthly insurance protection charge. In computing the monthly
insurance protection charge, a decrease in the face amount will reduce the face
amount in inverse order.
On a decrease in the face amount, we will deduct from the policy value a
transaction charge of $50 and, if applicable, any surrender charge. You may
allocate the deduction to one sub-account. If you make no allocation, we will
make a pro-rata allocation. We will reduce the surrender charge by the amount of
any surrender charge deducted.
POLICY VALUE
The policy value is the total value of your Policy. It is the SUM of:
- Your accumulation in the fixed account PLUS
- The value of your units in the sub-accounts
There is no guaranteed minimum policy value. Policy value on any date depends on
variables that cannot be predetermined.
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Your policy value is affected by the:
- Frequency and amount of your net payments
- Interest credited in the fixed account
- Investment performance of your sub-accounts
- Partial withdrawals
- Loans, loan repayments and loan interest paid or credited
- Charges and deductions under the Policy
- The death benefit option
COMPUTING POLICY VALUE -- We compute the policy value on the date of issue and
on each valuation date. On the date of issue, the policy value is:
- The value of the amount allocated to the money market fund, net of
mortality and expense risks, administrative charges and fund expenses (see
"THE POLICY -- Application for a Policy"), MINUS
- The monthly insurance protection charge due
On each valuation date after the date of issue, the policy value is the SUM of:
- Accumulations in the fixed account PLUS
- The SUM of the PRODUCTS of:
- The number of units in each sub-account TIMES
- The value of a unit in each sub-account on the valuation date
THE UNIT -- We allocate each net payment to the sub-accounts you selected. We
credit allocations to the sub-accounts as units. Units are credited separately
for each sub-account.
The number of units of each sub-account credited to the Policy is the QUOTIENT
of:
- That part of the net payment allocated to the sub-account DIVIDED BY
- The dollar value of a unit on the valuation date the payment is received
at our principal office
The number of units will remain fixed unless changed by a split of unit value,
transfer, partial withdrawal or surrender. Also, each deduction of charges from
a sub-account will result in cancellation of units equal in value to the amount
deducted.
The dollar value of a unit of a sub-account varies from valuation date to
valuation date based on the investment experience of that sub-account. This
investment experience reflects the investment performance, expenses and charges
of the fund in which the sub-account invests. The value of each unit was set at
$1.00 on the first valuation date of each sub-account. The value of a unit on
any valuation date is the PRODUCT of:
- The dollar value of the unit on the preceding valuation date TIMES
- The net investment factor
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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 1.0000 PLUS the QUOTIENT of:
- The investment income of that sub-account for the valuation period,
adjusted for realized and unrealized capital gains and losses and for
taxes during the valuation period, DIVIDED BY
- The value of that sub-account's assets at the beginning of the valuation
period MINUS
- The mortality and expense risk charge for each day in the valuation period
currently at an annual rate of 0.65% of the daily net asset value of that
sub-account AND
- The administrative charge for each day in the valuation period at an
annual rate of 0.15% of the daily net asset value of that sub-account
(only during the first ten Policy years)
The net investment factor may be greater or less than one.
PAYMENT OPTIONS
The net death benefit payable may be paid in a single sum or under one or more
of the payment options then offered by the Company. See "APPENDIX C -- PAYMENT
OPTIONS." These payment options also are available at the final payment date or
if the Policy is surrendered. If no election is made, we will pay the net death
benefit in a single sum.
OPTIONAL INSURANCE BENEFITS
You may add optional insurance benefits to the Policy by Rider, as described in
"APPENDIX B -- OPTIONAL BENEFITS." The cost of certain optional insurance
benefits becomes part of the monthly insurance protection charge.
SURRENDER
You may surrender the Policy and receive its surrender value. The surrender
value is:
- The policy value MINUS
- Any outstanding loan and surrender charges
We will compute the surrender value on the valuation date on which we receive
the Policy with a written request for surrender. We will deduct a surrender
charge if you surrender the Policy within 10 full Policy years of the date of
issue or increase in face amount. See "CHARGES AND DEDUCTIONS -- Surrender
Charge."
The surrender value may be paid in a lump sum or under a payment option then
offered by us. See "APPENDIX C -- PAYMENT OPTIONS." We will normally pay the
surrender value within seven days following our receipt of written request. We
may delay benefit payments under the circumstances described in "OTHER POLICY
PROVISIONS -- Delay of Benefit Payments."
For important tax consequences of a surrender, see "FEDERAL TAX CONSIDERATIONS."
If the Policy is issued in connection with a Section 403(b) Plan, your surrender
rights may be restricted. See "FEDERAL TAX CONSIDERATIONS -- Policies Issued in
Connection with TSA Plans."
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PARTIAL WITHDRAWAL
After the first Policy year, you may withdraw part of the surrender value of
your Policy on written request. Your written request must state the dollar
amount you wish to receive. You may allocate the amount withdrawn among the
sub-accounts and the fixed account. If you do not provide allocation
instructions, we will make a pro-rata allocation. Each partial withdrawal must
be at least $500. Under the Level Option, the face amount is reduced by the
partial withdrawal. We will not allow a partial withdrawal if it would reduce
the Level Option face amount below $40,000.
On a partial withdrawal from a sub-account, we will cancel the number of units
equal in value to the amount withdrawn. The amount withdrawn will be the amount
you requested plus the partial withdrawal costs. See "CHARGES AND DEDUCTIONS
- --Partial Withdrawal Costs." We will normally pay the partial withdrawal within
seven days following our receipt of written request. We may delay payment as
described in "OTHER POLICY PROVISIONS -- Delay of Payments."
For important tax consequences of partial withdrawals, see "FEDERAL TAX
CONSIDERATIONS." If the Policy is issued in connection with a Section 403(b)
Plan, your withdrawal rights may be restricted. See "FEDERAL TAX CONSIDERATIONS
- -- Policies Issued in Connection with TSA Plans."
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, up to the face amount of the Policy, 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 policies) with increases in the tables
for non-standard risks. Interest will not be less than 4.5%.
IF THE PAID-UP INSURANCE OPTION IS ELECTED, THE FOLLOWING POLICY 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 policy value from the fixed account back to
the variable 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 Policy 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 loan. We will transfer the policy value in the variable
account to the fixed account on the date we receive written request to elect the
option.
On election of paid-up insurance, the Policy often will become a modified
endowment contract. If a Policy becomes a modified endowment contract, Policy
loans or surrender will receive unfavorable federal tax treatment. See "FEDERAL
TAX CONSIDERATIONS -- Modified Endowment Policies."
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CHARGES AND DEDUCTIONS
The following charges will apply to your Policy under the circumstances
described. Some of these charges apply throughout the Policy's duration. Other
charges apply only if you choose options under the Policy.
No surrender charges, partial withdrawal charges or front-end sales loads are
imposed, and no commissions are paid where the Policy owner as of the date of
application is within the following class of individuals:
All employees of First Allmerica and its affiliates and subsidiaries located at
First Allmerica's home office (or at off-site locations if such employees are on
First Allmerica's home office payroll); all employees and registered
representatives of any broker-dealer that has entered into a sales agreement
with us or Allmerica Investments, Inc. to sell the Policies and any spouses of
the above persons or any children of the above persons.
PAYMENT EXPENSE CHARGE
Currently, we deduct 4.0% of each payment as a payment expense charge. This
charge includes a:
- Current premium tax deduction of 2.5%
- Current deferred acquisition costs ("DAC tax") deduction of 1.0%
- Front-end sales load of 0.5%
The 2.5% premium tax deduction approximates our average expenses for state and
local premium taxes. Premium taxes vary, ranging from zero to more than 4.0%.
The premium tax deduction is made whether or not any premium tax applies. The
deduction may be higher or lower than the premium tax imposed. However, we do
not expect to make a profit from this deduction. The 1.0% DAC tax deduction
helps reimburse us for approximate expenses incurred from federal taxes for
deferred acquisition costs ("DAC taxes") of the Policies. We deduct the 0.5%
front-end sales load from each payment partially to compensate us for Policy
sales expenses.
We reserve the right to increase or decrease the premium tax deduction or DAC
tax deduction to reflect changes in our expenses for premium taxes or DAC taxes.
The 0.5% front-end sales load will not change, even if sales expenses change.
MONTHLY INSURANCE PROTECTION CHARGES
Before the final payment date, we will deduct a monthly insurance protection
charge from your policy value. This charge is the cost for insurance protection
under the Policy, including optional insurance benefits provided by Rider.
We deduct the monthly insurance protection charge on each monthly processing
date starting with the date of issue. You may allocate monthly insurance
protection charges to one sub-account. If you make no allocation, we will make a
pro-rata allocation. If the sub-account you chose does not have sufficient funds
to cover the monthly insurance protection charges, we will make a pro-rata
allocation. We will deduct no monthly insurance protection charges on or after
the final payment date.
COMPUTING MONTHLY INSURANCE PROTECTION CHARGES -- We designed the monthly
insurance protection charge to compensate us for the anticipated cost of paying
net death benefits under the Policies. The charge is computed monthly for the
initial face amount and for each increase in face amount. Monthly insurance
protection charges can vary.
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For the initial face amount under the Level Option, the monthly insurance
protection charge is the PRODUCT of:
- The insurance protection rate TIMES
- The DIFFERENCE between
- The initial face amount AND
- The policy value (MINUS any Rider charges) at the beginning of the
Policy month
Under the Level Option, the monthly insurance protection charge decreases as the
policy value increases if the guideline minimum sum insured is not in effect.
For the initial face amount under the Adjustable Option, the monthly insurance
protection charge is the PRODUCT of:
- The insurance protection rate TIMES
- The initial face amount
For each increase in face amount under the Level Option, the monthly insurance
protection charge is the PRODUCT of:
- The insurance protection rate for the increase TIMES
- The DIFFERENCE between
- The increase in face amount AND
- Any policy value (MINUS any Rider charges) GREATER than the initial
face amount at the beginning of the Policy month and not allocated to a
prior increase
For each increase in face amount under the Adjustable Option, the monthly
insurance protection charge is the PRODUCT of:
- The insurance protection rate for the increase TIMES
- The increase in face amount
If the guideline minimum sum insured is in effect under either Option, we will
compute a monthly insurance protection charge for that part of the death benefit
subject to the guideline minimum sum insured that exceeds the current death
benefit not subject to the guideline minimum sum insured. This charge is the
PRODUCT of:
- The insurance protection rate for the initial face amount TIMES
- The DIFFERENCE between
- The guideline minimum sum insured AND
- The GREATER of:
- The face amount OR the policy value, if you selected the Level Option
or
- the face amount PLUS the policy value, if you selected the Adjustable
Option
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We will adjust the monthly insurance protection charge for any decreases in face
amount. See "THE POLICY -- Change In Face Amount: Decreases."
INSURANCE PROTECTION RATES -- We base insurance protection rates on the:
- Male, female or blended unisex rate table
- Age and underwriting class of the Insured
- Effective date of an increase or date of any Rider
For unisex Policies, sex-distinct rates do not apply. For the initial face
amount, the insurance protection rates are based on your age at the beginning of
each Policy year. For an increase in face amount or for a Rider, the insurance
protection rates are based on your age on each anniversary of the effective date
of the increase or Rider. We base the current insurance protection rates on our
expectations as to future mortality experience. Rates will not, however, be
greater than the guaranteed insurance protection rates set forth in the Policy.
These guaranteed rates are based on the Commissioners 1980 Standard Ordinary
Mortality Tables, Smoker or Non-Smoker (Mortality Table B for unisex Policies)
and the Insured's sex and age. The Tables used for this purpose set forth
different mortality estimates for males and females and for smokers and
non-smokers. Any change in the insurance protection rates will apply to all
Insureds of the same age, sex and underwriting class whose Policies have been in
force for the same period.
The underwriting class of an Insured will affect the insurance protection rates.
We currently place Insureds into preferred underwriting classes, standard
underwriting classes and non-standard underwriting classes. The underwriting
classes are also divided into two categories: smokers and non-smokers. We will
place an Insured under age 18 at the date of issue in a standard or non-standard
underwriting class. We will then classify the Insured as a smoker at age 18
unless we receive satisfactory evidence that the Insured is a non-smoker. Prior
to the Insured's age 18, we will give you notice of how the Insured may be
classified as a non-smoker.
We compute the insurance protection rate separately for the initial face amount
and for any increase in face amount. However, if the Insured's underwriting
class improves on an increase, the lower insurance protection rate will apply to
the total face amount.
CHARGES AGAINST OR REFLECTED IN THE ASSETS OF THE VARIABLE ACCOUNT
We assess each sub-account with a charge for mortality and expense risks we
assume and, during the first ten Policy years, a charge for administrative
expenses of the variable account. Fund expenses are also reflected in the
variable account.
ADMINISTRATIVE CHARGE -- During the first ten Policy years, we impose a daily
charge at an annual rate of 0.15% of the average daily net asset value in each
sub-account. The charge is to help reimburse us for administrative expenses
incurred in the administration of the variable account and the sub-accounts. It
is not expected to be a source of profit. The administrative functions and
expenses we assume for the variable account and the sub-accounts include:
- Clerical, accounting, actuarial and legal services
- Rent, postage, telephone, office equipment and supplies,
- The expenses of preparing and printing registration statements and
prospectuses (not allocable to sales expense)
- Regulatory filing fees and other fees
We do not assess the administrative charge after the tenth Policy year.
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MORTALITY AND EXPENSE RISK CHARGE -- We impose a daily charge at a current
annual rate of 0.65% of the average daily net asset value of each sub-account.
This charge compensates us for assuming mortality and expense risks for variable
interests in the Policies. The Company may increase this charge, subject to
state and federal law, to an annual rate no greater than 0.80%.
The mortality risk we assume is that Insureds may live for a shorter time than
anticipated. If this happens, we will pay more net death benefits than
anticipated. The expense risk we assume is that the expenses incurred in issuing
and administering the Policies will exceed those compensated by the
administrative charges in the Policies. If the charge for mortality and expense
risks is not sufficient to cover mortality experience and expenses, we will
absorb the losses. If the charge turns out to be higher than mortality and
expense risk expenses, the difference will be a profit to us. If the charge
provides us with a profit, the profit will be available for our use to pay
distribution, sales and other expenses.
FUND EXPENSES -- The value of the units of the sub-accounts will reflect the
investment advisory fee and other expenses of the funds whose shares the
sub-accounts purchase. The prospectuses and statements of additional information
of the Trust, VIP and T. Rowe Price contain more information concerning the fees
and expenses.
No charges are currently made against the sub-accounts for federal or state
income taxes. Should income taxes be imposed, we may make deductions from the
sub-accounts to pay the taxes. See "FEDERAL TAX CONSIDERATIONS."
SURRENDER CHARGE
The Policy's contingent surrender charge is a deferred administrative charge and
a deferred sales charge. The deferred administrative charge is designed to
reimburse us for the administrative costs of product research and development,
underwriting, Policy administration and surrendering the Policy. The deferred
sales charge compensates us for distribution expenses, including commissions to
our representatives, advertising and the printing of prospectuses and sales
literature.
We compute the surrender charge on date of issue and on any increase in face
amount. The surrender charge applies for ten years from date of issue or
increase in face amount. We impose the surrender charge only if, during its
duration, you request a full surrender or a decrease in face amount.
The maximum surrender charge includes a:
- Deferred administrative charge of $8.50 per thousand dollars of the
initial face amount or increase
- Deferred sales charge of 28.5% of payments received or associated with the
increase up to the guideline annual premium for the increase
The maximum surrender charge will not exceed a specified amount per $1,000 of
initial face amount or increase because of state-imposed limits. The maximum
surrender charge is level for the first 24 Policy months and then reduces by
1/96th for the next 96 Policy months, reaching zero at the end of ten Policy
years.
Payments associated with an increase equal that part of the payments made on or
after the increase that are allocated to the increase. We allocate payments
based on relative guideline annual premium payments. For example, assume that
the guideline annual premium is $1,500 before an increase and is $2,000 with the
increase. The policy value on the effective date of the increase would be
allocated 75% ($1,500/$2,000) to the initial face amount and 25% to the
increase. All future payments would also be allocated 75% to the initial face
amount and 25% to the increase.
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If more than one surrender charge is in effect because of one or more increases
in face amount, we will apply the surrender charges in inverse order. We will
apply surrender and partial withdrawal charges (described below) in this order:
- First, the most recent increase
- Second, the next most recent increases, and so on
- Third, the initial face amount.
A surrender charge may be deducted on a decrease in the face amount. On a
decrease, the surrender charge deducted is a fraction of the charge that would
apply to a full surrender. The fraction is the PRODUCT of:
- The decrease DIVIDED by the current face amount TIMES
- the surrender charge
Where a decrease causes a partial reduction in an increase or in the initial
face amount, we will deduct a proportionate share of the surrender charge for
that increase or for the initial face amount.
See "APPENDIX E -- COMPUTING MAXIMUM SURRENDER CHARGES" for examples of how we
compute the maximum surrender charge.
PARTIAL WITHDRAWAL COSTS
For each partial withdrawal, we deduct a transaction fee of 2.0% of the amount
withdrawn, not to exceed $25. This fee is intended to reimburse us for the cost
of processing the withdrawal.
A partial withdrawal charge may also be deducted from policy value. However, in
any Policy year, you may withdraw, without a partial withdrawal charge, up to;
- 10% of the policy value MINUS
- The total of any prior free withdrawals in the same Policy year ("Free 10%
Withdrawal")
The right to make the Free 10% Withdrawal is not cumulative from Policy year to
Policy year. For example, if only 8% of policy value were withdrawn in the
second Policy year, the amount you could withdraw in future Policy years would
not be increased by the amount you did not withdraw in the second Policy year.
We impose the partial withdrawal charge on any withdrawal greater than the Free
10% Withdrawal. The charge is 5.0% of the excess withdrawal up to the surrender
charge. If no surrender charge applies on withdrawal, no partial withdrawal
charge will apply. We will reduce the Policy's outstanding surrender charge by
the partial withdrawal charge deducted, proportionately reducing the deferred
sales and administrative charges. The partial withdrawal charge deducted will
decrease existing surrender charges in inverse order.
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TRANSFER CHARGES
Currently, the first 12 transfers in a Policy year are free. We reserve the
right to limit the number of free transfers in a Policy year to six. After that,
we will deduct a $10 transfer charge from amounts transferred in that Policy
year. We reserve the right to increase the charge, but it will never exceed $25.
This charge reimburses us for the administrative costs of processing the
transfer.
If you apply for automatic transfers, the first automatic transfer counts as one
transfer. Each future automatic transfer is without charge and does not reduce
the remaining number of transfers that may be made without charge.
Each of the following transfers of policy value from the sub-accounts to the
fixed account is free and does not count as one of the 12 free transfers in a
Policy year:
- A conversion within the first 24 months from date of issue or increase
- A transfer to the fixed account to secure a loan
- A reallocation of policy value within 20 days of the date of issue
CHARGE FOR CHANGE IN FACE AMOUNT
For each increase or decrease in face amount, we will deduct a transaction
charge of $50 from policy value to reimburse us for the administrative costs of
the change.
OTHER ADMINISTRATIVE CHARGES
We reserve the right to charge for other administrative costs we incur. While
there are no current charges for these costs, we may impose a charge for:
- Changing net payment allocation instructions
- Changing the allocation of monthly insurance protection charges among the
various sub-accounts and the fixed account
- Providing a projection of values
We do not currently charge for these costs. Any future charge is guaranteed not
to exceed $25 per transaction.
POLICY LOANS
You may borrow money secured by your policy value. The total amount you may
borrow, including any outstanding loan, is the loan value. In the first Policy
year, the loan value is 75% of:
- The policy value MINUS
- Any surrender charges, unpaid monthly insurance protection charges and
outstanding loan interest through the end of the Policy year
After the first Policy year, the loan value is 90% of:
- The policy value MINUS
- Any surrender charges
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There is no minimum loan. We will usually pay the loan within seven days after
we receive the written request. We may delay the payment of loans as stated in
"OTHER POLICY PROVISIONS -- Delay of Payments."
We will allocate the loan among the sub-accounts and the fixed account according
to your instructions. If you do not make an allocation, we will make a pro-rata
allocation. We will transfer policy value in each sub-account equal to the
Policy loan to the fixed account. We will not count this transfer as a transfer
subject to the transfer charge.
Policy value equal to the outstanding loan will earn monthly interest in the
fixed account at an annual rate of at least 6.0% (8.0% for preferred loans). NO
OTHER INTEREST WILL BE CREDITED.
If you are a participant under a Section 403(b) TSA plan and purchased the
Policy in connection with the plan, your Policy loan rights are limited. See
"Policies Issued in Connection with TSA Plans" below, and "FEDERAL TAX
CONSIDERATIONS -- Policies Issued in Connection with TSA Plans."
PREFERRED LOAN OPTION
This option is available to you upon written request after the first Policy
year. It may be revoked by you at any time. A request for a preferred loan after
the Final Payment Date will terminate the optional Guaranteed Death Benefit
Rider.
The preferred loan option is available during Policy years 2-10 only if your
policy value, minus the surrender charge, is $50,000 or more. The option applies
to up to 10% of this amount. After the 10th Policy year, the preferred loan
option is available on all loans or on all or a part of the loan value as you
request. The guaranteed annual interest rate credited to the policy value
securing a preferred loan will be 8%.
There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS").
LOAN INTEREST CHARGED
Interest accrues daily at the annual rate of 8.0%. Interest is due and payable
in arrears at the end of each Policy year or for as short a period as the loan
may exist. Interest not paid when due will be added to the loan amount and bears
interest at the same rate.
REPAYMENT OF OUTSTANDING LOAN
You may pay any loans before Policy lapse. We will allocate that part of the
policy value in the fixed account that secured a repaid loan to the sub-accounts
and fixed account according to your instructions. If you do not make a repayment
allocation, we will allocate policy value according to your most recent payment
allocation instructions. However, loan repayments allocated to the variable
account cannot exceed policy value previously transferred from the variable
account to secure the outstanding loan.
If the outstanding loan exceeds the policy value less the surrender charge, the
Policy will terminate. We will mail a notice of termination to the last known
address of you and any assignee. If you do not make sufficient payment within 62
days after this notice is mailed, the Policy will terminate with no value. See
"POLICY TERMINATION AND REINSTATEMENT." The foreclosure of an outstanding loan
will terminate the optional Guaranteed Death Benefit Rider.
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EFFECT OF POLICY LOANS
Policy loans will permanently affect the policy value and surrender value, and
may permanently affect the death benefit. The effect could be favorable or
unfavorable, depending on whether the investment performance of the sub-accounts
is less than or greater than the interest credited to the policy value in the
fixed account that secures the loan.
We will deduct any outstanding loan from the proceeds payable when the Insured
dies or from a surrender.
POLICIES ISSUED IN CONNECTION WITH TSA PLANS
If your Policy was issued in connection with a TSA plan, Policy loans are
permitted in accordance with the terms of the Policy. However, if a Policy loan
does not comply with the requirements of Code Section 72(p), the TSA plan may
become disqualified and Policy Values may be includible in your current income.
Policy loans must meet the following additional requirements:
- Loans must be repaid within five years, except when the loan is used to
acquire any dwelling unit which within a reasonable time is to be used as
the Policy owner's principal residence.
- All Policy loans must be amortized on a level basis with loan repayments
being made not less frequently than quarterly.
- The sum of all outstanding loan balances for all loans from all of your
TSA plans may not exceed the lesser of:
- $50,000 reduced by the excess (if any) of
- the highest outstanding balance of loans from all of the Policy
owner's TSA plans during the one-year period preceding the date of the
loan, minus
- the outstanding balance of loans from the Policy owner's TSA plans on
the date on which such loan was made;
OR
- 50% of the Policy owner's non-forfeitable accrued benefit in all of
his/her TSA plans, but not less than $10,000.
See "FEDERAL TAX CONSIDERATIONS -- Policies Issued in Connection with TSA
Plans."
A QUALIFIED TAX ADVISER SHOULD BE CONSULTED BEFORE REQUESTING A POLICY LOAN.
POLICY TERMINATION AND REINSTATEMENT
TERMINATION
Unless the Guaranteed Death Benefit Rider is in effect, the Policy will
terminate if:
- Surrender value is insufficient to cover the next monthly insurance
protection charge plus loan interest accrued OR
- Outstanding loan exceeds the policy value less surrender charges
If one of these situations occurs, the Policy will be in default. You will
then have a grace period of 62 days, measured from the date of default, to
pay a premium sufficient to prevent termination. On the date of default, we
will send a notice to you and to any assignee of record. The notice will
state the premium due and the date by which it must be paid.
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Failure to pay a sufficient premium within the grace period will result in
Policy termination. If the Insured dies during the grace period, we will
deduct from the net death benefit any monthly insurance protection charges
due and unpaid through the Policy month in which the Insured dies and any
other overdue charge.
During the first 48 Policy months following the date of issue or an increase
in the face amount, a guarantee may apply to prevent the Policy from
terminating because of insufficient surrender value. This guarantee applies
if, during this period, you pay premiums that, when reduced by partial
withdrawals and partial withdrawal costs, equal or exceed specified minimum
monthly payments. The specified minimum monthly payments are based on the
number of months the Policy, increase in face amount or policy change that
causes a change in the minimum monthly payment has been in force. A policy
change that causes a change in the minimum monthly payment is a change in
the face amount or the addition or deletion of a Rider. Except for the first
48 months after the date of issue or the effective date of an increase,
payments equal to the minimum monthly payment do not guarantee that the
Policy will remain in force.
If the optional Guaranteed Death Benefit Rider is in effect, the Policy will
not lapse regardless of the investment performance of the Variable Account.
See "Guaranteed Death Benefit Rider."
REINSTATEMENT
A terminated Policy may be reinstated within three years of the date of
default and before the final payment date. The reinstatement takes effect on
the monthly processing date following the date you submit to us:
- Written application for reinstatement
- Evidence of insurability showing that the Insured is insurable
according to our underwriting rules and
- A payment that, after the deduction of the payment expense charge, is
large enough to cover the minimum amount payable
Policies which have been surrendered may not be reinstated.
MINIMUM AMOUNT PAYABLE -- If reinstatement is requested when less than 48
monthly insurance protection charges have been paid since the date of issue
or increase in the face amount, you must pay the lesser of:
- The minimum monthly payment for the three months beginning on the date
of reinstatement or
- the SUM of:
- The amount by which the surrender charge on the date of
reinstatement exceeds the policy value on the date of default PLUS
- Monthly insurance protection charges for the three months beginning
on the date of reinstatement
If you request reinstatement more than 48 monthly processing dates from the
date of issue or increase in the face amount, you must pay the sum shown
above without regard to the three months of minimum monthly payments.
SURRENDER CHARGE -- The surrender charge on the date of reinstatement is the
surrender charge that would have been in effect had the Policy remained in
force from the date of issue.
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POLICY VALUE ON REINSTATEMENT -- The policy value on the date of
reinstatement is:
- The net payment made to reinstate the Policy and interest earned from
the date the payment was received at our principal office PLUS
- The policy value less any outstanding loan on the date of default (not
to exceed the surrender charge on the date of reinstatement) MINUS
- The monthly insurance protection charges due on the date of
reinstatement
You may reinstate any outstanding loan.
OTHER POLICY PROVISIONS
POLICY OWNER
The Policy Owner is the Insured unless another Policy owner has been named
in the application or enrollment form. As Policy owner, you are entitled to
exercise all rights under your Policy while the Insured is alive, with the
consent of any irrevocable beneficiary. The consent of the Insured is
required whenever the face amount is increased.
BENEFICIARY
The beneficiary is the person or persons to whom the net death benefit is
payable on the Insured's death. Unless otherwise stated in the Policy, the
beneficiary has no rights in the Policy before the Insured dies. While the
Insured is alive, you may change the beneficiary, unless you have declared
the beneficiary to be irrevocable. If no beneficiary is alive when the
Insured dies, the Policy owner (or the Policy owner's estate) will be the
beneficiary. If more than one beneficiary is alive when the Insured dies, we
will pay each beneficiary in equal shares, unless you have chosen otherwise.
Where there is more than one beneficiary, the interest of a beneficiary who
dies before the Insured will pass to surviving beneficiaries proportionally.
ASSIGNMENT
You may assign a Policy as collateral or make an absolute assignment. All
Policy rights will be transferred as to the assignee's interest. The consent
of the assignee may be required to make changes in payment allocations, make
transfers or to exercise other rights under the Policy. We are not bound by
an assignment or release thereof, unless it is in writing and recorded at
our principal office. When recorded, the assignment will take effect on the
date the written request was signed. Any rights the assignment creates will
be subject to any payments we made or actions we took before the assignment
is recorded. We are not responsible for determining the validity of any
assignment or release.
THE FOLLOWING POLICY PROVISIONS MAY VARY BY STATE.
LIMIT ON RIGHT TO CHALLENGE POLICY
We cannot challenge the validity of your Policy if the Insured was alive
after the Policy had been in force for two years from the date of issue.
Also, we cannot challenge the validity of any increase in the face amount if
the Insured was alive after the increase was in force for two years from the
effective date of the increase.
SUICIDE
The net death benefit will not be paid if the Insured commits suicide, while
sane or insane, within two years from the date of issue. Instead, we will
pay the beneficiary all payments made for the Policy,
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without interest, less any outstanding loan and partial withdrawals. If the
Insured commits suicide, while sane or insane, within two years from any
increase in face amount, we will not recognize the increase. We will pay to
the beneficiary the monthly insurance protection charges paid for the
increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is not correctly stated in the Policy
application or enrollment form, we will adjust benefits under the Policy to
reflect the correct age and sex. The adjusted benefit will be the benefit
that the most recent monthly insurance protection charge would have
purchased for the correct age and sex. We will not reduce the death benefit
to less than the guideline minimum sum insured. For a unisex Policy, there
is no adjusted benefit for misstatement of sex.
DELAY OF PAYMENTS
Amounts payable from the variable account for surrender, partial
withdrawals, net death benefit, Policy loans and transfers may be postponed
whenever:
- The New York Stock Exchange is closed other than customary weekend and
holiday closings
- The SEC restricts trading on the New York Stock Exchange
- The SEC determines an emergency exists, so that disposal of securities
is not reasonably practicable or it is not reasonably practicable to
compute the value of the variable account's net assets
We may delay paying any amounts derived from payments you made by check
until the check has cleared your bank.
We reserve the right to defer amounts payable from the fixed account. This
delay may not exceed six months.
FEDERAL TAX CONSIDERATIONS
The following summary of federal tax considerations is based on our
understanding of the present federal income tax laws as they are currently
interpreted. Legislation may be proposed which, if passed, could adversely
and possibly retroactively affect the taxation of the Policies. This summary
is not exhaustive, does not purport to cover all situations, and is not
intended as tax advice. We do not address tax provisions that may apply if
the Policy owner is a corporation or the trustee of an employee benefit
plan. You should consult a qualified tax adviser to apply the law to your
circumstances.
THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the
Code. We file a consolidated tax return with our parent and affiliates. We
do not currently charge for any income tax on the earnings or realized
capital gains in the variable account. We do not currently charge for
federal income taxes respecting the variable account. A charge may apply in
the future for any federal income taxes we incur. The charge may become
necessary, for example, if there is a change in our tax status. Any charge
would be designed to cover the federal income taxes on the investment
results of the variable account.
Under current laws, the Company may incur state and local taxes besides
premium taxes. These taxes are not currently significant. If there is a
material change in these taxes affecting the variable account, we may charge
for taxes paid or for tax reserves.
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TAXATION OF THE POLICIES
We believe that the Policies described in this Prospectus are life insurance
contracts under Section 7702 of the Code. Section 7702 affects the taxation
of life insurance contracts and places limits on the relationship of the
policy value to the death benefit. As life insurance contracts, the net
death benefits of the Policies are excludable from the gross income of the
beneficiaries. Also, any increase in policy value is not taxable until
received by you or your designee (but see "Modified Endowment Policies").
Federal tax law requires that the investment of each sub-account funding the
Policies is adequately diversified according to Treasury regulations.
Although we do not have control over the investments of the funds, we
believe that the funds currently meet the Treasury's diversification
requirements. We will monitor continued compliance with these requirements.
The Treasury Department has announced that previous regulations on
diversification do not provide guidance concerning the extent to which
Policy owners may direct their investments to divisions of a separate
investment account. Regulations may provide guidance in the future. The
Policies or our administrative rules may be modified as necessary to prevent
a Policy owner from being considered the owner of the assets of the variable
account.
A surrender, partial withdrawal, change in the death benefit option, change
in the face amount, lapse with Policy loan outstanding, or assignment of the
Policy may have tax consequences. Within the first fifteen Policy years, a
distribution of cash required under Section 7702 of the Code because of a
reduction of benefits under the Policy will be taxed to the Policy owner as
ordinary income respecting any investment earnings. Federal, state and local
income, estate, inheritance, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each Insured,
policy owner or beneficiary.
POLICY LOANS
We believe that non-preferred loans received under the Policy will be
treated as an indebtedness of the Policy Owner for federal income tax
purposes. Under current law, these loans will not constitute income for the
Policy Owner while the Policy is in force (but see "Modified Endowment
Policies"). There is a risk, however, that a preferred loan may be
characterized by the Internal Revenue Service ("IRS") as a withdrawal and
taxed accordingly. At the present time, the IRS has not issued any guidance
on whether loans with the attributes of a preferred loan should be treated
differently than a non-preferred loan. This lack of specific guidance makes
the tax treatment of preferred loans uncertain. In the event IRS guidelines
are issued in the future, you may revoke your request for a preferred loan.
Section 264 of the Code restricts the deduction of interest on Policy loans.
Consumer interest paid on Policy loans under an individually owned Policy is
not tax deductible. Generally, no tax deduction for interest is allowed on
Policy 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 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.
POLICIES ISSUED IN CONNECTION WITH TSA PLANS
The Policies may be issued in connection with tax-sheltered annuity ("TSA")
plans of certain public school systems and organizations that are tax exempt
under Section 501(c)(3) of the Code.
A Policy issued in connection with a TSA Plan will be endorsed to reflect
the restrictions under Section 403(b) of the Code. The Policy Owner may
terminate the endorsement at any time. However, the termination of the
endorsement may cause the Policy to fail to qualify under Section 403(b) of
the Code.
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A Policy issued in connection with a TSA Plan may also have limitations on
Policy loans. See "POLICY LOANS -- Policies Issued in Connection with TSA
Plans."
Under the provisions of Section 403(b) of the Code, payments made for
annuity policies purchased for employees under TSA plans are excludable from
the gross income of such employees, to the extent that the aggregate
purchase payments in any year do not exceed the maximum contribution
permitted under the Code. The Company has received a Private Letter Ruling
with respect to the status of the Policies as providing "incidental life
insurance" when issued in connection with TSA plans. In the Private Letter
Ruling, the IRS has taken the position that the purchase of a life insurance
policy by the employer as part of a TSA plan will not violate the
"incidental benefit" rules of Section 403(b) and the regulations thereunder.
The Private Letter Ruling also stated that the use of current or accumulated
contributions to purchase a life insurance policy will not result in current
taxation of the premium payments for the life insurance policy, except for
the current cost of the life insurance protection.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings) may not begin before the employee attains
age 59 1/2, separates from service, dies, or becomes disabled. In the case
of hardship, you may withdraw amounts contributed by salary reduction, but
not the earnings on such amounts. Even though a distribution may be
permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax.
Policy loans are generally permitted in accordance with the terms of the
Policy, but there are certain additional limitations; see "POLICY LOANS --
Policies Issued in Connection with TSA Plans." However, if a Policy loan
does not comply with the requirements of Code Section 72(p), your TSA plan
may become disqualified and Policy values may be includible in current
income.
MODIFIED ENDOWMENT POLICIES
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, a Policy may be considered a
"modified endowment contract" if:
Total payments during the first seven Policy years (or within seven years of
a material change in the Policy) EXCEED
- The total net level payments payable had the Policy provided for
paid-up future benefits after making seven level payments.
If the Policy is considered a modified endowment contract, distributions
(including Policy loans, partial withdrawals, surrenders and assignments)
will be taxed on an "income-first" basis and includible in gross income to
the extent that the surrender value exceeds the policy owner's investment in
the Policy. Any other amounts will be treated as a return of capital up to
the Policy Owner's basis in the Policy. A 10% tax is imposed on that part of
any distribution that is includible in income, unless the distribution is:
- Made after the taxpayer becomes disabled,
- Made after the taxpayer attains age 59 1/2, or
- Part of a series of substantially equal periodic payments for the
taxpayer's life or life expectancy or joint life expectancies of the
taxpayer and beneficiary .
All modified endowment contracts issued by the same insurance company to the
same policy owner during any 12-month period will be treated as a single
modified endowment contract in computing taxable distributions.
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Currently, we review each Policy when payments are received to determine if
the payment will render the Policy a modified endowment contract. If a
payment would so render the Policy, we will notify you of the option of
requesting a refund of the excess payment. The refund process must be
completed within 60 days after the Policy anniversary or the Policy will be
permanently classified as a modified endowment contract.
VOTING RIGHTS
Where the law requires, we will vote fund shares that each sub-account holds
according to instructions received from Policy owners with policy value in
the sub-account. If, under the 1940 Act or its rules, we may vote shares in
our own right, whether or not the shares relate to the Policies, we reserve
the right to do so.
We will provide each person having a voting interest in a fund with proxy
materials and voting instructions. We will vote shares held in each
sub-account for which no timely instructions are received in proportion to
all instructions received for the sub-account. We will also vote in the same
proportion our shares held in the variable account that do not relate to the
Policies.
We will compute the number of votes that a Policy owner has the right to
instruct on the record date established for the fund. This number is the
quotient of:
- Each Policy owner's policy value in the sub-account divided by
- The net asset value of one share in the fund in which the assets of
the sub-account are invested
We may disregard voting instructions Policy owners or the Trustees initiate
in favor of any change in the investment policies or in any investment
adviser or principal underwriter. Our disapproval of any change must be
reasonable. A change in investment policies or investment adviser must be
based on a good faith determination that the change would be contrary to
state law or otherwise is improper under the objectives and purposes of the
funds. If we do disregard voting instructions, we will include a summary of
and reasons for that action in the next report to Policy owners.
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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 of First Allmerica since 1996; Vice President,
Director First Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel, First
Secretary and Counsel Allmerica since 1991
Robert E. Bruce Director and Chief Information Officer of First
Director and Chief Information Allmerica since 1997; Vice President of First Allmerica
Officer since 1995; Corporate Manager, Digital Equipment
Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer of First Allmerica
Director, Vice President and since 1996; Vice President, First Allmerica since 1991
Chief Investment Officer
John F. Kelly Director of First Allmerica since 1996; General Counsel
Director, Vice President and since 1981; Senior Vice President since 1986, and
General Counsel Assistant Secretary, First Allmerica since 1991
J. Barry May Director of First Allmerica since 1996; Director and
Director President, The Hanover Insurance Company since 1996;
Vice President, The Hanover Insurance Company, 1993 to
1996; General Manager, The Hanover Insurance Company
1989 to 1993
James R. McAuliffe Director of First Allmerica since 1996; Director of
Director Citizens Insurance Company of America since 1992;
President since 1994 and CEO since 1996; Vice President,
First Allmerica 1982 to 1994 and Chief Investment
Officer, First Allmerica 1986 to 1994.
John F. O'Brien Director, Chairman of the Board, President and Chief
Director and Chairman of the Executive Officer, First Allmerica since 1989
Board
Edward J. Parry, III Director and Chief Financial Officer of First Allmerica
Director, Vice President, since 1996; Vice President and Treasurer, First
Chief Financial Officer, Allmerica since 1993
and Treasurer
Richard M. Reilly Director of First Allmerica since 1996; Vice President,
Director, President and First Allmerica since 1990; Director, Allmerica
Chief Executive Officer Investments, Inc. since 1990; Director and President,
Allmerica Financial Investment Management Services, Inc.
since 1990
Eric A. Simonsen Director of First Allmerica since 1996; Vice President,
Director and Vice President First Allmerica since 1990; Chief Financial Officer,
First Allmerica 1990 to 1996
Phillip E. Soule Director of First Allmerica since 1996; Vice President,
Director First Allmerica since 1987
</TABLE>
53
<PAGE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect wholly owned subsidiary of First
Allmerica, acts as the principal underwriter and general distributor of the
Policies. Allmerica Investments, Inc. is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). Broker-dealers sell the Policies through their registered
representatives who are appointed by us.
We pay to broker-dealers who sell the Policy commissions based on a commission
schedule. After the date of issue or an increase in Face Amount, commissions
will be 90% of the first-year payments up to a payment amount we established and
4% of any excess. Commissions will be 2% for subsequent payments, plus 0.25% of
unloaned Policy value. 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 sale of the Policies. These services may include the recruitment and
training of personnel, production of promotional literature, and similar
services.
We intend to recoup commissions and other sales expenses through:
- The front-end sales load
- The deferred sales charge
- Investment earnings on amounts allocated under the Policies to the Fixed
Account
Commissions paid on the Policies, including other incentives or payments, are
not charged to Policy owners or to the Variable Account.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Sub-Accounts in return for providing certain services to
Policy owners. Currently, the Company receives service fees with respect to the
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and
Fidelity VIP High Income Portfolio, at an annual rate of 0.10% of the aggregate
net asset value, respectively, of the shares of such Sub-Accounts held by the
Variable Account. With respect to the T. Rowe Price International Stock
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 Variable 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
Sub-Accounts.
REPORTS
We will maintain the records for the Variable Account. We will promptly send you
statements of transactions under your Policy, including:
- Payments
- Changes in Face Amount
- Changes in death benefit option
- Transfers among Sub-Accounts and the Fixed Account
- Partial withdrawals
54
<PAGE>
- Increases in loan amount or loan repayments
- Lapse or termination for any reason
- Reinstatement
We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Policy year. It will also set
forth the status of the death benefit, Policy Value, Surrender Value, amounts in
the Sub-Accounts and Fixed Account, and any Policy loans. We will send you
reports containing financial statements and other information for the Variable
Account, the Trust, VIP and T. Rowe Price as the 1940 Act requires.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Variable Account or its
assets. The Company is not involved in any litigation that is materially
important to its total assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to law, to make additions to, deletions from, or
substitutions for the shares that are held in the Sub-Accounts. We may redeem
the shares of a Fund and substitute shares of another registered open-end
management company, if:
- The shares of the fund are no longer available for investment or
- In our judgment further investment in the Fund would be improper based on
the purposes of the Variable Account or the affected Sub-Account
Where the 1940 Act or other law requires, we will not substitute any shares
respecting a Policy interest in a sub-account without notice to Policy owners
and prior approval of the SEC and state insurance authorities. The variable
account may, as the law allows, purchase other securities for other policies or
allow a conversion between policies on a Policy owner's request.
We reserve the right to establish additional sub-accounts funded by a new fund
or by another investment company. Subject to law, we may, in our sole
discretion, establish new sub-accounts or eliminate one or more sub-accounts.
Shares of the funds are issued to other separate accounts of the Company and its
affiliates that fund variable annuity contracts ("mixed funding"). Shares of the
Portfolios of VIP and T. Rowe Price are also issued to other unaffiliated
insurance companies ("shared funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Policy owners or variable annuity Policy owners. The Company, the Trust, VIP and
T. Rowe Price do not believe that mixed funding is currently disadvantageous to
either variable life insurance Policy owners or variable annuity Policy owners.
The Company and the Trustees will monitor events to identify any material
conflicts among Policy owners because of mixed funding. If the Trustees conclude
that separate funds should be established for variable life and variable annuity
separate accounts, we will bear the expenses.
We may change the Policy to reflect a substitution or other change and will
notify Policy owners of the change. Subject to any approvals the law may
require, the variable account or any sub-accounts may be:
- Operated as a management company under the 1940 Act
- Deregistered under the 1940 Act if registration is no longer required or
- Combined with other sub-accounts or our other separate accounts
55
<PAGE>
FURTHER INFORMATION
We have filed a 1933 Act registration statement for this offering with the SEC.
Under SEC rules and regulations, we have omitted from this Prospectus parts of
the registration statement and amendments. Statements contained in this
Prospectus are summaries of the Policy and other legal documents. The complete
documents and omitted information may be obtained from the SEC's principal
office in Washington, D.C., on payment of the SEC's prescribed fees.
MORE INFORMATION ABOUT THE FIXED ACCOUNT
This Prospectus serves as a disclosure document only for the aspects of the
Policy relating to the variable account. For complete details on the fixed
account, read the Policy itself. The fixed account and other interests in the
general account are not regulated under the 1933 Act or the 1940 Act because of
exemption and exclusionary provisions. The 1933 Act provisions on the accuracy
and completeness of statements made in prospectuses may apply to information on
the fixed part of the Policy and the fixed account. The SEC has not reviewed the
disclosures in this section of the Prospectus.
GENERAL DESCRIPTION
You may allocate part or all of your net payments to accumulate at a fixed rate
of interest in the fixed account. The fixed account is a part of our general
account. The general account is made up of all of our general assets other than
those allocated to any separate account. Allocations to the fixed account become
part of our general account assets and are used to support insurance and annuity
obligations.
FIXED ACCOUNT INTEREST
We guarantee amounts allocated to the fixed account as to principal and a
minimum rate of interest. The minimum interest we will credit on amounts
allocated to the fixed account is 4.0% compounded annually. "Excess interest"
may or may not be credited at our sole discretion. We will guarantee initial
rates on amounts allocated to the fixed account, either as payments or
transfers, to the next Policy anniversary. At each Policy anniversary, we will
credit the then current interest rate to money remaining in the fixed account.
We will guarantee this rate for one year.
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS
If a Policy is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge may be imposed. On a decrease in face
amount, the surrender charge deducted is a fraction of the charge that would
apply to a full surrender. We deduct partial withdrawals from policy value
allocated to the fixed account on a last-in/first out basis.
The first 12 transfers in a Policy year currently are free. After that, we will
deduct a $10 transfer charge for each transfer in that Policy year. The transfer
privilege is subject to our consent and to our then current rules.
Policy loans may also be made from the policy value in the fixed account. We
will credit that part of the policy value that is equal to any outstanding loan
with interest at an effective annual yield of at least 6.0% (8.0% for preferred
loans).
We may delay transfers, surrenders, partial withdrawals, net death benefits and
Policy loans up to six months. However, if payment is delayed for 30 days or
more, we will pay interest at least equal to an effective annual yield of 3.0%
per year for the deferment. Amounts from the fixed account used to make payments
on policies that we or our affiliates issue will not be delayed.
56
<PAGE>
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 of the Allmerica Select Separate Account II of the Company 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
Policies.
FINANCIAL STATEMENTS
Financial Statements for the Company and for the Variable Account are included
in this Prospectus, starting on the next page. The financial statements of the
Company should be considered only as bearing on our ability to meet our
obligations under the Policy. They should not be considered as bearing on the
investment performance of the assets held in the variable account.
57
<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>
BALANCE AT
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT DECEMBER
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS 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 Allmerica Select Separate Account II
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 (Money
Market, Select Aggressive Growth, Select Growth, Select Growth and Income,
Select Income, Select International Equity, Select Capital Appreciation,
Fidelity VIP High Income, Fidelity VIP Equity-Income, Fidelity VIP Growth, and
T. Rowe Price International Stock) constituting Allmerica Select Separate
Account II 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>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT SELECT
MONEY AGGRESSIVE SELECT GROWTH SELECT INTERNATIONAL
MARKET GROWTH GROWTH AND INCOME INCOME EQUITY
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust.......................... $2,639,594 $4,600,140 $4,006,492 $4,259,274 $1,544,600 $ 3,629,102
Investments in shares of Fidelity Variable
Insurance Products
Fund (VIP)................................ -- -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------------
Total assets.............................. 2,639,594 4,600,140 4,006,492 4,259,274 1,544,600 3,629,102
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company............. 58,536 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------------
Net assets................................ $2,581,058 $4,600,140 $4,006,492 $4,259,274 $1,544,600 $ 3,629,102
---------- ---------- ---------- ---------- ---------- -------------
---------- ---------- ---------- ---------- ---------- -------------
Net asset distribution by category:
Variable life policies.................... $2,581,058 $4,600,140 $4,006,492 $4,259,274 $1,544,600 $ 3,629,102
---------- ---------- ---------- ---------- ---------- -------------
---------- ---------- ---------- ---------- ---------- -------------
Units outstanding, December 31, 1997...... 2,286,565 2,679,164 2,121,174 2,426,270 1,265,717 2,569,520
Net asset value per unit, December 31,
1997.................................... $ 1.128793 $1.717006 $ 1.888809 $1.755482 $ 1.220336 $ 1.412366
<CAPTION>
SELECT FIDELITY FIDELITY FIDELITY T. ROWE PRICE
CAPITAL VIP VIP VIP INTERNATIONAL
APPRECIATION HIGH INCOME EQUITY-INCOME GROWTH STOCK
------------ ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust.......................... $ 2,798,827 $ -- $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products
Fund (VIP)................................ -- 1,942,293 3,301,606 2,850,448 --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- 2,314,555
------------ ----------- ------------- ---------- -------------
Total assets.............................. 2,798,827 1,942,293 3,301,606 2,850,448 2,314,555
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company............. -- -- -- -- --
------------ ----------- ------------- ---------- -------------
Net assets................................ $ 2,798,827 $1,942,293 $ 3,301,606 $2,850,448 $ 2,314,555
------------ ----------- ------------- ---------- -------------
------------ ----------- ------------- ---------- -------------
Net asset distribution by category:
Variable life policies.................... $ 2,798,827 $1,942,293 $ 3,301,606 $2,850,448 $ 2,314,555
------------ ----------- ------------- ---------- -------------
------------ ----------- ------------- ---------- -------------
Units outstanding, December 31, 1997...... 1,650,758 1,336,337 1,916,237 1,649,301 1,940,003
Net asset value per unit, December 31,
1997.................................... $ 1.695480 $ 1.453445 $ 1.722961 $ 1.728276 $ 1.193068
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MONEY MARKET SELECT AGGRESSIVE GROWTH
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, FOR THE
------------------- 5/1/95* -------------------- PERIOD 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................. $ 146,135 $ 42,306 $3,310 $ -- $ -- $ --
--------- -------- ----------- --------- --------- -----
EXPENSES:
Mortality and expense risk
fees.................... 17,744 5,083 543 18,928 4,965 104
Administrative expense
fees.................... 4,163 1,192 125 4,440 1,165 24
--------- -------- ----------- --------- --------- -----
Total expenses.......... 21,907 6,275 668 23,368 6,130 128
--------- -------- ----------- --------- --------- -----
Net investment income
(loss).................. 124,228 36,031 2,642 (23,368) (6,130) (128)
--------- -------- ----------- --------- --------- -----
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- -- -- 342,572 90,988 --
Net realized gain (loss)
from sales of
investments............. -- -- -- (801) 13,851 4
--------- -------- ----------- --------- --------- -----
Net realized gain
(loss)................ -- -- -- 341,771 104,839 4
Net unrealized gain
(loss).................. -- -- -- 72,690 26,999 417
--------- -------- ----------- --------- --------- -----
Net realized and
unrealized gain
(loss)................ -- -- -- 414,461 131,838 421
--------- -------- ----------- --------- --------- -----
Net increase (decrease)
in net assets from
operations............ $ 124,228 $ 36,031 $2,642 $ 391,093 $ 125,708 $ 293
--------- -------- ----------- --------- --------- -----
--------- -------- ----------- --------- --------- -----
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, FOR THE DECEMBER 31, FOR THE
-------------------- PERIOD 5/1/95* -------------------- PERIOD 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................. $ 11,566 $ 3,276 $ 14 $ 38,447 $ 8,758 $ 571
--------- --------- ----- --------- --------- -------
EXPENSES:
Mortality and expense risk
fees.................... 15,735 3,176 38 17,679 3,438 115
Administrative expense
fees.................... 3,691 745 9 4,146 807 27
--------- --------- ----- --------- --------- -------
Total expenses.......... 19,426 3,921 47 21,825 4,245 142
--------- --------- ----- --------- --------- -------
Net investment income
(loss).................. (7,860) (645) (33) 16,622 4,513 429
--------- --------- ----- --------- --------- -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 199,778 157,037 -- 351,176 77,803 5,516
Net realized gain (loss)
from sales of
investments............. 19,841 13,278 11 18,494 886 783
--------- --------- ----- --------- --------- -------
Net realized gain
(loss)................ 219,619 170,315 11 369,670 78,689 6,299
Net unrealized gain
(loss).................. 405,886 (87,178) (892) 87,946 24,966 (1,200)
--------- --------- ----- --------- --------- -------
Net realized and
unrealized gain
(loss)................ 625,505 83,137 (881) 457,616 103,655 5,099
--------- --------- ----- --------- --------- -------
Net increase (decrease)
in net assets from
operations............ $ 617,645 $ 82,492 $(914) $ 474,238 $ 108,168 $5,528
--------- --------- ----- --------- --------- -------
--------- --------- ----- --------- --------- -------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INCOME SELECT INTERNATIONAL EQUITY
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................. $ 71,740 $ 27,253 $1,445 $ 79,369 $ 23,190 $ 480
-------- -------- ------ --------- --------- ------
EXPENSES:
Mortality and expense risk
fees.................... 7,062 2,513 63 15,789 3,547 67
Administrative expense
fees.................... 1,657 589 15 3,704 832 15
-------- -------- ------ --------- --------- ------
Total expenses.......... 8,719 3,102 78 19,493 4,379 82
-------- -------- ------ --------- --------- ------
Net investment income
(loss).................. 63,021 24,151 1,367 59,876 18,811 398
-------- -------- ------ --------- --------- ------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- -- -- 111,310 2,758 141
Net realized gain (loss)
from sales of
investments............. 2,433 (472) 140 16,112 654 537
-------- -------- ------ --------- --------- ------
Net realized gain
(loss)................ 2,433 (472) 140 127,422 3,412 678
Net unrealized gain
(loss).................. 28,919 (4,696) 187 (153,589) 116,537 533
-------- -------- ------ --------- --------- ------
Net realized and
unrealized gain
(loss)................ 31,352 (5,168) 327 (26,167) 119,949 1,211
-------- -------- ------ --------- --------- ------
Net increase (decrease)
in net assets from
operations............ $ 94,373 $ 18,983 $1,694 $ 33,709 $ 138,760 $1,609
-------- -------- ------ --------- --------- ------
-------- -------- ------ --------- --------- ------
<CAPTION>
SELECT CAPITAL APPRECIATION FIDELITY VIP HIGH INCOME
FOR THE FOR THE
YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, PERIOD DECEMBER 31, FOR THE
------------------- 5/1/95* ------------------- PERIOD 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................. $ -- $ -- $1,079 $ 33,619 $ 10,369 $ --
--------- -------- ------ --------- -------- -----
EXPENSES:
Mortality and expense risk
fees.................... 10,894 2,261 95 7,324 1,532 58
Administrative expense
fees.................... 2,556 530 22 1,718 359 13
--------- -------- ------ --------- -------- -----
Total expenses.......... 13,450 2,791 117 9,042 1,891 71
--------- -------- ------ --------- -------- -----
Net investment income
(loss).................. (13,450) (2,791) 962 24,577 8,478 (71)
--------- -------- ------ --------- -------- -----
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... -- 869 -- 4,155 2,029 --
Net realized gain (loss)
from sales of
investments............. 3,491 577 2,120 3,387 3,133 48
--------- -------- ------ --------- -------- -----
Net realized gain
(loss)................ 3,491 1,446 2,120 7,542 5,162 48
Net unrealized gain
(loss).................. 302,721 (1,192) 1,002 140,962 14,684 805
--------- -------- ------ --------- -------- -----
Net realized and
unrealized gain
(loss)................ 306,212 254 3,122 148,504 19,846 853
--------- -------- ------ --------- -------- -----
Net increase (decrease)
in net assets from
operations............ $ 292,762 $ (2,537) $4,084 $ 173,081 $ 28,324 $782
--------- -------- ------ --------- -------- -----
--------- -------- ------ --------- -------- -----
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP EQUITY-INCOME FIDELITY VIP GROWTH
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, FOR THE DECEMBER 31, FOR THE
------------------- PERIOD 5/1/95* ------------------- PERIOD 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................. $ 17,528 $ 226 $ 638 $ 8,295 $ 710 $ --
--------- -------- ------ --------- -------- --------------
EXPENSES:
Mortality and expense risk
fees.................... 12,698 2,681 101 12,398 3,400 146
Administrative expense
fees.................... 2,979 629 23 2,908 797 34
--------- -------- ------ --------- -------- --------------
Total expenses.......... 15,677 3,310 124 15,306 4,197 180
--------- -------- ------ --------- -------- --------------
Net investment income
(loss).................. 1,851 (3,084) 514 (7,011) (3,487) (180)
--------- -------- ------ --------- -------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 88,129 6,482 -- 37,128 17,909 --
Net realized gain (loss)
from sales of
investments............. 15,787 1,871 453 11,558 (232) (4,864)
--------- -------- ------ --------- -------- --------------
Net realized gain
(loss)................ 103,916 8,353 453 48,686 17,677 (4,864)
Net unrealized gain
(loss).................. 303,518 59,082 5,154 306,079 45,024 (5,909)
--------- -------- ------ --------- -------- --------------
Net realized and
unrealized gain
(loss)................ 407,434 67,435 5,607 354,765 62,701 (10,773)
--------- -------- ------ --------- -------- --------------
Net increase (decrease)
in net assets from
operations............ $ 409,285 $ 64,351 $6,121 $ 347,754 $ 59,214 $(10,953)
--------- -------- ------ --------- -------- --------------
--------- -------- ------ --------- -------- --------------
<CAPTION>
T. ROWE PRICE INTERNATIONAL STOCK
FOR THE
YEAR ENDED
DECEMBER 31, FOR THE
-------------------- PERIOD 8/23/95*
1997 1996 TO 12/31/95
---------- -------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 21,184 $ 5,584 $ --
---------- -------- -----
EXPENSES:
Mortality and expense risk
fees.................... 10,189 1,629 2
Administrative expense
fees.................... 2,390 382 --
---------- -------- -----
Total expenses.......... 12,579 2,011 2
---------- -------- -----
Net investment income
(loss).................. 8,605 3,573 (2)
---------- -------- -----
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS:
Realized gain
distributions from
portfolio sponsors...... 30,010 3,551 --
Net realized gain (loss)
from sales of
investments............. 101,222 1,101 1
---------- -------- -----
Net realized gain
(loss)................ 131,232 4,652 1
Net unrealized gain
(loss).................. (130,878) 30,684 47
---------- -------- -----
Net realized and
unrealized gain
(loss)................ 354 35,336 48
---------- -------- -----
Net increase (decrease)
in net assets from
operations............ $ 8,959 $ 38,909 $ 46
---------- -------- -----
---------- -------- -----
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET SELECT AGGRESSIVE 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 (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 124,228 $ 36,031 $ 2,642 $ (23,368) $ (6,130) $ (128)
Net realized gain (loss)....... -- -- -- 341,771 104,839 4
Net unrealized gain (loss)..... -- -- -- 72,690 26,999 417
------------ ----------- -------------- ----------- ----------- -------------
Net increase (decrease) in net
assets
from operations.............. 124,228 36,031 2,642 391,093 125,708 293
------------ ----------- -------------- ----------- ----------- -------------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 10,400,201 4,471,372 575,190 1,443,916 824,503 127,557
Terminations................... (13,610) -- -- (21,979) (621) --
Insurance and other charges.... (254,488) -- -- (197,905) (55,229) (2,047)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... (9,939,966) (2,298,619) (521,908) 1,531,211 356,678 77,054
Net increase (decrease) in
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- (215) 200 -- (292) 200
------------ ----------- -------------- ----------- ----------- -------------
Net increase (decrease) in net
assets from capital
transactions................. 192,137 2,172,538 53,482 2,755,243 1,125,039 202,764
------------ ----------- -------------- ----------- ----------- -------------
Net increase (decrease) in net
assets....................... 316,365 2,208,569 56,124 3,146,336 1,250,747 203,057
NET ASSETS:
Beginning of period.............. 2,264,693 56,124 -- 1,453,804 203,057 --
------------ ----------- -------------- ----------- ----------- -------------
End of period.................... $ 2,581,058 $ 2,264,693 $ 56,124 $ 4,600,140 $ 1,453,804 $203,057
------------ ----------- -------------- ----------- ----------- -------------
------------ ----------- -------------- ----------- ----------- -------------
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
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 (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ (7,860) $ (645) $ (33) $ 16,622 $ 4,513 $ 429
Net realized gain (loss)....... 219,619 170,315 11 369,670 78,689 6,299
Net unrealized gain (loss)..... 405,886 (87,178) (892) 87,946 24,966 (1,200)
---------- ---------- ------------ ---------- ---------- ------------
Net increase (decrease) in net
assets
from operations.............. 617,645 82,492 (914) 474,238 108,168 5,528
---------- ---------- ------------ ---------- ---------- ------------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 1,340,830 618,908 126,681 1,270,182 759,907 37,091
Terminations................... (14,477) (609) -- (17,389) -- --
Insurance and other charges.... (185,902) (35,694) (1,374) (206,456) (39,270) (1,281)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... 1,131,454 322,741 4,792 1,519,939 242,706 105,994
Net increase (decrease) in
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- (281) 200 -- (283) 200
---------- ---------- ------------ ---------- ---------- ------------
Net increase (decrease) in net
assets from capital
transactions................. 2,271,905 905,065 130,299 2,566,276 963,060 142,004
---------- ---------- ------------ ---------- ---------- ------------
Net increase (decrease) in net
assets....................... 2,889,550 987,557 129,385 3,040,514 1,071,228 147,532
NET ASSETS:
Beginning of period.............. 1,116,942 129,385 -- 1,218,760 147,532 --
---------- ---------- ------------ ---------- ---------- ------------
End of period.................... $4,006,492 $1,116,942 $ 129,385 $4,259,274 $1,218,760 $ 147,532
---------- ---------- ------------ ---------- ---------- ------------
---------- ---------- ------------ ---------- ---------- ------------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INCOME 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 (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 63,021 $ 24,151 $ 1,367 $ 59,876 $ 18,811 $ 398
Net realized gain (loss)....... 2,433 (472) 140 127,422 3,412 678
Net unrealized gain (loss)..... 28,919 (4,696) 187 (153,589) 116,537 533
----------- --------- ------- ----------- ----------- -------
Net increase (decrease) in net
assets
from operations.............. 94,373 18,983 1,694 33,709 138,760 1,609
----------- --------- ------- ----------- ----------- -------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 605,452 321,729 32,948 1,354,454 680,979 40,124
Terminations................... (12,415) (548) -- (34,908) (636) --
Insurance and other charges.... (100,701) (16,497) (989) (182,904) (45,019) (1,522)
Other transfers from (to) the
General
Account of Allmerica
Financial Life
Insurance and Annuity Company
(Sponsor).................... 314,379 228,418 57,799 1,190,404 444,374 9,740
Net increase (decrease) in
investment by
Allmerica Financial Life
Insurance and
Annuity Company (Sponsor).... -- (225) 200 -- (262) 200
----------- --------- ------- ----------- ----------- -------
Net increase (decrease) in net
assets from
capital transactions......... 806,715 532,877 89,958 2,327,046 1,079,436 48,542
----------- --------- ------- ----------- ----------- -------
Net increase (decrease) in net
assets....................... 901,088 551,860 91,652 2,360,755 1,218,196 50,151
NET ASSETS:
Beginning of period.............. 643,512 91,652 -- 1,268,347 50,151 --
----------- --------- ------- ----------- ----------- -------
End of period.................... $ 1,544,600 $ 643,512 $91,652 $ 3,629,102 $ 1,268,347 $50,151
----------- --------- ------- ----------- ----------- -------
----------- --------- ------- ----------- ----------- -------
<CAPTION>
SELECT CAPITAL APPRECIATION FIDELITY VIP HIGH INCOME
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 (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ (13,450) $ (2,791) $ 962 $ 24,577 $ 8,478 $ (71)
Net realized gain (loss)....... 3,491 1,446 2,120 7,542 5,162 48
Net unrealized gain (loss)..... 302,721 (1,192) 1,002 140,962 14,684 805
----------- --------- -------------- ----------- --------- -------
Net increase (decrease) in net
assets
from operations.............. 292,762 (2,537) 4,084 173,081 28,324 782
----------- --------- -------------- ----------- --------- -------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 1,254,757 652,549 114,192 653,604 325,210 20,148
Terminations................... (13,698) -- -- (25,742) (578) --
Insurance and other charges.... (203,548) (87,458) (1,350) (95,813) (19,247) (1,024)
Other transfers from (to) the
General
Account of Allmerica
Financial Life
Insurance and Annuity Company
(Sponsor).................... 642,641 140,136 6,392 870,165 (34,771) 48,201
Net increase (decrease) in
investment by
Allmerica Financial Life
Insurance and
Annuity Company (Sponsor).... -- (295) 200 -- (247) 200
----------- --------- -------------- ----------- --------- -------
Net increase (decrease) in net
assets from
capital transactions......... 1,680,152 704,932 119,434 1,402,214 270,367 67,525
----------- --------- -------------- ----------- --------- -------
Net increase (decrease) in net
assets....................... 1,972,914 702,395 123,518 1,575,295 298,691 68,307
NET ASSETS:
Beginning of period.............. 825,913 123,518 -- 366,998 68,307 --
----------- --------- -------------- ----------- --------- -------
End of period.................... $ 2,798,827 $ 825,913 $123,518 $ 1,942,293 $ 366,998 $68,307
----------- --------- -------------- ----------- --------- -------
----------- --------- -------------- ----------- --------- -------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
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 (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 1,851 $ (3,084) $ 514 $ (7,011) $ (3,487) $ (180)
Net realized gain (loss)....... 103,916 8,353 453 48,686 17,677 (4,864)
Net unrealized gain (loss)..... 303,518 59,082 5,154 306,079 45,024 (5,909)
----------- --------- --------------- ----------- --------- ------------
Net increase (decrease) in net
assets
from operations.............. 409,285 64,351 6,121 347,754 59,214 (10,953)
----------- --------- --------------- ----------- --------- ------------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 1,217,983 530,169 21,784 1,050,189 673,958 105,504
Terminations................... (24,981) (704) -- (30,496) (105) --
Insurance and other charges.... (154,199) (31,982) (1,452) (192,569) (91,360) (1,719)
Other transfers from (to) the
General
Account of Allmerica
Financial Life
Insurance and Annuity Company
(Sponsor).................... 943,429 225,588 96,282 729,527 88,925 122,660
Net increase (decrease) in
investment by
Allmerica Financial Life
Insurance and
Annuity Company (Sponsor).... -- (268) 200 -- (281) 200
----------- --------- --------------- ----------- --------- ------------
Net increase (decrease) in net
assets from
capital transactions......... 1,982,232 722,803 116,814 1,556,651 671,137 226,645
----------- --------- --------------- ----------- --------- ------------
Net increase (decrease) in net
assets....................... 2,391,517 787,154 122,935 1,904,405 730,351 215,692
NET ASSETS:
Beginning of period.............. 910,089 122,935 -- 946,043 215,692 --
----------- --------- --------------- ----------- --------- ------------
End of period.................... $ 3,301,606 $ 910,089 $122,935 $ 2,850,448 $ 946,043 $215,692
----------- --------- --------------- ----------- --------- ------------
----------- --------- --------------- ----------- --------- ------------
<CAPTION>
T. ROWE PRICE INTERNATIONAL STOCK
YEAR ENDED
DECEMBER 31, PERIOD
----------------------- FROM 8/23/95*
1997 1996 TO 12/31/95
----------- --------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 8,605 $ 3,573 $ (2)
Net realized gain (loss)....... 131,232 4,652 1
Net unrealized gain (loss)..... (130,878) 30,684 47
----------- --------- ------
Net increase (decrease) in net
assets
from operations.............. 8,959 38,909 46
----------- --------- ------
FROM CAPITAL TRANSACTIONS:
Net premiums................... 822,104 520,547 1,590
Terminations................... (11,448) -- --
Insurance and other charges.... (112,458) (22,014) (217)
Other transfers from (to) the
General
Account of Allmerica
Financial Life
Insurance and Annuity Company
(Sponsor).................... 893,491 175,007 39
Net increase (decrease) in
investment by
Allmerica Financial Life
Insurance and
Annuity Company (Sponsor).... -- -- --
----------- --------- ------
Net increase (decrease) in net
assets from
capital transactions......... 1,591,689 673,540 1,412
----------- --------- ------
Net increase (decrease) in net
assets....................... 1,600,648 712,449 1,458
NET ASSETS:
Beginning of period.............. 713,907 1,458 --
----------- --------- ------
End of period.................... $ 2,314,555 $ 713,907 $1,458
----------- --------- ------
----------- --------- ------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
The Allmerica Select Separate Account II (Allmerica Select II) 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 Allmerica Select II are clearly identified and
distinguished from the other assets and liabilities of the Company. Allmerica
Select II cannot be charged with liabilities arising out of any other business
of the Company.
Allmerica Select II is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Allmerica Select II
currently offers eleven 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), 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. The Trust, Fidelity VIP and T. Rowe Price (the
Funds) are open-end, diversified management investment companies registered
under the 1940 Act.
Certain prior year balances have been reclassified to conform with current
year presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Trust, Fidelity VIP, or T. Rowe
Price. 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, or T. Rowe Price at net asset
value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the Code) and files a
consolidated federal income tax return with First Allmerica. The Company
anticipates no tax liability resulting from the operations of Allmerica Select
II. Therefore, no provision for income taxes has been charged against Allmerica
Select II.
SA-8
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, and T. Rowe Price 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:
Money Market......................................... 2,639,594 $ 2,639,594 $ 1.000
Select Aggressive Growth............................. 2,067,479 4,500,034 2.225
Select Growth........................................ 2,212,309 3,688,676 1.811
Select Growth and Income............................. 2,744,378 4,147,562 1.552
Select Income........................................ 1,511,351 1,520,191 1.022
Select International Equity.......................... 2,706,265 3,665,620 1.341
Select Capital Appreciation.......................... 1,649,279 2,496,295 1.697
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income.......................................... 143,026 1,785,841 13.580
Equity-Income........................................ 135,980 2,933,852 24.280
Growth............................................... 76,831 2,505,254 37.100
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock.................................. 181,676 2,414,701 12.740
</TABLE>
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 and the cost of any additional benefits
provided by rider. 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, 1996 and 1995,
these monthly deductions from Sub-Account policy values amounted to $1,886,943,
$443,770, and $12,975, respectively. These amounts are included on the
statements of changes in net assets in Insurance and other charges.
The Company makes a charge of .65% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The mortality and expense risk annual 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 .80% per annum. During the first 10 policy years, the Company
also charges each Sub-Account .15% per annum based on the average daily net
assets of each Sub-Account for administrative expenses. These charges are
deducted in the daily computation of unit values and paid to the Company on a
daily basis.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Allmerica Select II. Broker-dealers sell the policies through their
registered representatives who are appointed by Allmerica Investments.
Commissions are paid to such
SA-9
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
registered representatives by the Company. The current series of policies have a
contingent surrender charge comprised of a deferred administrative charge and a
deferred sales charge. For the years ended December 31, 1997, 1996 and 1995, the
Company received surrender charges of $39,306, $3,838, and $0, respectively.
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 Allmerica Select II satisfies the current
requirements of the regulations, and it intends that Allmerica Select II will
continue to meet such requirements.
NOTE 6 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, Fidelity VIP, and T.
Rowe Price shares by Allmerica Select II during the year ended December 31,
1997, were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
ALLMERICA INVESTMENT TRUST:
Money Market.................................................... $ 13,266,604 $ 13,004,422
Select Aggressive Growth........................................ 3,211,257 136,810
Select Growth................................................... 2,641,572 177,749
Select Growth and Income........................................ 3,163,993 229,919
Select Income................................................... 1,128,693 258,957
Select International Equity..................................... 2,784,893 286,661
Select Capital Appreciation..................................... 1,793,652 126,950
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income..................................................... 1,510,885 79,939
Equity-Income................................................... 2,308,866 236,654
Growth.......................................................... 1,732,838 146,070
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock............................................. 4,126,796 2,496,492
------------ ------------
Totals............................................................ $ 37,670,049 $ 17,180,623
------------ ------------
------------ ------------
</TABLE>
SA-10
<PAGE>
APPENDIX A
GUIDELINE MINIMUM SUM INSURED TABLE
The guideline minimum sum insured is a percentage of the policy value as set
forth below, according to federal tax regulations:
GUIDELINE MINIMUM SUM INSURED
<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Policy 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.
A-1
<PAGE>
APPENDIX B
OPTIONAL INSURANCE BENEFITS
This Appendix provides only a summary of other insurance benefits available by
Rider for an additional charge. For more information, contact your
representative.
WAIVER OF PREMIUM RIDER
This Rider provides that, during periods of total disability continuing more
than four months, we will add to the policy value each month an amount you
selected or the amount needed to pay the monthly insurance protection charges,
whichever is greater. This amount will keep the Policy in force. This benefit is
subject to our maximum issue benefits. Its cost will change yearly.
GUARANTEED INSURABILITY RIDER
This Rider guarantees that insurance may be added at various option dates
without Evidence of Insurability. This benefit may be exercised on the option
dates even if the Insured is disabled.
OTHER INSURED RIDER
This Rider provides a term insurance benefit for up to five Insureds. At present
this benefit is only available for the spouse and children of the primary
Insured. The Rider includes a feature that allows the "other Insured" to convert
the coverage to a flexible premium adjustable life insurance policy.
OPTION TO ACCELERATE BENEFITS ENDORSEMENT
This endorsement allows part of the Policy proceeds to be available before death
if the Insured becomes terminally ill or is permanently confined to a nursing
home.
EXCHANGE OPTION RIDER
This Rider allows you to use the Policy to insure a different person, subject to
our guidelines.
GUARANTEED DEATH BENEFIT RIDER
This Rider, which is available only at issue, (a) guarantees that you Policy
will not lapse regardless of the Performance of the Variable Account and (b)
provides a guaranteed net death benefit.
Certain Riders May Not Be Available In All States
B-1
<PAGE>
APPENDIX C
PAYMENT OPTIONS
PAYMENT OPTIONS
On written request, the surrender value or all or part of any payable net death
benefit may be paid under one or more payment options then offered by the
Company. If you do not make an election, we will pay the benefits in a single
sum. If a payment option is selected, the beneficiary may pay to us any amount
that would otherwise be deducted from the death benefit. A certificate will be
provided to the payee describing the payment option selected.
The amounts payable under a payment option are paid from the general account.
These amounts are not based on the investment experience of the variable
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
the Policy owner and beneficiary provisions, any option selection may be changed
before the net death benefit become payable. If you make no selection, the
beneficiary may select an option when the net death benefit becomes payable.
C-1
<PAGE>
APPENDIX D
ILLUSTRATIONS OF DEATH BENEFIT, POLICY VALUES
AND ACCUMULATED PAYMENTS
The following tables illustrate the way in which the Policy's death benefit and
Policy Value could vary over an extended period of time. ON REQUEST, WE WILL
PROVIDE A COMPARABLE ILLUSTRATION BASED ON THE PROPOSED INSURED'S AGE, SEX, AND
UNDERWRITING CLASS, AND THE REQUESTED FACE AMOUNT, DEATH BENEFIT OPTION AND
RIDERS.
ASSUMPTIONS
The tables illustrate a Policy issued to a male, Age 30, under a standard
Underwriting Class and qualifying for the non-smoker discount, and a Policy
issued to a male, Age 45, under a standard Underwriting Class and qualifying for
the non-smoker discount. In each case, one table illustrates the guaranteed cost
of insurance rates and the other table illustrates the current cost of insurance
rates as presently in effect.
The tables assume that no Policy loans have been made, that you have not
requested an increase or decrease in the initial Face Amount, that no partial
withdrawals have been made, and that no transfers above 12 have been made in any
Policy year (so that no transaction or transfer charges have been incurred).
The tables assume that all premiums are allocated to and remain in the Allmerica
Select II Account for the entire period shown. The tables are based on
hypothetical gross investment rates of return for the Underlying Fund (i.e.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross (after tax) annual rates of 0%, 6%, and 12%. The
second column of the tables show the amount which would accumulate if an amount
equal to the Guideline Annual Premium were invested to earn interest (after
taxes) at 5%, compounded annually.
The Policy Values and Death Proceeds would be different from those shown if the
gross annual investment rates of return averaged 0%, 6%, and 12% over a period
of years, but fluctuated above or below such averages for individual Policy
years. The values also would be different depending on the allocation of the
Policy's total Policy Value among the Sub-Accounts of the Variable 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 in the tables take into account the deduction of the payment
expense charge, the monthly deduction from Policy Value, the daily charge
against the Variable Account for mortality and expense risks and for the
Variable Account administrative charge (for the first ten Policy years). In the
Current Cost of Insurance tables, the Variable Account charges are equivalent to
an effective annual rate of 0.80% of the average daily value of the assets in
the Variable Account in the first ten Policy Years, and 0.65% thereafter. In the
Guaranteed Cost of Insurance Charges tables, the Variable Account charges are
equivalent to an effective annual rate of 0.95% of the average daily value of
the assets in the Variable Account in the first ten Policy Years, and 0.80%
thereafter.
EXPENSES OF THE UNDERLYING FUNDS
The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.95% of the average daily net assets of the Underlying Funds. 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 your Policy may be more or less than 0.95% in
the aggregate, depending upon how you make allocations of Policy 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%
D-1
<PAGE>
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 Select Income
Fund, and 0.60% for the Money Market 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,
the manager has agreed to voluntarily waive its management fee to the extent
that expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's
average daily 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.
NET ANNUAL RATES OF INVESTMENT
Applying the mortality and expense risk charge, the administrative charge, and
the average Fund advisory fees and operating expenses of 0.95% of average net
assets, in the Current Cost of Insurance Charges tables the gross annual rates
of investment return of 0%, 6% and 12% would produce net annual rates of
(-1.75%), 4.25% and 10.25%, respectively, during the first 10 Policy years and
(-1.60%), 4.40% and 10.40%, respectively, after that. In the Guaranteed Cost of
Insurance Charges tables, the gross annual rates of investment return of 0%, 6%
and 12% would produce net annual rates of (-1.90%), 4.10% and 10.10%,
respectively, during the first 10 Policy years and (-1.75%), 4.25% and 10.25%,
respectively, after that.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Variable Account since no charges are currently made.
However, if in the future the charges are made, 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. The
second column of the tables shows the amount that would accumulate if the
guideline annual premium were invested to earn interest, (after taxes) at 5%,
compounded annually.
D-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SELECT VARIABLE LIFE POLICY
AMOUNT = $100,000
SUM INSURED MALE NON-SMOKER AGE 30
FACE OPTION 2
BASED ON CURRENT MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% POLICY POLICY -------------------------------
POLICY PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER POLICY 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 2,100 667 1,744 101,744 777 1,854 101,854 888 1,965 101,965
2 4,305 2,380 3,457 103,457 2,710 3,788 103,788 3,054 4,131 104,131
3 6,620 4,198 5,140 105,140 4,860 5,803 105,803 5,577 6,520 106,520
4 9,051 5,986 6,794 106,794 7,096 7,904 107,904 8,345 9,153 109,153
5 11,604 7,734 8,407 108,407 9,408 10,082 110,082 11,370 12,043 112,043
6 14,284 9,441 9,980 109,980 11,801 12,340 112,340 14,679 15,217 115,217
7 17,098 11,121 11,525 111,525 14,290 14,694 114,694 18,313 18,717 118,717
8 20,053 12,763 13,032 113,032 16,867 17,136 117,136 22,293 22,562 122,562
9 23,156 14,365 14,500 114,500 19,535 19,670 119,670 26,655 26,789 126,789
10 26,414 15,931 15,931 115,931 22,298 22,298 122,298 31,437 31,437 131,437
11 29,834 17,345 17,345 117,345 25,057 25,057 125,057 36,592 36,592 136,592
12 33,426 18,720 18,720 118,720 27,920 27,920 127,920 42,265 42,265 142,265
13 37,197 20,056 20,056 120,056 30,890 30,890 130,890 48,510 48,510 148,510
14 41,157 21,351 21,351 121,351 33,971 33,971 133,971 55,383 55,383 155,383
15 45,315 22,604 22,604 122,604 37,166 37,166 137,166 62,949 62,949 162,949
16 49,681 23,820 23,820 123,820 40,485 40,485 140,485 71,284 71,284 171,284
17 54,265 24,991 24,991 124,991 43,922 43,922 143,922 80,458 80,458 180,458
18 59,078 26,125 26,125 126,125 47,492 47,492 147,492 90,567 90,567 190,567
19 64,132 27,221 27,221 127,221 51,199 51,199 151,199 101,706 101,706 201,706
20 69,439 28,278 28,278 128,278 55,046 55,046 155,046 113,978 113,978 217,698
Age 60 139,522 36,259 36,259 136,259 102,102 102,102 202,102 331,018 331,018 443,564
Age 65 189,673 38,090 38,090 138,090 132,367 132,367 232,367 549,309 549,309 670,157
Age 70 253,680 38,113 38,113 138,113 167,967 167,967 267,967 903,529 903,529 1,048,094
Age 75 335,370 35,266 35,266 135,266 208,864 208,864 308,864 1,480,061 1,480,061 1,583,665
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY 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 POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE FIXED ACCOUNT, NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
D-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT VARIABLE LIFE POLICY
MALE NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $100,000
SUM INSURED OPTION 2
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ------------------------------ ---------------------------- GROSS INVESTMENT RETURN
AT 5% POLICY POLICY -------------------------------
POLICY PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER POLICY 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 2,100 667 1,744 101,744 777 1,854 101,854 888 1,965 101,965
2 4,305 2,380 3,457 103,457 2,710 3,788 103,788 3,054 4,131 104,131
3 6,620 4,198 5,140 105,140 4,860 5,803 105,803 5,577 6,520 106,520
4 9,051 5,986 6,794 106,794 7,096 7,904 107,904 8,345 9,153 109,153
5 11,604 7,734 8,407 108,407 9,408 10,082 110,082 11,370 12,043 112,043
6 14,284 9,441 9,980 109,980 11,801 12,340 112,340 14,679 15,217 115,217
7 17,098 11,121 11,525 111,525 14,290 14,694 114,694 18,313 18,717 118,717
8 20,053 12,763 13,032 113,032 16,867 17,136 117,136 22,293 22,562 122,562
9 23,156 14,365 14,500 114,500 19,535 19,670 119,670 26,655 26,789 126,789
10 26,414 15,931 15,931 115,931 22,298 22,298 122,298 31,437 31,437 131,437
11 29,834 17,345 17,345 117,345 25,057 25,057 125,057 36,592 36,592 136,592
12 33,426 18,720 18,720 118,720 27,920 27,920 127,920 42,265 42,265 142,265
13 37,197 20,056 20,056 120,056 30,890 30,890 130,890 48,510 48,510 148,510
14 41,157 21,351 21,351 121,351 33,971 33,971 133,971 55,383 55,383 155,383
15 45,315 22,604 22,604 122,604 37,166 37,166 137,166 62,949 62,949 162,949
16 49,681 23,820 23,820 123,820 40,485 40,485 140,485 71,284 71,284 171,284
17 54,265 24,991 24,991 124,991 43,922 43,922 143,922 80,458 80,458 180,458
18 59,078 26,125 26,125 126,125 47,492 47,492 147,492 90,567 90,567 190,567
19 64,132 27,221 27,221 127,221 51,199 51,199 151,199 101,706 101,706 201,706
20 69,439 28,278 28,278 128,278 55,046 55,046 155,046 113,978 113,978 217,698
Age 60 139,522 36,259 36,259 136,259 102,102 102,102 202,102 331,018 331,018 443,564
Age 65 189,673 38,090 38,090 138,090 132,367 132,367 232,367 549,309 549,309 670,157
Age 70 253,680 38,113 38,113 138,113 167,967 167,967 267,967 903,529 903,529 1,048,094
Age 75 335,370 35,266 35,266 135,266 208,864 208,864 308,864 1,480,061 1,480,061 1,583,665
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY 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 POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
D-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT VARIABLE LIFE POLICY
MALE NON-SMOKER AGE 45
FACE AMOUNT = $250,000
SUM INSURED OPTION 1
BASED ON CURRENT MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ---------------------------- ----------------------------- GROSS INVESTMENT RETURN
AT 5% POLICY POLICY -------------------------------
POLICY PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER POLICY 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 2,100 664 1,741 101,741 774 1,852 101,852 885 1,962 101,962
2 4,305 2,372 3,449 103,449 2,702 3,779 103,779 3,045 4,122 104,122
3 6,620 4,182 5,124 105,124 4,843 5,785 105,785 5,558 6,501 106,501
4 9,051 5,960 6,768 106,768 7,066 7,874 107,874 8,312 9,120 109,120
5 11,604 7,695 8,369 108,369 9,363 10,036 110,036 11,317 11,990 111,990
6 14,284 9,388 9,927 109,927 11,736 12,275 112,275 14,600 15,138 115,138
7 17,098 11,052 11,455 111,455 14,201 14,605 114,605 18,200 18,604 118,604
8 20,053 12,674 12,943 112,943 16,749 17,019 117,019 22,138 22,407 122,407
9 23,156 14,256 14,391 114,391 19,384 19,519 119,519 26,447 26,582 126,582
10 26,414 15,799 15,799 115,799 22,109 22,109 122,109 31,166 31,166 131,166
11 29,834 17,183 17,183 117,183 24,817 24,817 124,817 36,237 36,237 136,237
12 33,426 18,531 18,531 118,531 27,628 27,628 127,628 41,815 41,815 141,815
13 37,197 19,832 19,832 119,832 30,534 30,534 130,534 47,939 47,939 147,939
14 41,157 21,098 21,098 121,098 33,551 33,551 133,551 54,678 54,678 154,678
15 45,315 22,318 22,318 122,318 36,672 36,672 136,672 62,083 62,083 162,083
16 49,681 23,493 23,493 123,493 39,900 39,900 139,900 70,222 70,222 170,222
17 54,265 24,623 24,623 124,623 43,242 43,242 143,242 79,169 79,169 179,169
18 59,078 25,698 25,698 125,698 46,688 46,688 146,688 88,996 88,996 188,996
19 64,132 26,731 26,731 126,731 50,257 50,257 150,257 99,805 99,805 199,805
20 69,439 27,710 27,710 127,710 53,940 53,940 153,940 111,683 111,683 213,314
Age 60 139,522 33,493 33,493 133,493 96,807 96,807 196,807 317,909 317,909 425,998
Age 65 189,673 32,226 32,226 132,226 121,420 121,420 221,420 520,322 520,322 634,793
Age 70 253,680 25,942 25,942 125,942 145,829 145,829 245,829 840,654 840,654 975,158
Age 75 335,370 11,579 11,579 111,579 165,998 165,998 265,998 1,349,832 1,349,832 1,449,832
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY 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 POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
D-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT VARIABLE LIFE POLICY
MALE NON-SMOKER AGE 45
FACE AMOUNT = $250,000
LEVEL OPTION
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN HYPOTHETICAL 12%
INTEREST ------------------------------- ---------------------------- GROSS INVESTMENT RETURN
AT 5% POLICY POLICY -------------------------------
POLICY PER YEAR SURRENDER VALUE DEATH SURRENDER VALUE DEATH SURRENDER POLICY 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 3,165 250,000 60 3,382 250,000 277 3,599 250,000
2 9,041 2,896 6,223 250,000 3,527 6,854 250,000 4,185 7,512 250,000
3 13,903 6,236 9,147 250,000 7,482 10,393 250,000 8,835 11,746 250,000
4 19,008 9,475 11,970 250,000 11,538 14,033 250,000 13,870 16,365 250,000
5 24,368 12,588 14,667 250,000 15,674 17,753 250,000 19,306 21,385 250,000
6 29,996 15,551 17,214 250,000 19,866 21,530 250,000 25,159 26,823 250,000
7 35,906 18,396 19,643 250,000 24,151 25,398 250,000 31,509 32,756 250,000
8 42,112 21,099 21,931 250,000 28,507 29,338 250,000 38,384 39,216 250,000
9 48,627 23,638 24,054 250,000 32,914 33,330 250,000 45,823 46,239 250,000
10 55,469 25,990 25,990 250,000 37,355 37,355 250,000 53,870 53,870 250,000
11 62,652 27,790 27,790 250,000 41,482 41,482 250,000 62,273 62,273 250,000
12 70,195 29,388 29,388 250,000 45,642 45,642 250,000 71,448 71,448 250,000
13 78,114 30,790 30,790 250,000 49,843 49,843 250,000 81,498 81,498 250,000
14 86,430 31,974 31,974 250,000 54,071 54,071 250,000 92,520 92,520 250,000
15 95,161 32,918 32,918 250,000 58,313 58,313 250,000 104,627 104,627 250,000
16 104,330 33,600 33,600 250,000 62,554 62,554 250,000 117,955 117,955 250,000
17 113,956 33,996 33,996 250,000 66,783 66,783 250,000 132,665 132,665 250,000
18 124,064 34,085 34,085 250,000 70,989 70,989 250,000 148,947 148,947 250,000
19 134,677 33,815 33,815 250,000 75,139 75,139 250,000 167,016 167,016 250,000
20 145,821 33,109 33,109 250,000 79,181 79,181 250,000 187,125 187,125 250,000
Age 60 95,161 32,918 32,918 250,000 58,313 58,313 250,000 104,627 104,627 250,000
Age 65 145,821 33,109 33,109 250,000 79,181 79,181 250,000 187,125 187,125 250,000
Age 70 210,477 21,602 21,602 250,000 97,202 97,202 250,000 324,231 324,231 376,108
Age 75 292,995 0 -12,603 250,000 107,255 107,255 250,000 542,791 542,791 580,786
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient policy value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY 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 POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
D-6
<PAGE>
APPENDIX E
COMPUTING MAXIMUM SURRENDER CHARGES
A separate surrender charge is computed on the date of issue and on each
increase in face amount. The maximum surrender charge is a:
- Deferred administrative charge of $8.50 per $1,000 of initial face amount
(or face amount increase) AND
- Deferred sales charge of 28.5% of payments received up to the guideline
annual premium (GAP)
A further limitation is imposed based on the Standard Non-Forfeiture Law of each
state. The maximum surrender charges at the date of issue and on each increase
in face amount are shown in the table below. During the first two Policy years
following the date of issue or an increase in face amount, the surrender charge
may be less than the maximum. See "CHARGES AND DEDUCTIONS -- Surrender Charge."
The maximum surrender charge is level for the first 24 Policy months, reduces by
1/96th for the next 96 Policy months, reaching zero at the end of ten Policy
years.
The Factors used to compute the maximum surrender charges vary with the issue
age and underwriting class (Smoker) as indicated in the table below.
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT
<TABLE>
<CAPTION>
Age at
issue or Male Male Female Female Unisex Unisex
increase Nonsmoker Smoker Nonsmoker Smoker Nonsmoker Smoker
- --------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
0 N/A 9.44 N/A 9.21 N/A 9.39
1 N/A 9.43 N/A 9.20 N/A 9.38
2 N/A 9.46 N/A 9.23 N/A 9.41
3 N/A 9.49 N/A 9.25 N/A 9.45
4 N/A 9.53 N/A 9.28 N/A 9.48
5 N/A 9.57 N/A 9.31 N/A 9.52
6 N/A 9.62 N/A 9.34 N/A 9.56
7 N/A 9.66 N/A 9.38 N/A 9.61
8 N/A 9.72 N/A 9.41 N/A 9.65
9 N/A 9.77 N/A 9.45 N/A 9.71
10 N/A 9.83 N/A 9.49 N/A 9.76
11 N/A 9.89 N/A 9.53 N/A 9.82
12 N/A 9.95 N/A 9.58 N/A 9.88
13 N/A 10.02 N/A 9.62 N/A 9.94
14 N/A 10.09 N/A 9.67 N/A 10.01
15 N/A 10.16 N/A 9.72 N/A 10.07
16 N/A 10.22 N/A 9.78 N/A 10.13
17 N/A 10.29 N/A 9.83 N/A 10.20
18 9.90 10.36 9.67 9.89 9.85 10.26
19 9.95 10.43 9.72 9.95 9.90 10.33
20 10.00 10.50 9.77 10.01 9.96 10.40
21 10.06 10.58 9.82 10.07 10.01 10.48
22 10.12 10.66 9.88 10.14 10.07 10.55
23 10.19 10.75 9.94 10.21 10.13 10.64
24 10.25 10.84 10.00 10.29 10.20 10.73
25 10.33 10.94 10.06 10.37 10.27 10.82
26 10.41 11.04 10.13 10.46 10.35 10.92
27 10.49 11.16 10.21 10.54 10.43 11.03
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Age at
issue or Male Male Female Female Unisex Unisex
increase Nonsmoker Smoker Nonsmoker Smoker Nonsmoker Smoker
- --------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
28 10.58 11.28 10.28 10.64 10.52 11.15
29 10.68 11.42 10.37 10.74 10.61 11.28
30 10.78 11.56 10.45 10.84 10.71 11.41
31 10.89 11.71 10.54 10.96 10.82 11.55
32 11.00 11.87 10.64 11.07 10.93 11.70
33 11.12 12.03 10.74 11.20 11.05 11.86
34 11.25 12.21 10.85 11.33 11.17 12.03
35 11.39 12.41 10.96 11.47 11.30 12.21
36 11.54 12.61 11.08 11.61 11.44 12.40
37 11.69 12.82 11.21 11.77 11.59 12.60
38 11.85 13.05 11.34 11.93 11.75 12.82
39 12.03 13.29 11.48 12.10 11.92 13.04
40 12.21 13.54 11.63 12.28 12.09 13.28
41 12.40 13.81 11.79 12.46 12.28 13.53
42 12.61 14.09 11.95 12.66 12.47 13.79
43 12.83 14.39 12.12 12.86 12.68 14.07
44 13.06 14.71 12.30 13.07 12.90 14.36
45 13.30 15.04 12.50 13.29 13.14 14.67
46 13.56 15.39 12.70 13.53 13.38 14.99
47 13.84 15.76 12.91 13.78 13.65 15.33
48 14.13 16.16 13.14 14.04 13.93 15.69
49 14.45 16.57 13.38 14.31 14.22 16.08
50 14.78 17.02 13.64 14.60 14.54 16.48
51 15.14 17.49 13.91 14.91 14.88 16.91
52 15.52 17.99 14.20 15.23 15.24 17.37
53 15.92 18.52 14.50 15.57 15.62 17.85
54 16.35 19.08 14.82 15.93 16.03 18.36
55 16.82 19.67 15.17 16.31 16.46 18.90
56 17.31 20.29 15.53 16.71 16.93 19.47
57 17.83 20.96 15.92 17.14 17.42 20.07
58 18.39 21.66 16.34 17.60 17.95 20.70
59 18.99 22.41 16.79 18.09 18.51 21.38
60 19.63 23.20 17.28 18.62 19.11 22.10
61 20.32 24.05 17.80 19.20 19.76 22.87
62 21.06 24.96 18.37 19.81 20.46 23.68
63 21.85 25.92 18.98 20.48 21.20 24.55
64 22.69 26.94 19.63 21.18 22.00 25.47
65 23.60 28.01 20.33 21.94 22.85 26.44
66 24.57 29.15 21.08 22.74 23.77 27.46
67 25.61 30.35 21.88 23.60 24.74 28.54
68 26.73 31.63 22.75 24.52 25.80 29.69
69 27.93 33.00 23.70 25.53 26.93 30.92
70 29.23 34.46 24.74 26.63 28.16 32.24
71 30.64 36.02 25.88 27.83 29.48 33.65
72 32.13 37.70 27.13 29.15 30.90 35.17
73 33.75 39.48 28.48 30.59 32.44 36.79
74 35.49 41.35 29.96 32.13 34.09 38.50
75 37.33 43.32 31.56 33.79 35.85 40.30
76 39.30 45.37 33.29 35.57 37.73 42.18
77 41.40 47.52 35.16 37.48 39.74 44.16
78 43.65 49.76 37.21 39.54 41.91 46.26
79 46.08 52.15 39.45 41.79 44.25 48.51
80 48.73 54.71 41.92 44.25 46.82 50.93
</TABLE>
E-2
<PAGE>
EXAMPLES
For the purposes of these examples, assume that a male, Age 35, non-smoker
purchases a $100,000 Policy. In this example the guideline annual premium
("GAP") equals $1,014.21. His maximum surrender charge is calculated as follows:
Maximum surrender charge per table (11.39 H 100) $1,139.00
During the first two Policy years after the date of issue, the actual surrender
charge is the smaller of the maximum surrender charge and the following sum:
(1) Deferred administrative charge $850.00
($8.50/$1,000 of Face Amount)
(2) Deferred sales charge Varies
(not to exceed 29% of Premiums received, up to one GAP
--------------------
Sum of (1) and (2)
The maximum surrender charge is $1,139.00. All payments are associated with the
initial face amount unless the face amount is increased.
EXAMPLE 1:
Assume the Policy owner surrenders the Policy in the 10th Policy month, having
paid total payments of $900. The surrender charge would be $1,106.50.
EXAMPLE 2:
Assume the Policy owner surrenders the Policy in the 60th month. Also assume
that after the 24th Policy month, the maximum surrender charge decreases by 1/96
per month thereby reaching zero at the end of the 10th Policy year. In this
example, the maximum surrender charge would be $711.88.
E-3
<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.
REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B) PLANS UNDER
THE TEXAS OPTIONAL RETIREMENT PROGRAM.
The Company and its registered separate accounts which fund annuity contracts
issued in connection with Section 403(b) plans have relied (a) on Rule 6c-7
under the 1940 Act with respect to withdrawal restrictions under the Texas
Optional Retirement Program ("Program") and (b) on the "no-action" letter (Ref.
No. IP-6-88) issued on November 28, 1988 to the American Council of Life
Insurance, in applying the withdrawal restrictions of Internal Revenue Code
Section 403(b)(11). The variable life insurance Policies issued by the
Registrant may be issued in connection with Section 403(b) plans ("Plans"), and
would be subject to the same restrictions on redeemability which are applicable
to annuity contracts issued to such Plans. The Company and the Registrant
represent that they will take the following steps in connection with the
issuance of the policies to Section 403(b) plans:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement issued in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosure regarding the redemption restrictions imposed by the
Program and by section 403(b)(11) have been included in sales literature
used in connection with the offer of the Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to
<PAGE>
specifically bring the redemption restrictions imposed by the Program and
by Section 403(b) (11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable contracts to meet the requirements of
the Program or of Section 403(b). Any transfer request not so denied or limited
will be effected as expeditiously as possible.
<PAGE>
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consists 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:
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 October 12, 1993 establishing the Allmerica Select
Separate Account II 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 (Select) are filed herewith.
(d) Commission Schedule is filed herewith.
(e) General Agent's Agreement is filed herewith.
(f) Career Agent Agreement is filed herewith.
(4) Not Applicable.
(5) Policy and Policy riders are filed herewith. 403(b) Life
Insurance Policy Endorsement and Riders are filed herewith.
(6) Articles of Incorporation and Bylaws, as amended, of the Company
were previously filed on October 1, 1995 in Post-Effective
Amendment No. 1 and are incorporated by reference herein.
(7) Not Applicable.
(8) (a) Participation Agreement with Allmerica Investment Trust is
filed herewith.
(b) Participation Agreement with T. Rowe Price International
Series, Inc. is filed herewith.
(c) Participation Agreement with Variable Insurance Products
Fund, as amended, is filed herewith.
(d) Fidelity Service Agreement, effective as of November 1,
1995, was previously filed on April 30, 1996 in
Post-Effective Amendment No. 2 and is incorporated by
reference herein.
<PAGE>
(e) An Amendment to the Fidelity Service Agreement, effective as
of January 1, 1997, was previously filed on May 1, 1997 in
Post-Effective Amendment No. 3 and is incorporated by
reference herein.
(f) Fidelity Service Contract, effective as of January 1, 1997,
was previously filed on May 1, 1997 in Post-Effective
Amendment No. 3 and is incorporated by reference herein.
(g) Service Agreement with Rowe-Price Fleming International,
Inc. is filed herewith.
(h) BFDS Agreements for lockbox and mailroom services are filed
herewith.
(9) Not Applicable.
(10) Application is filed herewith.
2. Policy and Policy riders are included in Exhibit 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 July, 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.
ALLMERICA SELECT SEPARATE ACCOUNT II
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
John F. O'Brien the Board
/s/ Bruce C. Anderson
- ----------------------- Director
Bruce C. Anderson
/s/ Robert E. Bruce
- ----------------------- Director and Chief Information
Robert E. Bruce Officer
/s/ John P. Kavanaugh
- ----------------------- Director, Vice President and
John P. Kavanaugh Chief Investment Officer
/s/ John F. Kelly
- ----------------------- Director, Vice President and
John F. Kelly General Counsel
/s/ J. Barry May
- ----------------------- Director
J. Barry May
/s/ James R. McAuliffe
- ----------------------- Director
James R. McAuliffe
/s/ Edward J. Parry III
- ----------------------- Director, Vice President, Chief
Edward J. Parry III Financial Officer and Treasurer
/s/ Richard M. Reilly
- ----------------------- Director, President and
Richard M. Reilly Chief Executive Officer
/s/ Eric A. Simonsen
- ----------------------- Director and Vice President
Eric A. Simonsen
/s/ Phillip E. Soule
- ----------------------- Director
Phillip E. Soule
<PAGE>
FORM S-6 EXHIBIT TABLE
Exhibit 1(1) Certified copy of Resolutions 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) Commission Schedule
Exhibit 1(3)(e) General Agent's Agreement
Exhibit 1(3)(f) Career Agent Agreement
Exhibit 1(5) Policy and Policy Riders
Exhibit 1(8)(a) Participation Agreement with Allmerica Investment Trust
Exhibit 1(8)(b) Participation Agreement with T. Rowe Price International
Series, Inc.
Exhibit 1(8)(c) Participation Agreement with Variable Insurance Products
Fund
Exhibit 1(8)(g) Service Agreement with Rowe-Price Fleming International,
Inc.
Exhibit 1(8)(h) BFDS Agreements
Exhibit 1(10) Application
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
<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 October 12, 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 Allmerica Select Separate Account II ("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.
- 2 -
<PAGE>
10. Each party hereto agrees to furnish any other state insurance commissioner
or regulatory authority with jurisdiction over the contracts with any
information or reports in connection with services provided under this
Agreement which may be requested in order to ascertain whether the variable
insurance product operations of the Company are being conducted in a manner
consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. The initial Accounts covered by this Agreement are set forth in Appendix A.
This Agreement, including Appendix A, may be amended at any time by mutual
consent of the parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ David J. Mueller
-------------------------------------
Title: Vice President
ALLMERICA INVESTMENTS, INC.
By: /s/ Thomas P. Cunningham
-------------------------------------
Title: Vice President
- 3 -
<PAGE>
Appendix A
SEPARATE ACCOUNTS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
AS OF SEPTEMBER 1, 1997
VEL Account
VEL II Account
Inheiritage Account
Allmerica Select Separate Account II
Group VEL Account
Fulcrum Variable Life Separate Account
Separate Account VA-K
Separate Account VA-P
Allmerica Select Separate Account
Separate Account KG
Separate Account KGC
Fulcrum Separate Account
- 4 -
<PAGE>
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 SELECT
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 the "Broker-Dealer").
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints the Broker-Dealer to solicit applications for the
sale of Contracts. The 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 the Broker-Dealer
who are licensed as life insurance agents in those jurisdictions in which
applications for the sale of Contracts are to be solicited and who are also
duly registered with the National Association of Securities Dealers, Inc.
(herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
INDEPENDENT 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 the Broker-Dealer or any Registered Representative. The
Broker-Dealer and each Registered Representatives will be free to exercise
their independent judgment as to the time, place and manner of solicitation
and servicing of business underwritten by the Insurance Companies. However,
the Broker-Dealer and Registered
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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 Insurance Companies.
LIMITATIONS OF AUTHORITY
SECTION 2. The Broker-Dealer and Registered Representatives will have no
authority to accept risks of any kind; to make, alter or discharge Contracts;
to waive forfeitures or exclusions; to alter or amend any papers received
from either Insurance Company; to deliver any life insurance Contract or any
document, agreement or endorsement changing the amount of insurance coverage
if the 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. The Broker-Dealer is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by the 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. Until
Contracts of First Allmerica are offered for sale, applications for
appointments shall only be made on behalf of Allmerica Financial Life.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative or firm who has been appointed by
the Insurance Companies.
AGREEMENTS BY BROKER-DEALER
SECTION 4. The Broker-Dealer agrees that at all times when performing its
duties under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
The 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 the Broker-Dealer intends to perform hereunder.
The 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. The Broker-Dealer
agrees to offer the Contracts for sale through its Registered Representatives
and to offer such Contracts only in accordance with the
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prospectus. The 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.
The Broker-Dealer agrees that it shall be fully responsible for ensuring 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.
The 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.
The 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.
The Broker-Dealer agrees that Registered Representatives shall conduct their
business with respect to the Contracts at all times in compliance with all
applicable federal and state laws and regulations and shall be subject to a
standard of conduct including, but not limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit for the sale of Contracts
without delivering the then currently effective prospectus for such
Contracts and any then applicable amendments or supplements thereto,
including the current prospectus(es) for any fund(s) in which Contract
separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
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AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered Broker-Dealer under the '34 Act and be
a member in good standing of the NASD.
During the term of this Agreement, Allmerica will provide to, or cause to be
provided to, the 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 the Broker-Dealer may reasonably request.
Upon termination of the Agreement, any prospectuses, applications, and other
materials and supplies furnished by Allmerica to the Broker-Dealer shall be
promptly returned to Allmerica.
Allmerica agrees to promptly notify the Broker-Dealer of newly declared
effective prospectus(es) for the Contracts and any amendments or supplements
thereto.
Allmerica agrees to keep the Broker-Dealer informed of all jurisdictions in
which the Insurance Companies are licensed to sell the Contracts and in which
the Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. The Broker-Dealer will submit, or cause to be submitted, directly
to the Principal Office of the Insurance Companies all Contract applications
solicited by its Registered Representatives. The Broker-Dealer will deliver,
or cause to be delivered, within 10 days of the date of issue all Contracts
issued on applications submitted by the Broker-Dealer or its Registered
Representatives. The Broker-Dealer will promptly return, or cause to be
returned, to the Insurance Companies any Contract which is declined by the
applicant or which cannot be delivered within the time permitted by the
Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. The Broker-Dealer nor any Registered Representatives will not
furnish any prospective Contract owner with an illustration of the financial
or other aspects of a Contract or a proposal for a Contract unless the same
has been either furnished by the Insurance Companies or prepared from
computer software or other material furnished or approved by the Insurance
Companies. Any illustration or proposal will conform to standards of
completeness and accuracy established by the Insurance Companies. If the
proposal or illustration was not furnished by the Insurance Companies, the
Broker-Dealer will retain in its records for availability to the Insurance
Companies a copy thereof or the means to duplicate the same. Any computer
software or materials furnished by either Insurance Company will be and
remain its property.
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies, the
Broker-Dealer will account for and remit immediately to the Principal Office
of the Insurance Companies all funds received or collected for or on behalf
of either Insurance Company without deduction for any commissions, or other
claim the Broker-Dealer or the Registered Representative may have against
either Insurance
4
<PAGE>
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. The 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 the Broker-Dealer or of any
affiliate of the Broker-Dealer, or any officer, director, employee of the
Broker-Dealer or any of its Registered Representatives, including but not
limited to, any fines, penalties, attorney's fees, costs of settlement,
damages or financial loss. The 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 the Broker-Dealer under this Agreement, any monies paid on any
liability incurred by Allmerica or the Insurance Companies by reason of any
such act or omission of the Broker-Dealer, or any affiliate of the
Broker-Dealer, or of any officer, director, employee of the Broker-Dealer or
of its Registered Representatives.
Allmerica shall indemnify and hold the 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, 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 to the affected
Insurance Company within 30 days of receipt of a written request for payment.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises a right to
surrender a Contract for return of all payments made, the Broker-Dealer will
repay the appropriate Insurance Company the amount of any commissions
received on the payments returned within 10 days of a receipt of a written
request for repayment.
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<PAGE>
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay the Broker-Dealer commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts the
Broker-Dealer agrees to pay its Registered Representatives. Commission
payments will be made for each Contract issued pursuant to an application
solicited by duly appointed Registered Representatives.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon the 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 the Broker-Dealer.
Whether or not there is a breach of this Agreement, the Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT 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.
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica to
enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will immediately
make this Agreement void and be a release to Allmerica and to the Insurance
Companies in full of any and all of their obligations hereunder.
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RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 10 days after the
notice is given to the Broker-Dealer. However, the requirement to give
advance notice shall not apply if the change becomes necessary or expedient
by reason of legislation or the requirements of any governmental body and, in
the opinion of Allmerica, it is not reasonably possible to meet the 10 day
requirement. Changes will not be retroactive and will apply only to life
insurance coverage solicited or annuity payments made on or after the
effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. The Broker-Dealer and Allmerica agree to cooperate fully in any
customer complaint, insurance or securities regulatory proceeding or judicial
proceeding with respect to the Broker-Dealer, Allmerica, the Insurance
Companies, their affiliates or a Registered Representative 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) The Broker-Dealer will be notified promptly by Allmerica or the Insurance
Companies of any written customer complaint or notice of any regulatory
proceeding or judicial proceeding of which they become aware including the
Broker-Dealer or any Registered Representative of the Broker-Dealer which
may be related to the issuance of any Contract marketed under this
Agreement. The Broker-Dealer will promptly notify Allmerica of any written
customer complaint, or notice of any regulatory proceeding or judicial
proceeding received by the Broker-Dealer including the Broker-Dealer or any
of its Registered Representatives which may be related to the issuance of
any Contract marketed under this Agreement or any activity in connection
with any such Contract(s).
(b) In the case of a customer complaint specified above, the Broker-Dealer,
Allmerica and the Insurance Companies will cooperate in investigating such
complaint and any proposed response to such complaint will be sent to the
other parties to this Agreement for approval not less than five business
days prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed response
shall be communicated by telephone or facsimile transmission.
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of the Broker-Dealer and of any company or person
affiliated with Broker-Dealer, and the names and addresses of any Registered
Representatives of the Broker-Dealer which may come to the attention of
Allmerica exclusively as a
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result of its relationship with the Broker-Dealer or any affiliated company
and not from any independent source, are confidential and shall not be used
by Allmerica, the Insurance Companies, or any company or person affiliated
with Allmerica or the Insurance Companies, nor divulged to any party for any
purpose whatsoever, except as may be necessary in connection with the
administration and marketing of the Contracts sold by or through the
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 the Broker-Dealer, any company
affiliated with Allmerica or any manager, agency, or broker of such company,
or any securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of the Broker-Dealer or of any
affiliated companies which is derived exclusively as a result of the
relationships created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of the Broker-Dealer if the names of said
Registered Representatives were obtained from independent sources and not
exclusively as a result of Allmerica's relationship with the Broker-Dealer;
(ii) from entering into separate sales agreements with Registered
Representatives of the Broker-Dealer upon the request and at the initiation
of said Registered Representatives; or (iii) divulging the names and
addresses of any such customers, prospective customers, Registered
Representatives, or other companies or persons described in the preceding
paragraph in connection with any customer complaint or insurance or
securities regulatory proceeding described in Section 18.
BONDING
SECTION 20. The Broker-Dealer agrees to furnish such bond or bonds as Allmerica
may require. Upon failure or inability of the Broker-Dealer to obtain or renew
any such bonds, this Agreement shall terminate at Allmerica's discretion upon
notice by Allmerica.
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
the Broker-Dealer, if delivered or mailed postage prepaid to the intended
recipient's principal place of business.
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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 the
Broker-Dealer and Allmerica and the Insurance Companies, or any of them,
relating to the solicitation of Contracts. It is hereby understood and
agreed that any other agreement or representation, commitment, promise or
statement of any nature, whether oral or written, relating to or purporting
to relate to the relationship of the parties is hereby rendered null and
void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
For: _________________________________ For: Allmerica Investments, Inc.
Name of Broker-Dealer
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
Date:_______________________________ Date:______________________________
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SALES
AGREEMENT ALLMERICA SELECT
ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica"), _________
__________________________________________________________________________, a
_____________________________ corporation (herein the "Broker-Dealer") and
the affiliates of Broker-Dealer listed on Exhibit "A" attached hereto, each
affiliate being referred to herein as a "General Agent".
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints each General Agent to solicit applications for the
sale of Contracts. Each General Agent accepts this appointment and each
General Agent and the Broker-Dealer agree to the terms and conditions set
forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with each General Agent
and the Broker-Dealer who are licensed as life insurance agents in those
jurisdictions in which applications for the sale of Contracts are to be
solicited and who are also duly registered with the National Association of
Securities Dealers, Inc. (herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
INDEPENDENT CONTRACATOR 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 any General Agent, the Broker-Dealer or any Registered
Representative. General Agents and Registered Representatives will be free
to exercise their independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the Insurance
Companies. However, General Agents, the Broker-Dealer and
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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 Insurance Companies.
LIMITATIONS ON AUTHORITY
SECTION 2. General Agents, the Broker-Dealer and Registered Representatives
will have no authority to accept risks of any kind; to make, alter or
discharge Contracts; to waive forfeitures or exclusions; to alter or amend
any papers received from either Insurance Company; to deliver any life
insurance Contract or any document, agreement or endorsement changing the
amount of insurance coverage if the General Agent, the Broker-Dealer or the
soliciting Registered Representative know or have reason to believe that the
insured is uninsurable; or to accept any payment unless the payment meets the
minimum payment requirement for the Contract established by the Insurance
Company.
LICENSING AND REGISTRATION
SECTION 3. Each General Agent is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by a General Agent shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives. Until
Contracts of First Allmerica are offered for sale, applications for
appointments shall only be made on behalf of Allmerica Financial Life.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative who has been appointed by the
Insurance Companies.
AGREEMENTS BY GENERAL AGENT AND BROKER-DEALER
SECTION 4. The Broker-Dealer agrees that at all times when performing its
duties under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Each General Agent agrees that at all times when performing its duties under
this Agreement it shall be duly licensed to sell Contracts in each
jurisdiction in which General Agent intends to perform hereunder.
Each General Agent and the Broker-Dealer shall be responsible for carrying
out their sales and administrative obligations under this Agreement in
continued compliance with the NASD Rules of Fair Practice, federal and state
securities laws and regulations, and state insurance laws and regulations.
Each General Agent and the Broker-Dealer agree to offer the Contracts for
sale through their Registered Representatives and to offer such Contracts
only in accordance with the prospectus. General Agents, the Broker-Dealer
and Registered Representatives are not authorized
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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.
Each General Agent and the Broker-Dealer agree that they shall be fully
responsible for ensuring that no person shall offer or sell Contracts on
their behalf until such person is appropriately licensed, registered or
otherwise qualified to offer and sell such Contracts under the state and
federal securities laws and the insurance laws of each jurisdiction in which
such person intends to solicit.
Each General Agent and the Broker-Dealer agree to train, supervise and be
solely responsible for the conduct of their Registered Representatives in the
solicitation and sale of the Contracts and for the supervision as to their
strict compliance with Allmerica's rules and procedures, the NASD rules of
Fair Practice, and applicable rules and regulations of any other governmental
or other agency that has jurisdiction over the offering for sale of the
Contracts.
Each General Agent and the Broker-Dealer shall take reasonable steps to
ensure that their Registered Representatives shall not make recommendations
to an applicant to purchase a Contract in the absence of reasonable grounds
to believe that the purchase of such Contract is suitable for such applicant.
Such determination will be based upon, but will not be limited to,
information furnished to a Registered Representative after reasonable inquiry
of such applicant concerning the applicant's insurance and investment
objectives, financial situation and needs.
Each General Agent and the Broker-Dealer agree that Registered
Representatives shall conduct their business with respect to the Contracts at
all times in compliance with all applicable federal and state laws and
regulations and shall be subject to a standard of conduct including, but not
limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit for the sale of Contracts
without delivering the then currently effective prospectus for such
Contracts and any then applicable amendments or supplements thereto,
including the current prospectus(es) for any fund(s) in which Contract
separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered broker-dealer under the '34 Act and be
a member in good standing of the NASD.
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During the term of this Agreement, Allmerica will provide to, or cause to be
provided to, each General Agent and the Broker-Dealer, without charge, as
many copies of the prospectus(es) for the Contracts (and any amendments, or
supplements thereto), the current prospectus(es) for any underlying fund(s)
and applications for the Contracts as each General Agent and the
Broker-Dealer may reasonably request. Upon termination of the Agreement, any
prospectuses, applications, and other materials and supplies furnished by
Allmerica to General Agents and the Broker-Dealer shall be promptly returned
to Allmerica.
Allmerica agrees to promptly notify each General Agent and the Broker-Dealer
of newly declared effective prospectus(es) for the Contracts and any
amendments or supplements thereto.
Allmerica agrees to keep each General Agent and the Broker-Dealer informed of
all jurisdictions in which the Insurance Companies are licensed to sell the
Contracts and in which the Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Each General Agent or the Broker-Dealer will submit, or cause to
be submitted, directly to the Principal Office of the Insurance Companies all
Contract applications solicited by their Registered Representatives. Each
General Agent or the Broker-Dealer will deliver, or cause to be delivered,
within 10 days of the date of issue all Contracts issued on applications
submitted by the General Agent, the Broker-Dealer or their Registered
Representatives. Each General Agent or the Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. General Agents, the Broker-Dealer and Registered Representatives
will not furnish any prospective Contract owner with an illustration of the
financial or other aspects of a Contract or a proposal for a Contract unless
the same has been either furnished by the Insurance Companies or prepared
from computer software or other material furnished or approved by the
Insurance Companies. Any illustration or proposal will conform to standards
of completeness and accuracy established by the Insurance Companies. If the
proposal or illustration was not furnished by the Insurance Companies, each
General Agent or the Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies, each
General Agent and the Broker-Dealer will account for and remit immediately to
the Principal Office of the Insurance Companies all funds received or
collected for or on behalf of either Insurance Company without deduction for
any commissions, or other claim the General Agent, the Broker-Dealer or any
Registered Representative may have against either Insurance Company or
Allmerica and will make such reports and file such
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substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Each General Agent and the Broker-Dealer, jointly and severally,
shall indemnify and hold Allmerica and the Insurance Companies and their
officers, directors and employees harmless from any liability arising from
any act or omission of the General Agent, the Broker-Dealer or of any
affiliate of the Broker-Dealer, or any officer, director, employee of the
General Agent or the Broker-Dealer or of their Registered Representatives,
including but not limited to, any fines, penalties, attorney's fees, costs of
settlement, damages or financial loss. Each General Agent and the
Broker-Dealer expressly authorize Allmerica and the Insurance Companies,
without precluding them from exercising any other remedy they may have, to
charge against all compensation due or to become due to the General Agent or
the Broker-Dealer under this Agreement, any monies paid on any liability
incurred by Allmerica or the Insurance Companies by reason of any such act or
omission of any General Agent, the Broker-Dealer, any affiliate of the
Broker-Dealer, or of any officer, director, employee of a General Agent or
the Broker-Dealer or of their Registered Representatives.
Allmerica shall indemnify and hold each General Agent and the Broker-Dealer
and their officers, directors, employees and registered representatives
harmless from any liability arising from any act or omission of Allmerica,
the Insurance Companies or any affiliate of Allmerica or any of the Insurance
Companies (collectively the "Allmerica Companies"), or any officer, director
or employee of the Allmerica Companies, including but not limited to, any
fines, penalties, reasonable attorney's fees, costs of settlement, damages or
financial loss.
The indemnifications provided by this Section shall survive termination of
this Agreement.
If a Contract is not delivered to the Contract owner within 10 days of the
date of issue of the Contract and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was
due to the inaction or negligence of a General Agent, the Broker-Dealer or a
Registered Representative, the difference between the payments refunded and
the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the
Insurance Company by the offending General Agent or the Broker-Dealer in any
case where the cash value is less than the payments refunded. Any such
reimbursement shall be paid to the affected Insurance Company within 30 days
of receipt of a written request for payment.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises a right to
surrender a Contract for return of all payments made, the soliciting General
Agent or the Broker-Dealer will repay the appropriate Insurance Company the
amount of any
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commissions received on the payments returned within 10 days of receipt of a
written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay each General Agent commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts the
General Agent agrees to pay its Registered Representatives. Commission
payments will be made for each Contract issued pursuant to an application
solicited by duly appointed Registered Representatives.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon any General Agent's or the Broker-Dealer's ceasing to
comply with any of the terms and conditions of this Agreement or upon the
dissolution, bankruptcy or insolvency of a General Agent or the Broker-Dealer.
Whether or not there is a breach of this Agreement, the Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT OF SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica to
enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will immediately
make this Agreement
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void and be a release to Allmerica and to the Insurance Companies in full of
any and all of their obligations hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 10 days after the
notice is given to each General Agent and the Broker-Dealer. However, the
requirement to give advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the requirements of any
governmental body and, in the opinion of Allmerica, it is not reasonably
possible to meet the 10 day requirement. Changes will not be retroactive and
will apply only to life insurance coverage solicited or annuity payments made
on or after the effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Each General Agent, the Broker-Dealer and Allmerica agree to
cooperate fully in any customer complaint, insurance or securities regulatory
proceeding or judicial proceeding with respect to the General Agent, the
Broker-Dealer, Allmerica, the Insurance Companies, their affiliates or their
Registered Representatives to the extent that such customer complaint or
proceeding is in connection with Contracts marketed under this Agreement. To
the extent required, Allmerica will arrange for the Insurance Companies to
cooperate in any such complaint or proceeding. Without limiting the
foregoing:
(a) General Agents and the Broker-Dealer will be notified promptly by
Allmerica or the Insurance Companies of any written customer complaint or
notice of any regulatory proceeding or judicial proceeding of which they
become aware including the General Agent, the Broker-Dealer or any
Registered Representative which may be related to the issuance of any
Contract marketed under this Agreement. Each General Agent or the
Broker-Dealer will promptly notify Allmerica of any written customer
complaint or notice of any regulatory proceeding or judicial proceeding
received by the General Agent or the Broker-Dealer including the General
Agent, the Broker-Dealer or any of their Registered Representatives which
may be related to the issuance of any Contract marketed under this
Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint, each General Agent, the
Broker-Dealer, Allmerica and the Insurance Companies will cooperate in
investigating such complaint and any proposed response to such complaint
will be sent to the other parties to this Agreement for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is required,
the proposed response shall be communicated by telephone or facsimile
transmission.
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CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all
customers and prospective customers of each General Agent and the
Broker-Dealer and of any company or person affiliated with a General
Agent or the Broker-Dealer, and the names and addresses of any Registered
Representatives of the Broker-Dealer which may come to the attention of
Allmerica exclusively as a result of its relationship with a General
Agent and the Broker-Dealer or any affiliated company and not from any
independent source, are confidential and shall not be used by Allmerica,
the Insurance Companies, or any company or person affiliated with
Allmerica or the Insurance Companies, nor divulged to any party for any
purpose whatsoever, except as may be necessary in connection with the
administration and marketing of the Contracts sold by or through General
Agents, including responses to specified requests to the Insurance
Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options
under the terms of the Contracts. In no event shall the names and
addresses of such customers, prospective customers and Registered
Representatives be furnished by Allmerica to any other company or person,
including but not limited to, any of their managers, registered
representatives, or brokers who are not Registered Representatives of the
Broker-Dealer, any company affiliated with Allmerica or any manager,
agency, or broker of such company, or any securities broker-dealer or any
insurance agent affiliated with such broker-dealer. The intent of this
section is that Allmerica, the Insurance Companies or companies or
persons affiliated with them shall not utilize, or permit to be utilized,
their knowledge of each General Agent, the Broker-Dealer or of any
affiliated companies which is derived exclusively as a result of the
relationships created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing
herein shall prohibit Allmerica, the Insurance Companies or any company
or person affiliated with Allmerica or the Insurance Companies from (i)
seeking business relationships and entering into separate sales
agreements with Registered Representatives of the Broker-Dealer if the
names of said Registered Representatives were obtained from independent
sources and not exclusively as a result of Allmerica's relationship with
a General Agent and the Broker-Dealer; (ii) from entering into separate
sales agreements with Registered Representatives of the Broker-Dealer
upon the request and at the initiation of said Registered
Representatives; or (iii) divulging the names and addresses of any such
customers, prospective customers, Registered Representatives, or other
companies or persons described in the preceding paragraph in connection
with any customer complaint or insurance or securities regulatory
proceeding described in Section 18.
BONDING
SECTION 20. Each General Agent and the Broker-Dealer agree to furnish
such bond or bonds as Allmerica may require. Upon failure or inability
of a General Agent or the Broker-Dealer to obtain or renew any such
bonds, this Agreement shall terminate at Allmerica's discretion upon
notice by Allmerica.
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NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to
the Insurance Companies or to Allmerica, if delivered or mailed postage
prepaid to the address specified on page 1 of this Agreement and, in the
case of notice to a General Agent or the Broker-Dealer, if delivered or
mailed postage prepaid to the intended recipient's principal place of
business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no
caption shall be construed to affect the substance of any provision of
this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the
parties. Upon execution it will replace all previous agreements between
each General Agent or the Broker-Dealer and Allmerica and the Insurance
Companies, or any of them, relating to the solicitation of Contracts. It
is hereby understood and agreed that any other agreement or
representation, commitment, promise or statement of any nature, whether
oral or written, relating to or purporting to relate to the relationship
of the parties is hereby rendered null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
to take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of General Agent
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
Date:_______________________________ Date:______________________________
For: _______________________________
Name of Broker-Dealer
By:_________________________________
Name:_______________________________
Title:______________________________
Date:_______________________________
* A separate signature line is required for each General Agent affiliate
of the Broker-Dealer.
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Allmerica 440 Lincoln Street Commission Schedule
Investments, Inc. Worcester, MA 01653 (Percent of Premium Payments)
- --------------------------------------------------------------------------------
First Allmerica Financial Life Insurance Company
Allmerica Financial Life Insurance and Annuity Company
Principal Underwriter and Exclusive Distributor -
Allmerica Investments, Inc.
- --------------------------------------------------------------------------------
COMMISSION SCHEDULE AM-2*
(Effective March 15, 1995)
Allmerica Select
Variable Universal Life Policies
A. Issued by Allmerica Financial Life Insurance and Annuity Company
Year One: 90% of payments up to target payment (See attached)
4% of payments on excess above target
Renewal: 2% of Payments
Trail: .25% annual trail commission of unloaned account value.
Payable each calendar quarter at 25% the annual rate (.0625%)
on policies in the second and subsequent years.
B. Issued by First Allmerica Life Insurance Company
Year One: 50% of payments plus 40% expense reimbursement up to target
payment
4% of payments on excess above target
Renewal: 4% of Payments
Trail: None
*This schedule sets forth the commissions applicable to Allmerica Select Life
policies issued on or after March 15, 1995 which do not replace existing
Allmerica policies. Commissions applicable to replacements, increases in the
face amount, conversions and exchanges will be in accordance with Allmerica
rules.
- --------------------------------------------------------------------------------
<PAGE>
Allmerica 440 Lincoln Street Commission Schedule
Investments, Inc. Worcester, MA 01653 (Percent of Premium Payments)
- --------------------------------------------------------------------------------
First Allmerica Financial Life Insurance Company
Allmerica Financial Life Insurance and Annuity Company
Principal Underwriter and Exclusive Distributor -
Allmerica Investments, Inc.
- --------------------------------------------------------------------------------
COMMISSION SCHEDULE AM-3*
(Effective May 1, 1996)
Allmerica Select
Variable Survivorship Universal Life Policies
A. Issued by Allmerica Financial Life Insurance and Annuity Company
Year One: 90% of payments up to target payment
4% of payments on excess above target
Renewal: 2% of Payments
Trail: .25% annual trail commission of unloaned account value.
Payable each calendar quarter at 25% the annual rate (.0625%)
on policies in the second and subsequent years.
B. Issued by First Allmerica Life Insurance Company
Year One: 50% of payments plus 40% expense reimbursement up to target
payment
4% of payments on excess above target
Renewal: 4% of Payments
Trail: None
*This schedule sets forth the commissions applicable to Allmerica Select Life
policies issued on or after May 1, 1996 which do not replace existing Allmerica
policies. Commissions applicable to replacements, increases in the face amount,
conversions and exchanges will be in accordance with rules of the issuing
insurer.
- --------------------------------------------------------------------------------
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ALLMERICA ALLMERICA 440 Lincoln Street GENERAL AGENT'S
FINANCIAL INVESTMENTS, INC. Worcester, MA 01653 AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints
__________________________________________________
("General Agent") as local supervisor for the purpose of training and
supervising all associated persons and registered representatives of Company
assigned to _________________________________________________________
("Agency") engaged in the solicitation, sale or service of variable life
insurance and variable annuity contracts offered by Allmerica Financial Life
Insurance and Annuity Company and/or First Allmerica Financial Life Insurance
Company, mutual funds, limited partnerships and general securities (collectively
"Investment Products and Services") offered and/or distributed by Company. This
appointment is effective as of the date accepted by General Agent and
acknowledged by Company.
1. SUPERVISION: General Agent agrees to supervise all registered
representatives assigned to Agency, both those operating from Agency and
those operating from detached locations, consistent with the standards of
conduct outlined in Company's Business Conduct Guide, Company's Statement
of Compliance for the Office of Supervisory Jurisdiction and Branch
Offices, the Program for Allmerica Financial Life/Allmerica Investments
Office Examinations, and the procedures and requirements outlined in other
Company manuals, memoranda and other publications, as may be amended from
time to time.
General Agent agrees to be responsible for Investment Products and Services
activity conducted through Agency by monitoring Investment Products and
Services activity in order to ensure that the business is processed in
accordance with regulatory and Company standards and to notify Company of
any irregularities and/or deficiencies.
General Agent agrees to be responsible for the maintenance and periodic
review of the books and records of Agency, as required by Company.
On at least an annual basis, General Agent agrees to conduct and/or
participate, in coordination with Company's compliance personnel, an agency
compliance meeting which all registered representatives assigned to Agency
shall attend. If for any reason a registered representative does not
attend agency compliance meeting, General Agent will schedule a personal
interview, on at least an annual basis, for the purpose of reviewing
activity of registered representative with respect to Investment Products
and Services and to discuss the compliance topics reviewed at agency
compliance meeting.
General Agent agrees to acquire and/or comply with all of the applicable
laws, rules and regulations (General Securities Principal Registration) of
the Securities and Exchange Commission (SEC), National Association of
Securities Dealers, Inc. (NASD) and all other federal and state laws and
regulations.
General Agent agrees to maintain all NASD registrations required to
supervise the solicitation and sale of Investment Products and Services
offered through Agency. General Agent will maintain all state securities
licenses and state insurance licenses as may be required to offer and
solicit Investment Products and Services.
2. LIMITATIONS OF AUTHORITY: General Agent has no authority to accept any
risk on Company's behalf, to issue, make, alter or discharge any contract,
to extend the time of payments, to waive or extend any contract obligation
or condition, or to alter or amend any communication sent by Company
without express authority in writing from an officer of Company.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any
of the rights, claims or interests under it may be made by General Agent
without the prior written consent of Company. An assignment, sale or
transfer by General Agent without written consent of Company will
immediately make this Agreement void and shall be a release in full to
Company of any and all of its obligations under this Agreement.
4. AGENCY STAFFING: General Agent agrees to recruit, train and supervise
registered representatives to solicit Investment Products and Services
offered through Company. General Agent agrees to develop a sales force of
sufficient size and quality to adequately penetrate the market with
Investment Products and Services of Company.
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5. BUSINESS AUTHORIZED: General Agent agrees to act for Company in the
solicitation of orders only for those Investment Products and Services for
which Company has executed sales agreements. General Agent shall monitor
his/her registered representatives on a continuing basis to prevent the
offering or the selling of Investment Products and Services not offered by
Company and to prevent registered representatives of Company from
exercising discretionary authority on behalf of any of their clients.
6. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: General Agent
agrees to establish and maintain at Agency procedures, as outlined in
Company manuals, concerning the collection, recording and transmittal of
all applications and/or payments collected on behalf of Company, any
issuer, or any sponsor.
General Agent agrees to be responsible to Company for monies collected by
registered representatives and for any securities, certificates, payments,
receipts and other Company papers in the possession of registered
representatives and employees of Agency.
Purchase checks for Investment Products and Services are to be client
personal checks, cashier's checks or money orders made payable to either
the Company, appropriate issuer, sponsor or other designated agent.
Purchase checks may not be made payable to registered representative,
General Agent or any personal or Agency Accounts.
7. REVIEW OF INVESTMENT PRODUCT BUSINESS: General Agent agrees, in accordance
with Company procedures, to conduct periodic reviews of Investment Product
and Services business of each registered representative. Such review of
Investment Product and Services business shall include, but not be limited
to, reviews for adequate NASD registrations and state securities and/or
insurance licensing of registered representative, prompt transmittal of
applications, checks and other pertinent items to Agency and subsequently
to Home Office, the correct use of applications and proper mode of payment
and the suitability of Investment Products and Service based on client's
financial profile and objectives.
8. BOOKS AND RECORDS: General Agent agrees to maintain a regular and
accurate record of all Investment Products and Services transactions of
Agency, including any journal, account books, records, papers, customer
account files or any other material, as required by Company. General Agent
agrees, at such times that Company may request, to make detailed report to
Company, on forms furnished for that purpose, showing an accurate
accounting of all monies and other items received for, or on behalf of
Company.
General Agent agrees that all records, files and papers are, and remain,
property of Company and will at all times be freely exhibited for the
purpose of examinations and inspection by duly authorized personnel of
Company.
Upon termination, all records revert to Company and should be turned over
to a Company representative.
9. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: General
Agent agrees not to directly or indirectly recommend or distribute any
advertising and/or sales literature to registered representatives
(including but not limited to prospectuses, illustrations, circulars, form
letters or postal cards, business cards, stationary, booklets, schedules,
broadcasting and other sales material of any kind) concerning Company
and/or the offering of Investment Products and Services until the material
has been approved in writing by a registered principal in the Company's
Compliance Department.
General Agent also agrees to obtain from his/her registered
representatives, at the time of development, copies of all correspondence
pertaining to the solicitations and/or sale of any Investment Products and
Services or to any other aspect of their Investment Products and Services
business, and to forward the correspondence to Home Office to allow for the
review and endorsement of correspondence in writing, on an official record
of Company, by a registered principal in the Company's Compliance
Department. General Agent shall periodically inspect Registered
Representatives' materials, sales literature and correspondence to ensure
compliance with Company requirements.
10. COMPENSATION: General Agent, subject to the provisions of this Agreement,
will be allowed expense reimbursement or allowances and overriding
commissions on payments collected on all Investment Product sales solicited
by Registered Representatives assigned to General Agent and effected
through Agency at rates established and published by Company, as may be
amended from time to time.
<PAGE>
11. COMMISSIONS: Company will pay commissions to General Agent, after
concession payments are made to Company by an issuer or sponsor, in
connection with sales of Investment Products and Services effected through
General Agent's personal solicitation. Such commissions will be paid on
the same basis and terms as specified in Company's Registered
Representative Agreement, which is incorporated herein by reference and as
may be amended from time to time.
12. TERMINATION WITHOUT CAUSE: General Agent and Company may terminate this
Agreement at any time without cause.
13. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and General Agent. General Agent, however, is to always comply
with all of the applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations and
procedures concerning methods of conducting Investment Products and
Services business, as may be amended from time to time.
14. EFFECTIVENESS OF CONTRACT: This Agreement between General Agent and
Company is not binding until Agreement has been duly executed by both
parties. This Agreement supersedes all previous agreements, whether oral
or written. This Agreement shall not cancel or affect any right, claim or
interest General Agent may have concerning commissions now due or hereafter
to become due under preceding agreements between General Agent and Company.
Neither shall Agreement cancel, terminate or affect in any way any lien,
right or interest which Company may have, or may hereafter acquire, with
respect to commissions or equities to General Agent under any other
agreement with Company, any provision of any such agreement which, by its
terms or by implications, continues beyond termination of such agreement.
IN WITNESS THEREOF, this Agreement has been executed by the undersigned on the
dates indicated below.
Allmerica Investments, Inc.
By: By:
---------------------------------- ----------------------------------
General Agent Signature Home Office Principal
Date: Date:
-------------------------------- --------------------------------
<PAGE>
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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<PAGE>
Limitations SECTION 4. Career Agent will have no authority to accept
on Authority risks of any kind; to make, alter or discharge contracts of
insurance or annuities; to waive forfeitures or exclusions;
to fix any premium for hazardous or substandard risks; to
alter or amend any papers received by him/her from the
Company; to deliver any policy of insurance or any document,
agreement or endorsement changing the amount of insurance
coverage if Career Agent knows or has reason to believe that
the insured is uninsurable; to collect any premium after the
expiration of the policy grace period except in connection
with a policy reinstatement; to accept payment of any
premium unless the premium meets the minimum premium
requirement for the policy established by the Company; or to
contract any debt rendering or purporting to render the
Company liable therefor, without express authority in
writing from an authorized officer of the Company.
Implied SECTION 5. Career Agent will have no power or authority
Authority other than as expressly provided in this Agreement and no
other power or authority shall be implied from the grant or
denial of power specifically mentioned in this Agreement.
Duty of SECTION 6. Career Agent agrees that he/she will not
Compliance; intentionally violate any applicable state or Federal law,
Negative ruling or regulation pertaining to the insurance business or
Obligations any rule or regulation of the Company. Career Agent will
not knowingly engage in any activity which is detrimental to
the best interests of the Company or any of its affiliates.
Neither while this Career Agent Agreement is in force nor
for a period of two years following the termination of this
Agreement will Career Agent directly or indirectly interfere
with the relationship of the Company or any of its
affiliates with any agent or broker.
Policy While this Agreement remains in force, Career Agent agrees
Termination that he/she will not, directly or indirectly, replace or
and Replacement induce or attempt to induce any policyholder to terminate or
replace any policy issued by the Company or any of its
affiliates except when permitted by the rules of the issuing
insurer. For a period of two years following termination of
this Agreement, Career Agent agrees that he/she will not,
directly or indirectly, replace or induce or attempt to
induce any policyholder serviced through the office of the
General Agent to terminate or replace any policy issued by
the Company or any of its affiliates.
SOLICITATION OF INSURANCE AND ANNUITIES
Submission of SECTION 7. Career Agent will submit through General Agent
Applications; all Company policy applications solicited by him/her,
Delivery of whether or not it appears the proposed insured is an
Policies; acceptable risk under the rules of the Company. Career
Rejected Agent will deliver, or cause to be delivered, in accordance
Business with the rules of the Company all policies issued on
applications submitted by him/her and will return to General
Agent any policy which is declined by the applicant or which
cannot be delivered within the time permitted by the
Company's rules. If an application is declined by the
Company or is accepted at a rate higher than standard which
is not acceptable to the applicant, with the Company's
permission Career Agent may place the coverage with another
insurance company.
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<PAGE>
Limitation on SECTION 8. Career Agent will not solicit any insurance or
Solicitation annuities in any jurisdiction in which he/she is not
licensed nor will he/she solicit by mail or otherwise any
insurance or annuities outside the district assigned to
General Agent without first receiving consent of the Company
and ascertaining that he/she is properly licensed to solicit
such insurance or annuities.
Advertising SECTION 9. The Company, through General Agent, will make
Material, Rate available to Career Agent a supply of canvassing and
Books, Forms, advertising materials, stationery, books, records and forms
etc. necessary or suitable to properly solicit insurance and
annuities. Career Agent will not print, publish or
distribute any advertisement, circular, statement or
document relating to the business of the Company or any of
its affiliates or use any title or language descriptive of
his/her status without the prior approval of the Company.
Policyowner Solely to assist Career Agent in rendering service to
Service Aids policyowners, Career Agent may use whatever aids, such as
data cards, computer printouts, etc. as may be available.
All such aids, whether furnished by the Company or otherwise
- including any copies thereof - shall be the property of
the Company.
Illustrations Career Agent will not furnish any prospective insured or
and Proposals policyowner an illustration of the financial or other
aspects of a policy or a proposal for a policy of the
Company unless the same has been either furnished by the
Company or prepared from computer software or other material
furnished or approved by the Company. Any illustration or
proposal delivered by Career Agent will conform to standards
of completeness and accuracy established by the Company. If
the proposal or illustration was not furnished by the
Company, Career Agent will retain in his/her records for
availability to the Company a copy thereof or the means to
duplicate the same. Any computer software or materials
furnished by the Company will be and remain its property.
Return of Upon termination of this Agreement, Career Agent will return
Materials, etc. to the Company all manuals, computer software, policyholder
data cards, policyholder files, stationery and business
cards and other material which, by the terms of this Section
or otherwise, is the property of the Company.
Accounting for SECTION 10. In accordance with the rules of the Company,
Funds Collected Career Agent will account for and remit immediately through
General Agent all funds received or collected by him/her for
or on behalf of the Company without deduction for any
commissions, fees, or other claim he/she may have against
the Company and will make such reports and file such
substantiating documents and records as the Company or
General Agent may require.
Liability for SECTION 11. If the Company pays Career Agent commissions or
Refund of fees in advance of receipt of the premium on which the
Commissions payment is based, the amount by which the payment to Career
and Fees Agent exceeds, at any time, the amount attributable to the
premiums paid will constitute a personal debt of Career
Agent payable on demand. If the Company returns premiums on
a policy for any reason whatsoever (other than as a part of
claim settlement) or rescinds or cancels a policy for any
reason whatsoever or if a policyholder exercises a right to
surrender
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<PAGE>
the policy for return of all premiums paid, Career Agent
will pay on demand the amount of any commissions received on
the premiums returned.
Notwithstanding the foregoing, after this Agreement has been
in force for 10 complete years and prior to the date the
Agreement is terminated for cause, unearned commissions paid
in advance on policies the premiums for which are being paid
under the Company's Monthly Automatic Premium (MAP) Plan or
other annualized commission arrangement that are repayable
because of a lapse or surrender of the policy may only be
recovered by set-off from first year and renewal commissions
and fees otherwise payable by the Company or its affiliates
to Career Agents.
COMPENSATION
Basis of SECTION 12. Career Agent's compensation will be a
Compensation combination of commissions and fees payable on premiums for
individual and group life, health and annuity policies
placed with the Company. The amount of commissions and fees
payable for individual insurance and annuity policies will
be determined by the further provisions of this Agreement
and the published rules of the Company. The amount of
commissions and fees payable on group life and health
insurance and group annuity policies solicited by Career
Agent will be specified in separate agreements related
solely to that class of business.
Commissions payable on premiums on a policy resulting from
conversion, exchange, replacement or the exercise of an
option to purchase additional insurance will be determined
by Company rules in effect at the time of the conversion,
exchange, replacement or exercise of the option.
Published Rules The Company may, by published rule, limit the amount of
Affecting premium on which commissions or fees are payable and limit,
Compensation defer, or exclude commissions or fees because of the nature
of the transaction, discretionary nature of the premium or
other circumstances.
Payor All compensation due Career Agent under this Agreement will
be paid by First Allmerica Financial Life Insurance Company
(First Allmerica), an affiliate of the Company, as the
common paymaster.
Time of Payment SECTION 13. A premium will not be considered paid until it
of Commissions has been received by the Company at its Principal Office.
On premiums paid or allocated prior to the 15th day of the
month, commissions and fees will be paid on the last
business day of the month. On premiums paid or allocated
subsequent to the 15th day of the month, commissions and
fees will be paid on the 15th day of the following month, or
on the last business day preceding such pay date, if such
pay date is not a business day.
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<PAGE>
TERMINATION AND ITS EFFECT ON COMMISSIONS AND FEES
Termination SECTION 14. This Agreement may be terminated for cause and
for Cause without notice if Career Agent:
(a) misappropriates any funds belonging to or received on
behalf of the Company or any of its affiliates; or
(b) withholds any funds or other property belonging to the
Company or any of its affiliates after the same should
have been reported and transmitted to the Company or
its affiliate or after a demand has been made for the
same; or
(c) commits any willful or dishonest act which injures the
Company or any of its affiliates; or
(d) commits any intentional act which violates any
applicable Fair Trade Practices Act and thereby injures
the Company or any of its affiliates; or
(e) intentionally performs any act prohibited by law or
intentionally omits any act required by law with the
result that the Company or any of its affiliates is
subject to disciplinary action; or
(f) willfully violates any of the provisions of this
Agreement.
Forfeiture of SECTION 15. No commissions or fees will be paid following
Commissions termination of this Agreement, if it is terminated for
and Fees cause, nor will commissions or fees continue to be paid
after termination of this Agreement if Career Agent breaches
any of its terms or conditions by the commission of an act
prohibited by its terms.
Termination SECTION 16. Notwithstanding the foregoing, and whether or
Without Cause not there is a breach of this Agreement, either party may
terminate this Agreement during its first year by giving 10
days' notice in writing to the other party of the intention
to do so and thereafter by giving 30 days' notice in writing
to the other party of the intention to do so.
Effect of Certain SECTION 17. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent:
(a) by reason of the death of Career Agent; or
(b) by reason of the permanent Total Disability of Career
Agent; or
(c) by reason of retirement of Career Agent under the
Career Agents' Retirement Plan established and
maintained by the Company; or
(d) by reason of employment of Career Agent by the Company
or any of its affiliates in some capacity other than as
a Career Agent;
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<PAGE>
commissions will continue to be paid to Career Agent only as
provided in the Exhibits attached hereto.
After termination of this Agreement by reason of the
permanent Total Disability of Career Agent, if Career Agent
recovers from said disability, this Agreement may be
reinstated. If Career Agent recovers from disability and
this Agreement is not reinstated, commissions will be
payable on premiums paid thereafter only if they would have
been payable if Section 18 had applied on termination.
Effect of Other SECTION 18. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent for any reason other
Without Cause than asset forth in Section 17, commissions will continue to
be paid to Career Agent only as provided in the Exhibits
attached hereto.
GENERAL PROVISIONS
Right of SECTION 19. The Company, for its own benefit, for the
Set-Off benefit of its affiliates and for the benefit of the General
Agent, will have a lien on any commissions and fees payable
under this Agreement, whether or not the commissions are now
due or hereafter become due, and may apply any such monies
to the satisfaction of indebtedness to any of said persons
to the extent permitted by law.
Non-waiver SECTION 20. Waiver of any breach of any provision of this
of Breach Agreement will not be construed as a waiver of the provision
or of the right of the Company to enforce said provision
thereafter.
Assignability SECTION 21. This Agreement is not transferable. Without
the consent of the Company, no rights or interest in or to
commissions or fees will be subject to assignment, other
than a collateral assignment of commissions and fees, and
any attempted absolute assignment, sale or transfer of this
Agreement or of any commissions or fees without the written
consent of the Company will immediately make this Agreement
void and be a release to the Company in full of any and all
of its obligations hereunder.
Errors and SECTION 22. Career Agent agrees to maintain errors and
Omissions omissions insurance coverage meeting the Company's minimum
Coverage coverage requirements and to furnish the Company proof of
such coverage upon request. If any lawsuit is brought
against the Company as a result of any alleged action, error
or omission of Career Agent and if (1) Career Agent has
maintained errors and omissions coverage which complies with
the Company's minimum requirements, and (2) the alleged
action, error or omission of Career Agent was not committed
intentionally or with dishonest, fraudulent or criminal
intent, Career Agent agrees to reimburse the Company and its
affiliates for all costs of the lawsuit, including
attorney's fees, and all damages resulting therefrom up to
the Company's Career Agent liability limit. The minimum
coverage requirements and Career Agent liability limit will
be set forth in a bulletin or announcement published by the
Company and are subject to change at any time. Distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent. If any lawsuit is
brought against the Company as a result of any alleged
Career Agent action, error or omission and if Career Agent
(1) did not maintain at least the
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<PAGE>
required minimum errors and omissions coverage, or (2) did
maintain such coverage but Career Agent's action, error or
omission was committed intentionally or with dishonest,
fraudulent or criminal intent, Career Agent agrees to
reimburse the Company and its affiliates for all costs of
the lawsuit, including attorney's fees, and all damages
resulting therefrom unless the court determines the suit to
be groundless and without merit.
Reservation of SECTION 23. The Company reserves the right at any time to
Right to Change change the terms and conditions of this Agreement,
including but not limited to, the rates of commissions and
fees, or to discontinue the payment of any commissions and
fees described in the Exhibits attached hereto.
Effective Date SECTION 24. Any change will become effective on the date
of Change specified in a notice or, if later, 30 days after the notice
is given to Career Agent. However, the requirement to give
advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the
requirements of any governmental body and, in the opinion of
the Company, it is not reasonably possible to meet the 30
day requirement. Changes will not be retroactive and will
apply only to units of coverage solicited on or after the
effective date of the change. Notice of any change may be
given by a Company bulletin or announcement and distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent.
Arbitration SECTION 25. By his/her execution of this Agreement, Career
Agent agrees to settle any dispute, claim or controversy
arising between Career Agent and the Company by arbitration
pursuant to the then current rules of the American
Arbitration Association. Judgment upon any award rendered
in the arbitration may be entered in any court of competent
jurisdiction.
All applicable disputes shall be referred to three
arbitrators, one to be chosen by each party, and the third
by the two so chosen. If either party refuses or neglects
to appoint an arbitrator within thirty days after the
receipt of written notice from the other party requesting it
to do so, the requesting party may nominate two arbitrators
who shall choose the third. In the event the two
arbitrators do not agree on the selection of the third
arbitrator within thirty days after both arbitrators have
been named, then the third arbitrator shall be selected
pursuant to the then current rules of the American
Arbitration Association. The decision of the majority of
the arbitrators shall be final and binding upon all parties.
The expenses of the arbitrators and of the arbitration shall
be equally divided between all parties. Arbitration is the
sole remedy for disputes arising under this Career Agent
Agreement.
General Agent SECTION 26. General Agent means the General Agent
identified on the face page or any other General Agent in
charge from time to time of a general agency office to which
Career Agent is assigned.
Definitions SECTION 27. As used in this Agreement, including the
Exhibits attached hereto:
"Replacement" means a transaction in which a new life or
disability insurance policy or a new annuity contract is to
be purchased, and by reason of the transaction, all or a
portion of
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<PAGE>
any existing life or disability insurance policy or any
existing annuity contract has been or is to be lapsed,
forfeited, reduced in face amount, surrendered, assigned to
the replacing insurer, placed on a reduced paid-up basis or
under another nonforfeiture provision or terminated, or
subjected to borrowing or withdrawals, whether in a single
sum or under a schedule of borrowing or withdrawals over a
period of time.
"Total Disability" means the inability of the Career Agent,
because of injury or sickness, to perform the duties of any
occupation for which he/she is reasonably fitted by
training, education or experience. During the first 24
months of total disability, Career Agent will be considered
to have met the foregoing requirement if he/she is unable to
perform the duties of his/her regular occupation and is not
performing the duties of any other occupation. Total
disability will be considered permanent after it has existed
6 months and thereafter while it continues.
"Flexible premium policy" means an individual insurance or
annuity policy under which the policyowner may unilaterally
vary the amount and timing of premium payments.
"Unit of Coverage" means all benefits of a policy which have
the same date of issue, except as modified by Company
published rules. Usually all the benefits specified in the
policy Schedule of Benefits and in each Supplementary
Schedule of Benefits constitute a unit of coverage.
"Policy Year," as to each unit of coverage, means a period
of 1 year commencing on its date of issue and each
anniversary thereof.
"Monthaversary," as to each unit of coverage, means its date
of issue and the corresponding day of each month thereafter.
"Basic premium," for each unit of coverage, means the sum of
the basic or target premiums for each benefit in the unit,
as determined from the Company's Rate Manual.
"Excess premium" means premium paid in any policy year in
excess of basic or target premium.
"Agreement" means this entire agreement, including all
Exhibits and commission and fee schedules attached thereto.
Other Exhibits issued hereafter will become a part of this
Agreement on their effective date.
Notice SECTION 28. Whenever this Agreement requires a notice to be
given, the requirement will be considered to have been met,
in the case of notice to the Company, if delivered or mailed
postage prepaid to General Agent at the agency office or to
a Vice President in the Company's Allmerica Financial
Services Operation and, in the case of notice to Career
Agent, if left at the usual place for him/her to pick up
mail within the agency office, or by mailing postage
prepaid, to Career Agent's last home address known to the
Company or to such other address as may be designated by
Career Agent.
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<PAGE>
Captions SECTION 29. Captions are used for informational purposes
only and no caption shall be construed to affect the
substance of any provision of this Agreement.
Effectiveness; SECTION 30. This Agreement contains the entire contract
Entire Contract; between the parties. Upon execution it will replace all
Prior Agreements previous agreements between Career Agent and the Company
relating to the solicitation of insurance and annuity
policies except as the previous agreement relates to the
payment of commissions and fees on policies solicited prior
to the effective date of this Agreement. For purposes of
determining vestings on termination, the date of the
earliest prior Career Agent Agreement executed by Career
Agent during his current period of continuous service with
the Company and First Allmerica will be considered the date
of this Agreement. It is hereby understood and agreed that
any other agreement or representation, commitment, promise
or statement of any nature, whether oral or written,
relating to or purporting to relate to the relationship of
the parties is hereby rendered null and void.
IT IS UNDERSTOOD THAT THIS IS AN "AT WILL" RELATIONSHIP WHICH MAY BE TERMINATED
BY EITHER PARTY WITHOUT CAUSE OR REASON AS PROVIDED FOR IN SECTION 16.
IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate to
take effect on its effective date.
Allmerica Financial Life Insurance and Annuity Company
By:
--------------------------------------------------
Vice President
--------------------------------------------------
Career Agent
Approved:
--------------------------------------------------
General Agent
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<PAGE>
Here is Your
Allmerica Select
Insurance Policy
From Allmerica Financial
Life Insurance and
Annuity Company
Please Read it Carefully
This flexible premium variable life insurance policy is a legal contract between
you (the owner) and Allmerica Financial Life Insurance and Annuity Company. If
you pay the required premiums, we will pay your beneficiary the net death
benefit when the person you are insuring dies.
You may change the amount of insurance as well as the payments you make. Except
as otherwise provided in the paid-up insurance option, you may direct your net
payments into an account that has a guaranteed minimum interest rate, and into
as many as seven sub-accounts (if available) of an account that has a rate of
return that will vary. These two accounts are called the Fixed and Variable
Accounts.
The value of the Variable Account may increase or decrease according to its
investment results. For more details, please see the Variable Account Policy
Value provision on page 13.
The value in the Fixed Account will accumulate interest at a rate set by us
which will not be less than 4% a year.
The amount of the death benefit, and the length of time this policy will remain
in force may be variable or fixed as described in the Death Benefit provisions
beginning on page 17 and the Policy Value provisions beginning on page 11.
Your Right to Examine
This Policy
You have the right to void this policy by
returning it to our Principal Office at 440 Lincoln Street, Worcester, MA 01653,
or to one of our authorized representatives on the latest of:
- - ten days after receiving it, or
- - 45 days after you sign the application, or
- - ten days after we mail you the Notice of Withdrawal Right.
If you return the policy, it will be void from the date of its issue, and you
will receive a refund equal to the total of:
- - the difference between any payments made, including fees or other charges,
and the amounts allocated to the Variable Account, and
- - the value of the amounts in the Variable Account on the date the returned
policy is received at our Principal Office, and
- - any fees or other charges imposed on amounts in the Variable Account.
/s/ Richard M Reilly
President
/s/ [Illegible]
Secretary
Allmerica Financial Life Insurance
and Annuity Company
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street
Worcester, MA
01653
1027-95 1
<PAGE>
Table of Contents
Cover Page ............................................................. 1
Specifications Page .................................................... 3
Riders/Endorsements .................................................... 3
Monthly Insurance Protection Charges ................................... 4
Important Definitions .................................................. 7
General Terms .......................................................... 8
Information About You and the Beneficiary .............................. 9
What You Should Know About the Premiums ................................ 10
Information About the Value of Your Policy ............................. 11
What You Should Know About the Variable Account ........................ 13
What You Should Know About the Fixed Account ........................... 14
What You Should Know About Transfers ................................... 15
If You Want to Borrow from Your Policy ................................. 16
Details on Surrenders and Partial Withdrawals .......................... 17
What You Should Know About the Death Benefit ........................... 18
Paid-Up Insurance Option ............................................... 20
Payment of Benefits .................................................... 21
Alphabetical Index
Addition, Deletion or Substitution of Investments 14
Allocation of Payments 11
Assignment 9
Basis of Value of Fixed Account 15
Beneficiary 9
Death Benefit 18
Decrease in Face Amount 19
Entire Contract 8
Fixed Account 14
Fixed Account Policy Value 14
Foreclosure 16
Grace Period 10
Increase in Face Amount 18
Lapse 10
Loans on Policy 16
Misstatement of Age or Sex 8
Monthly Insurance Protection Charge 5
Net Investment Factor 13
Owner 9
Paid-Up Insurance Option 20
Partial Withdrawals 17
Payment Options 21
Policy Value 11
Postponement of Payment 17
Preferred Loan Option 16
Premiums 10
Protection of Benefits 8
Reinstatement 10
Right to Contest Policy 8
Right to Examine 1
Suicide Exclusion 8
Surrender 17
Transfers 15
Valuation Dates and Periods 13
Variable Account 13
Variable Account Policy Value 13
1027-95 2
<PAGE>
Important Definitions
Age means how old the insured is on the birthday closest to the policy
anniversary.
Assignee is the person to whom you have transferred your ownership of this
policy.
Company means Allmerica Financial Life Insurance and Annuity Company, also
referred to as we, our, and us. Our telephone number is 1-800-366-1492.
Date of issue is stated on page 3. Policy months, years and anniversaries are
measured from this date.
Evidence of insurability is the information, including medical information, that
we use to decide the underwriting class for the person insured.
Face amount is the amount of insurance you elect to buy in the application or
enrollment form. The face amount is shown on page 3 of the policy. The death
benefit is based on the face amount; see the Net Death Benefit provisions
beginning on page 18.
Final payment date is the policy anniversary nearest the insured's 95th
birthday. No payments may be made by you after this date. The net death benefit
after this date will equal the policy value minus any outstanding loan.
Insurance protection amount is the death benefit minus the policy value.
Monthly insurance protection charge is the amount of money we deduct from the
policy value each month to pay for the insurance and any riders; see pages 11
and l2 for more details.
Monthly processing date is the date on which the monthly insurance protection
charge is deducted from the policy value. This date is shown on page 3.
Net payment is your payment to us less the payment expense charge shown on page
4.
Outstanding loan means all unpaid policy loans plus interest due or accrued on
such loans.
Policy change means any change in the face amount, the underwriting class, the
addition or deletion of a rider, or a change in the death benefit option.
Policy value is the sum of your values in the Variable Account and the Fixed
Account.
Premium means a payment you must make to keep the policy in force.
Principal Office means our office located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
Pro rata refers to an allocation among the sub-accounts of the Variable Account
and the Fixed Account. A pro-rata allocation will be in the same proportion that
the policy value in each sub-account of the Variable Account and the policy
value in the Fixed Account have to the total policy value.
Rider is an optional benefit which may be added to your policy for an additional
charge.
Specification pages contain information specific to your policy, and are located
after the Table of Contents in your policy.
Sub-accounts are subdivisions of the Variable Account investing exclusively in
the shares of one or more Funds which you chose for your initial allocations.
Underwriting class means the insurance risk classification that we assign to the
insured based on the information in the application or enrollment form and any
other evidence of insurability we obtain. The insured's underwriting class
affects the monthly insurance protection charge and the amount of the payments
required to keep the policy in force.
Written request is a request you make in writing in a form which is satisfactory
to us and which is filed at our Principal Office.
You or your means the owner of this policy as shown in the application or in the
latest change filed with us.
Form 1027-95 7
<PAGE>
=================================General Terms==================================
Entire Contract: This policy, with a copy of the application or any enrollment
form, and any endorsements attached to it, is the entire contract between you
and us. The entire contract also includes: a copy of any application to increase
the face amount or to change to a better underwriting class; any new
specification pages; and any supplemental pages issued.
We assume that the information you and the insured provide in any application is
accurate and complete to the best of your knowledge. If we contest this policy
or deny a claim, we may use only the information you and the insured provided in
an application or enrollment form. Our representatives are not permitted to
change this policy or extend the time for paying premiums. Only our President, a
Vice President or Secretary may change the provisions of this policy, and then
only in writing.
Our Right to Contest the Policy is Limited: A contest is any action taken by us
to cancel your insurance or deny a claim based on untrue or incomplete answers
in your application. We cannot contest the initial face amount of the policy if
it has been in force for two years from the date it is issued, and the insured
is alive at the end of this two-year period.
If the face amount is increased or the underwriting class is changed at your
request, we cannot contest the increase or change after it has been in force for
two years from its effective date and the insured is alive.
Nonparticipating: No insurance dividends will be paid on this policy.
Adjustment of Cost Factors: We determine the monthly insurance protection charge
and Fixed Account interest rates which are used to calculate the policy value,
subject to the guarantees noted in this policy. Any changes in these charges and
rates will be made by underwriting class only, and will be based on changes in
our future expectations for such things as: our investment earnings, our
expenses, life expectancy rates, and how many policyowners keep their policies.
Suicide Exclusion: If the insured, while sane or insane, commits suicide within
two years of the date this policy is issued, we will not pay a death benefit.
The beneficiary will receive only the total amount of payments made to us less
any outstanding loan and amounts withdrawn. If the face amount is increased at
your request, and then the insured commits suicide within two years, while sane
or insane, we will not pay the increased amount. Instead the beneficiary will
receive the administrative charge and monthly insurance protection charges paid
for this increase, plus any net death benefit otherwise payable.
Misstatement of Age or Sex: If the insured's age or sex is not correctly stated,
we will adjust the net death benefit we will pay. This amount will be:
- - the policy value, plus
- - the insurance protection amount that would have been purchased by the last
monthly insurance protection charge using the correct age and sex.
No adjustment will be made if:
- - the insured dies after the final payment date; or
- - the underwriting class is unisex and there has been a misstatement of sex.
Protection of Benefits: To the extent allowed by law, the benefits provided by
this policy cannot be reached by the beneficiary's creditors. No beneficiary may
assign, transfer, anticipate or encumber the policy value or benefit unless you
give them this right.
Periodic Report: We will mail a report to you at your last known address at
least once a year. This report will provide the following information:
- - death benefit;
- - policy values in each sub-account and in the Fixed Account;
- - the value of the policy if you surrender it;
- - payments made by you and monthly insurance protection charges deducted by us
since the last report; and
- - outstanding loan, guideline premiums and any other information required by
law.
Form 1027-95 8
<PAGE>
====================Information About You and the Beneficiary===================
Owner: The insured is the owner of this policy unless another person (which
could include a trust, corporation, partnership, etc.) is named as owner in the
application. The owner may change the ownership of this policy without the
consent of any beneficiary. Whenever the face amount of insurance is increased,
the insured must agree.
Assignment: You may change the ownership of this policy by sending us a written
request. An absolute assignment will transfer ownership of the policy from you
to another person called the assignee.
You may also assign this policy as collateral to a collateral assignee. The
limitations on your ownership rights while a collateral assignment is in effect
are specified in the assignment.
An assignment will take place only when the written request is recorded at our
Principal Office. When recorded, it will take effect on the date you signed it.
Any rights created by the assignment will be subject to any payments made or
actions taken by us before the change is recorded. We are not responsible for
assuring that any assignment or any assignee's interest is valid.
Beneficiary: You name the beneficiary to receive the net death benefit. The
beneficiary's interest will be affected by any assignment you make. If you
assign this policy as collateral, all or a portion of the net death benefit will
first be paid to the collateral assignee; any money left over from the amount
due the assignee will go to those otherwise entitled to it.
Your choice of beneficiary may be revocable or irrevocable. You may change a
revocable beneficiary at any time by written request; but an irrevocable
beneficiary must agree to any change in writing. You will also need an
irrevocable beneficiary's permission to exercise other rights and options
granted by this policy. Unless you have asked otherwise, this policy's
beneficiary will be revocable.
Any change of the beneficiary must be made while the insured is living. This
change will take place on the date the request is signed, even if the insured is
not living on the day we receive it. Any rights created by the change will be
subject to any payments made, or actions taken, before we receive the written
request.
If a beneficiary dies before the insured, his or her interest in this policy
will pass to any surviving beneficiaries in proportion to their share in the net
death benefit, unless you have requested otherwise. If all beneficiaries die
before the insured, the net death benefit will pass to you or your estate.
Common Disaster Option: The common disaster option may be elected in the
application or later by written request. If the common disaster option is in
effect on the date of the insured's death, the beneficiary must be alive a
certain number of days following the insured's date of death in order to be
entitled to receive a benefit; otherwise we will pay the net death benefit as
though the beneficiary died before the insured. The number of days which the
beneficiary must live after the insured's death is selected by you when you
elect the common disaster option.
Form 1027-95 9
<PAGE>
=====================What You Should Know About the Premiums====================
Premiums: This policy will not be in force until the first premium is paid to
us. Additional payments may be made to us at any time before the final payment
date or the date the paid-up insurance option is exercised. Payments must be
sent either to our Principal Office or to our authorized representative. If you
request it in writing, we will send you a signed receipt after payment. The
payment amount which must be paid to keep the policy in force is described in
the Grace Period and Policy Lapse provision.
Maximum Payment Limits: We may limit the amount you pay to us in any policy
year. This limit will not be less than the guideline level premium; however, the
sum of all payments made from the issue date, minus any partial withdrawals, may
not be more than the greater of:
- - the guideline single premium, or
- - the sum of the guideline level premiums on the date of payment.
The guideline premium amounts are shown on page 3. These premium limitations
will not apply if they prevent you from paying us enough to keep the policy
in force.
Guideline premiums are determined according to rules in the federal tax law,
and will be adjusted as that law changes.
If the maximum payment limit applies to this policy, we will return any
excess payment you have made.
Premium Grace Period and Policy Lapse: We will send you a notice if your
payments are not enough to keep the policy in force. Your policy will continue
for 62 days, which is the grace period.
The first day of the grace period is called the date of default. We will send
the notice to your last known address, or to the person you name to receive this
notice, showing the due date and the amount of premium you must pay to keep the
policy in force.
The date when the grace period begins and the amount you must pay depends on how
long the policy has been in force and whether there have been any increases in
the face amount.
Beginning on the date this policy is issued or the effective date of any
increase in the face amount, whichever is later, and continuing for the next 47
monthly processing dates, the grace period will begin when both of the following
conditions occur:
- - the surrender value is less than the amount needed to pay the next monthly
insurance protection charge; and
- - the sum of the payments made minus any outstanding loans, partial
withdrawals and withdrawal charges since the latest of the following three
dates:
- the date this policy is issued, or
- the effective date of any increase in the face amount, or
- the date of any policy change which changes the minimum monthly
payment,
is less than the minimum monthly payment multiplied by the number of
months which have elapsed since that date.
Thereafter, the grace period will begin if the surrender value on a
monthly processing date is less than the amount needed to pay the next
monthly insurance protection charge plus any loan interest accrued.
The minimum monthly payment, which is shown on page 4, will change if the
policy is changed; it will be listed in new specification pages provided
to you.
The death benefit during the grace period will be reduced by any overdue
charges. The policy will lapse if the amount shown in the notice remains
unpaid at the end of the grace period. The policy terminates on the date
of lapse.
Reinstatement: If this policy has lapsed or foreclosed for failure to pay loan
interest, and has not been surrendered, it may be restored (called "reinstated"
in this policy) within three years after the date of default or foreclosure. We
will reinstate the policy on the monthly processing date following the day we
receive all of the following items:
- - a written application for reinstatement,
- - evidence of insurability showing the insured is insurable according to our
underwriting rules, and
- - a payment large enough to keep the policy in force for two months.
Form 1027-95 10
<PAGE>
You may repay or reinstate any outstanding loan on the date of default or
foreclosure.
Your reinstatement premium will be allocated to the Fixed Account until we
approve your application, at which time we will transfer the reinstatement
premium, plus accrued interest, as you directed in your last payment allocation
request.
The policy value on the reinstatement date is:
- - the net payment to reinstate the policy, including the interest earned from
the date we received your payment; plus
- - an amount equal to the policy value less any outstanding loan on the default
date, to the extent that the outstanding loan is less than the surrender
charge on the reinstatement date; less
- - the monthly insurance protection charge due on the reinstatement date.
The surrender charge on the reinstatement date is the charge which would have
been in effect if the policy had remained in force from the date it was issued.
Reinstatement of Paid-Up Insurance: If this policy is in force as paid-up
insurance and later terminates for failure to pay policy loan interest, the
paid-up insurance may be reinstated during the insured's lifetime, but no more
than three years after the date of foreclosure, by providing us with the
following:
- - evidence of insurability showing the insured is acceptable according to
our underwriting rules; and
- - payment or reinstatement of the outstanding loan on the date of the default.
Interest is payable on this outstanding loan from the date of termination to
the date of reinstatement at the interest rate of 8% per year.
The date of reinstatement is the later of the date we approve the reinstatement
application or the date the payment required to reinstate this policy is
received by us. The death benefit of the reinstated paid-up insurance will be
the same as the death benefit on the date of termination.
===================Information About the Value of Your Policy===================
Net Payment and Allocation of New Payments: A net payment is a payment made to
us reduced by the payment expense charge. This charge is based, in part, on
local, state and federal taxes we must pay. We reserve the right to change the
charge, which is shown on page 4, to reflect any changes in tax expenses.
Each net payment will be added to the policy value. The policy value consists of
all the money in the Variable Account and the Fixed Account.
You may allocate the net payment to:
- - up to seven of the sub-accounts, if available, and
- - the Fixed Account.
Policy values may not be allocated to more than seven sub-accounts at any one
time without our consent. All percentage allocations must be in whole numbers,
with the total allocation to all selected accounts equalling 100%. A processing
charge of up to $25 may be made for changing the premium allocation.
Allocation of Initial Payments: If you make a payment with your application or
at any time before your right to examine the policy expires, we may put that net
payment into the Money Market sub-account on the date we receive it at our
Principal Office. We will transfer the policy value as you directed in your
application, or by later request, no later than the expiration of the period
during which you may exercise your right to examine the policy.
Monthly Insurance Protection Charge: Beginning on the date this policy is
issued, and until the final payment date, we will deduct a monthly insurance
protection charge from the policy value. Except as otherwise prescribed in the
paid-up insurance option, you may choose a sub-account from which this monthly
charge will be deducted. If you do not make a choice, we will deduct the charge
pro rata. If the sub-account you choose does not have enough funds to cover the
charge, we will deduct the charge as if you had not made any choice.
Form 1027-95 11
<PAGE>
Charges allocated to the Fixed Account will be deducted on a last-in, first-out
basis. This means that we use the most recent payments to pay the fees.
The monthly insurance protection charge equals the sum of the charges that apply
to:
- - the initial face amount, plus
- - each increase in the face amount, plus
- - any rider benefits.
We will determine the monthly insurance protection charge each month. Any
changes in this charge will be made by underwriting class. If you decrease the
face amount of the policy, we will adjust the monthly insurance protection
charge according to the Benefit Change provision on page 19.
The monthly insurance protection charge for the initial face amount will not be
more than (1) multiplied by (2) where:
(1) is the insurance protection rate shown for the insured's age in the
Table on page 5; and
(2) is the initial face amount divided by 1,000.
For the purposes of this calculation, if the Level Death Benefit Option (see
page 19) is in effect, the initial face amount will be reduced by the policy
value, minus charges for rider benefits at the beginning of the month, but not
less than zero.
If you increase the face amount, the monthly insurance protection charge will
not be more than (3) multiplied by (4) where:
(3) is the insurance protection rate applicable to the increased face amount
for the insured's age and
(4) is the amount of the increase in the face amount divided by 1,000.
For purposes of this calculation, if the Level Death Benefit Option is in effect
and the policy value is higher than the initial face amount, the excess policy
value, minus charges for rider benefits at the beginning of the month, will be
used to reduce any increases in the face amount in the order in which the
increases were issued.
If the death benefit is the "guideline minimum death benefit" required for the
policy to qualify as life insurance under the federal tax law (see page 19),
the monthly insurance protection charge for the portion of the death benefit
which exceeds the face amount (i.e., initial face amount plus any increases)
will not be higher than (5) multiplied by (6) divided by 1,000 where:
(5) is the insurance protection rate applicable to the initial face amount;
and
(6) is the death benefit less:
- the greater of the face amount or the policy value if the Level Death
Benefit Option is in effect, or
- the face amount plus the policy value, if the Adjustable Death Benefit
Option (see page 17) is in effect.
Insurance Protection Rates: The cost of insurance rate includes an expense
factor and a mortality factor. The expense factor covers a portion of our
acquisition costs and administrative expenses. The mortality factor is based on
the insured's
- - age,
- - sex (unless this policy is issued in a unisex class as indicated on page
3), and
- - underwriting class.
The guaranteed rates are based on:
- - the Commissioners 1980 Standard Ordinary Mortality Table, Male, Female, or
Table B for unisex risks (Smoker or Non-Smoker versions of these tables are
used if the insured is over 17 years of age on the date of issue), and
- - appropriate increases in such tables for rated risks.
The insurance protection rates actually charged will usually be lower than, and
never will be higher than, the guaranteed rates. We will review the actual
insurance protection rates for this policy whenever we change these rates for
new policies. In any event, rates will be reviewed not more often than once each
year, but not less than once in a five-year period.
Form 1027-95 12
<PAGE>
================What You Should Know About the Variable Account=================
Variable Account: The value of your policy will vary if it is funded through
investments in the sub-accounts of the Variable Account. This account is
separate from our Fixed Account. We have exclusive and absolute ownership and
control of all assets, including those in the Variable Account. However, the
portion of assets in the Variable Account equal to the reserves and liabilities
of the policies which are supported by this account will not be charged with
liabilities that come from any other business we conduct.
This account, which we established to support variable life insurance policies,
is registered with the Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act of 1940. It is also governed
by the laws of the State of Delaware.
This account has several sub-accounts. Each sub-account invests its assets in a
separate series of a registered investment company (called a "Fund"). We reserve
the right, when the law allows, to change the name of the Variable Account or
any of its sub-accounts. You will find a list in your application of the
sub-accounts in which you first chose to invest.
Variable Account Policy Value: Policy value in the Money Market sub-account
prior to the date of issue will be allocated to purchase units of the
sub-accounts in accordance with your payment allocation no later than the
expiration of the period during which you may exercise your right to examine the
policy. Net payments made 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 payment 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 another sub-account or
the Fixed 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, policy loan, partial
withdrawal, partial withdrawal charge, 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 policy value in a sub-account
at any time is equal to the number of units this policy then has in that
sub-account multiplied by the sub-account's unit value. The value of a unit for
any sub-account for any valuation period is determined by multiplying that
sub-account's unit value for the immediately preceding valuation period by the
net investment factor for the valuation period for which the unit value is being
calculated. The unit value will reflect the investment advisory fee and other
expenses incurred by the registered investment companies.
Net Investment Factor: This measures the investment performance of a sub-account
during the valuation period that has just ended. This factor is equal to 1.00
plus the result from dividing (a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of the sub-account for the valuation period,
plus capital gains, realized or unrealized, credited during the valuation
period; minus capital losses, realized or unrealized, charged during the
valuation period; adjusted for provisions made for taxes, if any;
(b) is the value of that sub-account's assets at the beginning of the
valuation period;
(c) is a charge for mortality and expense risks in the valuation period
equal to .65% on an annual basis of the sub-account's assets; this charge
may be increased or decreased but will not exceed .80% on an annual
basis. Expense and mortality results shall not adversely affect this
maximum charge; and
(d) is an administrative charge of .15% on an annual basis of the
sub-account's assets, to be applied only during the first ten policy
years. Expense and mortality results shall not adversely affect this
maximum charge.
Since the net investment factor may be more or less than one, the unit value may
increase or decrease. You bear the investment risk. We reserve the right
(subject to any required regulatory approvals) to change the method we use to
determine the net investment factor.
Valuation Dates and Periods: 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
enough trading in the Variable Account's underlying portfolio securities to
materially affect the value of the Variable Account. A valuation period is the
period between valuation dates.
Form 1027-95 13
<PAGE>
Addition, Deletion or Substitution of Investments: We may not change the
investment policy of the Variable Account without the approval of the Insurance
Commissioner of Delaware. This approval process is on file with the Commissioner
of your state.
We reserve the right, subject to compliance with applicable law, to add to,
delete from, or substitute for the shares of a Fund that are held by the
Variable Account or that the Variable Account may purchase. We also reserve the
right to eliminate the shares of any Fund if they are no longer available for
investment, or if we believe investing more in any eligible Fund is no longer
appropriate for the purposes of the Variable Account.
We will notify you before we substitute any of your shares in the Variable
Account. However, this will not prevent the Variable Account from buying other
shares of underlying securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies or contracts if
holders request it.
We reserve the right to establish other sub-accounts, and to make them available
to any class or series of policies as we think appropriate. Each new sub-account
would invest in a new investment company or in shares of another open-end
investment company. We also reserve the right eliminate or combine existing
sub-accounts of the Variable Account and to transfer the assets between
sub-accounts, when allowed by law.
If we make any substitutions or changes that we believe are necessary or
appropriate, we may make changes in this policy by written notice to reflect the
substitution or change. If we think it is in the best interests of our policy
owners, we may operate the Variable Account as a management company under the
Investment Company Act of 1940, or we may de-register it under that Act if the
registration is no longer required. We may also combine it with other separate
accounts.
Federal Taxes: If we must pay taxes on the Variable Account, we will charge you
for that tax. Although the account is not now taxable, we reserve the right to
make a charge for taxes if the account becomes taxable.
Splitting of Units: We reserve the right to split the value of a unit, either to
increase or decrease the number of units. Any splitting of units will have no
material effect on policy benefits.
==================What You Should Know About the Fixed Account==================
Fixed Account: The Fixed Account is a part of our General Account. The General
Account consists of all assets owned by us, other than those in the Variable
Account and other separate accounts. Except as limited by law, we have sole
control over the investment of these General Account assets. You do not share
directly in the investment experience of the General Account, but are allowed to
allocate and transfer funds into the Fixed Account.
Fixed Account Interest Rates: The interest rate credited to policy value in the
Fixed Account is set by us. We will review this interest rate from time to time,
at least once a year. The following guarantees apply to money in the Fixed
Account:
- - The interest rate in effect on the day we receive your payment at our
Principal Office is guaranteed until the next policy anniversary unless
you borrow money from that policy value.
- - The interest rate in effect on the day funds are transferred from a
sub-account of the Variable Account to the Fixed Account is guaranteed
until the next policy anniversary unless you borrow from that policy
value.
- - The interest rate in effect on a policy anniversary is guaranteed for one
year for those policy values in the Fixed Account on the policy
anniversary so long as those values remain in the Fixed Account and are
not borrowed.
- - The interest rate we use for that portion of the policy value that equals
the outstanding loan will be at least 6% per year. The interest rate will
be higher if the policy qualifies under the Preferred Loan provision; see
page 11.
Fixed Account Policy Value: On each monthly processing date, the policy
value of the Fixed Account is:
- - the policy value in this account on the preceding monthly processing date
increased by one month's interest, plus
- - net payments received since the last monthly processing date which are
allocated to the Fixed Account plus the interest accrued from the date the
payment is received by us, plus
Form 1027-95 14
<PAGE>
- - Variable Account policy value transferred to the Fixed Account from any
sub-accounts since the preceding monthly processing date, increased by
interest from the date the policy value is transferred, minus
- - policy value transferred from the Fixed Account to a sub-account since the
preceding monthly processing date and interest accrued on these transfers
from the transfer date to the monthly processing date, minus
- - partial withdrawals from the Fixed Account, partial withdrawal charges and
withdrawal transaction charges since the last monthly processing date,
interest accrued on these withdrawals, and charges from the withdrawal
date to the monthly processing date, minus
- - any transaction charges allocated to the Fixed Account for any changes in
the face amount since the last monthly processing date and interest
accrued on such charges to the monthly processing date, minus
- - the portion of the monthly insurance protection charge allocated to the
policy value in the Fixed Account.
During any policy month the Fixed Account policy value will be calculated on a
consistent basis. In no event will the Fixed Account policy value be less than
the guaranteed cash value shown in the Paid-Up Insurance Table after the paid-up
option has been exercised.
Basis of Value of the Fixed Account: We base the minimum surrender value in the
Fixed Account on the Commissioners 1980 Standard Ordinary Mortality Table,
Male, Female or Table B for unisex risks (or appropriate increases in such
tables for rated risks) with the interest at 4% each year, compounded annually;
however, if the insured is over age 17 on the day of issue, the minimum
surrender value is based on the Smoker or Non-Smoker versions of such tables.
Actual policy values are based on interest and insurance protection rates that
we set. We have filed a detailed description of the way we determine this value
with the State Insurance Department. All values equal or exceed the minimums
required by law in the state in which this policy is delivered.
======================What You Should Know About Transfers======================
While the policy is in force other than as paid-up insurance, you may transfer
amounts between the Fixed Account and the sub-accounts or among sub-accounts, on
request.
You may transfer, without charge, all or part of the policy value in the
Variable Account to the Fixed Account once during the first 24 months after the
policy is issued, and once during the first 24 months after you have increased
the face amount in order to convert to a fixed-only product. If you do so,
future payments will be allocated to the Fixed Account unless you specify
otherwise. All other transfers are subject to the following rules, and will be
permitted with our approval.
We will determine the minimum and maximum amounts that may be transferred
according to the rules that are in effect at the time of the transfer.
We also reserve the right to limit the number of transfers that can be made in
each policy year, and to set other reasonable rules controlling transfers.
If a transfer would reduce the policy value in a sub-account to less than the
current minimum balance required for such accounts, we reserve the right to
include the remaining value in the amount transferred.
You will not be charged for the first six transfers in a policy year, but a
transfer charge of up to $25 may be made on each additional transfer. Any
transfer charge will be deducted from the amount that is transferred. Transfers
that result from a policy loan or repayment of a loan are not subject to these
rules.
Form 1027-95 15
<PAGE>
=====================If You Want to Borrow from Your Policy=====================
This policy is the only security you need to borrow from it.
Amount You May Borrow: The total amount you may borrow is the loan value. Except
as otherwise provided in the paid-up insurance option, the loan value in the
first policy year is 75% of (a) minus (b) where:
(a) is the policy value minus the surrender charge, and
(b) is the monthly insurance protection charges and interest which will be
due on the loan through the end of the policy year.
The loan value in the second policy year and any year after is 90% of the result
of the policy value minus the surrender charge.
If you do not specify from which accounts you want to borrow, we will allocate
the loan pro rata.
In order to secure the outstanding loan, we will transfer the policy value in
each sub-account equal to the policy loan allocated to each sub-account to the
Fixed Account.
Loan lnterest: You will pay interest on your loan at an annual rate of 8%.
Interest accrues daily, and is payable at the end of each policy year. Any
interest that is not paid on time will be added to the loan principal and bear
interest at the same rate. If this makes the principal higher than the policy
value in the Fixed Account, we will offset this shortfall by transferring funds
from the sub-accounts to the Fixed Account. We will allocate the transferred
amount pro rata among the sub-accounts in the same proportion that the value in
each sub-account has to the total value in all of them.
Repaying the Outstanding Loan: You may repay the outstanding loan at any time
before this policy lapses. When you repay it, we will transfer the policy value
that is in the Fixed Account to the various sub-accounts and increase the value
in them. You may tell us how to allocate repayments, but if you do not, we will
allocate them according to the most recent payment allocation choices you have
made. Loan repayments made to the Variable Account cannot be higher than the
amounts you transferred from it to secure the outstanding loan.
Foreclosure: If at any time the amount of the outstanding loan is higher than
the policy value, minus the surrender charge, we will terminate the policy. We
will mail a notice of this termination to the last known address of you and any
assignee. If the excess outstanding loan is not paid within 62 days after this
notice is mailed, the policy will terminate with no value. You may reinstate
this policy according to the Reinstatement provision on page 10.
Preferred Loan Option: This option is available to you, upon written request,
after the first policy anniversary. It may be revoked by you at any time.
The preferred loan option is available during policy years 2-10 only if your
policy value, minus the surrender charge, is $50,000 or more. The option applies
to up to 10% of this amount. After the 10th year, the preferred loan option is
available on all loans or on all or a part of the loan value as you request. The
guaranteed annual interest rate credited to the policy value securing a
preferred loan will be 8%.
If you do not elect, or if you revoke, the preferred loan option as to all or a
portion of the outstanding debt, the interest rate credited on the outstanding
debt, which is not a preferred loan, will be no less than 6%.
Form 1027-95 16
<PAGE>
==================Details on Surrender and Partial Withdrawals==================
Surrender: You may cancel this policy and receive its surrender value as long as
the insured is living on the date we receive your written request in our
Principal Office. The policy will be cancelled on that day. You may choose to
receive the surrender value in a lump sum or under a benefit option.
Surrender Value: Except as otherwise provided in the paid-up insurance option,
the surrender value equals the policy value minus the outstanding loan and
surrender charges.
You will find the surrender charge for the initial face amount on page 4. Any
changes in this charge when you increase or decrease the face amount will be
shown in new specification pages.
Partial Withdrawals: Partial withdrawals are not allowed during the first policy
year or if your policy is in force as paid-up insurance. After the first policy
year, you may withdraw part of the surrender value on written request. Each
withdrawal must be at least $500. We will deduct a 2% withdrawal transaction
charge (maximum $25) from the policy value each time you make a partial
withdrawal.
We also may deduct a withdrawal charge from the policy value. However, a portion
of the partial withdrawal will not be subject to the withdrawal charge. This
amount equals (a) minus (b), where:
(a) is 10% of the policy value on the date we receive the written
request at our Principal Office, and
(b) is the total of the withdrawals (or portions of them) made in the same
policy year which were exempt from the withdrawal charge.
We will charge you on the balance of the withdrawal, called the "excess
withdrawal". This charge is calculated by multiplying the excess withdrawal
amount by 5%. It never will exceed the surrender charge in effect on the
withdrawal date.
Your policy's surrender charge will be reduced by any withdrawal charges. There
will be no withdrawal charge if no surrender charge applies to the policy on the
withdrawal date.
The partial withdrawal charge will decrease existing surrender charges in the
following order:
- - first, the most recent increase's surrender charge,
- - second, the next most recent increase's surrender charges in succession,
and
- - last, the initial face amount's surrender charge.
If you elected the Level Death Benefit Option, the face amount and policy value
will be reduced by the amount of the partial withdrawal, and the policy value
will be further reduced by the partial withdrawal transaction and withdrawal
charges. The face amount will be decreased in the following order:
- - first, the most recent increase, second, the next most recent increases in
succession, and
- - last, the initial face amount.
If you elected the Adjustable Death Benefit Option, the policy value will be
reduced by the amount of the partial withdrawal, plus the partial withdrawal
transaction and withdrawal charges.
We will not permit a partial withdrawal if it reduces the face amount to less
than $40,000.
If you do not allocate a partial withdrawal and its charges among the Fixed
Account and each sub-account, we will allocate that amount pro rata.
Postponement of Payment: We may postpone any transfer from the Variable Account,
or payment of any amount payable on:
- - surrender,
- - partial withdrawal,
- - transfer,
- - policy loan, or
- - death of the insured.
Form 1027-95 17
<PAGE>
The postponement will continue during any period when:
- - trading on the NYSE is restricted as determined by the SEC, or the NYSE is
closed for days other than weekends and holidays, or
- - the SEC by order has permitted such suspension, or
- - the SEC has determined that such an emergency exists that disposal of
portfolio securities or valuation of assets is not reasonably practical.
We may also postpone any transfer from the Fixed Account or payment of any
portion of the amount payable on surrender, partial withdrawal or policy loan
from the Fixed Account for not more than six months from the day we receive your
written request and, if it is required, your policy. If we postpone those
payments for 30 days or more, the amount postponed will earn interest during
that period of not less than 3% per year or such higher rate as required by law.
We will not postpone payments to pay premiums on our policies.
==================What You Should Know About the Death Benefit==================
Net Death Benefit: If the insured dies before age 95, we will pay the net death
benefit. The amount of the net death benefit depends on which death benefit
option is in effect on the date of death. Under the Level Death Benefit Option
or the Adjustable Death Benefit Option (which are described later) we will
deduct from the death benefit any outstanding loan, rider charges and monthly
insurance protection charges due and unpaid through the policy month in which
the insured dies, as well as any partial withdrawals and withdrawal charges.
If the insured dies after age 95 and the paid-up insurance option has not been
exercised, we shall pay the policy value minus any outstanding loan. If the
paid-up insurance option is in effect on the date of the insured's death, we
will deduct any outstanding loan. We will pay interest from the date the insured
dies to the date the net death benefit is paid. If you choose a lump sum
payment, the interest rate will be at least 3% a year, or the minimum rate set
by law, whichever is greater. If the Adjustable Death Benefit Option is in
effect on the date of the insured's death, we will begin calculating interest on
the policy value portion of the net death benefit on the date we receive a death
certificate.
<TABLE>
<CAPTION>
Minimum Sum Insured Table
- --------------------------------------------------------------------------------
Age Percentage Age Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
thru 40 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75thru90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94 101%
95 100%
- --------------------------------------------------------------------------------
</TABLE>
Form 1027-95 18
<PAGE>
Required Minimum Amount of Death Benefit: In order to qualify as "life
insurance" under the federal tax law, this policy must provide a minimum death
benefit. This is called the "guideline minimum sum insured" in the tax code.
This is calculated by multiplying the policy value by the percentage shown in
the preceding Table. The guideline minimum sum insured varies by age. The
amounts shown in the Table are determined according to federal tax law, and will
be adjusted according to any changes in that law.
Death Benefit Options: You have two options for determining the amount of the
death benefit. The option you elected in your application is shown on page 3.
These options are not available if the policy is in force as paid-up insurance.
Under the Level Death Benefit Option, the death benefit is:
- - the face amount, or
- - the guideline minimum sum insured, whichever is greater. Under the
Adjustable Death Benefit Option, the death benefit is:
- - the face amount plus the policy value on the date we receive proof of
death (we will refund monthly insurance protection charges deducted from
the policy value after the insured's date of death), or
- - the guideline minimum sum insured, whichever is greater.
You may change the death benefit option by making a written request. That change
will be made on the next monthly processing date after we receive your request.
- - If you change from the Level Death Benefit Option to the Adjustable Death
Benefit Option, the face amount under the Adjustable Death Benefit Option
will be equal to the death benefit under the Level Death Benefit Option,
minus the policy value on the date of change.
- - If you change from the Adjustable Death Benefit Option to the Level Death
Benefit Option, the face amount will be equal to the death benefit under
the Adjustable Death Benefit Option on the date of change.
You may not change your death benefit option more than once in any policy year,
or if the change reduces the face amount to less than $40,000.
Benefit Change: You may increase or decrease the face amount of insurance if you
make a written request during the insured's lifetime.
You may not change the face amount if it does not meet the minimum death benefit
requirements set by federal tax law.
Increase: To increase the face amount:
- - you must complete our application and provide us with evidence of
insurability; and
- - the insured must be under our maximum issue age for new insurance; and
- - the insured must be approved by us according to our underwriting rules;
and
- - you must pay a $50 transaction charge, plus the amount which is necessary
to keep the policy in force for two months if the surrender value is less
than this amount.
This increased face amount will become effective on the first monthly processing
date on, or following, the date that all the conditions are met. We will deduct
the $50 transaction charge from the policy value on the effective date of
increase. We will provide you new specification pages, including a Supplemental
Insurance Protection Charge Table if the insured's underwriting class changes.
These pages will include the following information:
- - effective date of the increase,
- - amount of the increase,
- - underwriting class,
- - new minimum monthly payment,
- - new guideline premiums, and
- - new surrender charges applicable to the entire policy.
We reserve the right to set a limit on the minimum amount of an increase in the
face amount. No increase may be less than our minimum limit in effect on the
date we receive your request.
You may return the new specification pages to us within ten days after receiving
them, 45 days after you complete the "Application Form "which shows the amount
of the increase, or ten days after we mail you the Notice of Withdrawal Right.
If you return these pages, we will consider the increase void from the
beginning. We will add the charges back to the contract value unless you request
otherwise. We will also cancel any surrender charge for the increase.
Form 1027-95 19
<PAGE>
Decrease: You may decrease the face amount of the policy at any time. It will be
effective on the first monthly processing date after we receive your written
request. You must pay a $50 transaction charge.
The face amount will be decreased or eliminated in the following order:
- - first, the most recent increase,
- - second, the next most recent increases successively, and
- - last, the initial face amount.
We will deduct a $50 transaction charge and a surrender charge from the
policy value on the date of the decrease. The surrender charge will be the
surrender charge for the face amounts which are decreased or eliminated in
the order as noted above.
You may choose the sub-account from which these charges will be deducted; but if
you do not choose, we will allocate the charges pro rata.
We will provide you with new specification pages. These pages will include the
following information:
- - effective date of the decrease,
- - amount of the decrease and the face amount remaining in force,
- - new minimum monthly payment, if any,
- - new guideline premiums, and
- - new surrender charges applicable to the entire policy.
You may not decrease the face amount to less than our minimum issue limit
for this type of policy. We reserve the right to establish a minimum limit
on the amount of any decrease.
============================Paid-Up Insurance Option============================
Benefit: This is insurance, usually having a reduced face 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 can purchase for a net single
premium at the insured's age and underwriting class on the date this option is
exercised. The paid-up insurance death benefit may not exceed the death benefit
in effect on the date this option is exercised. In the event that the surrender
value exceeds the net single premium for the death benefit on the date this
option is exercised, the excess surrender value will be paid to you.
Basis of Values: The policy value and net single premium of the paid-up
insurance meet the minimum standards which are set by state law. The net single
premium is based on the Commissioners 1980 Standard Ordinary Mortality Table,
Smoker or Non-Smoker; Male, Female or Table B for unisex risks (or appropriate
increases in such tables for non-standard risks). Interest will not be less than
4 1/2%. See page 6 for the table showing the guaranteed net single premiums per
$1,000 of insurance.
Exercise of Option: The paid-up insurance option may be exercised by you on
written request. Policy value in the Variable Account will be transferred to the
Fixed Account on the date your written request to exercise this option is
received in our Principal Office. We will issue supplemental specification pages
that show the policy is paid up effective as of the monthly payment date
following receipt of the written request. The supplemental specification pages
will show:
- - the effective date of paid-up insurance;
- - the paid-up death benefit;
- - guaranteed cash surrender values; and
- - riders.
Effect on the Policy: After the policy becomes paid up, no further payments may
be made by you. You may not increase or decrease the face amount. You may not
make partial withdrawals or transfer funds to the Variable Account; however, you
may make policy loans or surrender the policy 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 outstanding loan. The
loan value of paid-up insurance is the amount that, with interest at 8% per
year, equals the cash value of the paid-up policy as of the next policy
anniversary.
Form 1027-95 20
<PAGE>
===============================Payment of Benefits==============================
Payment Options: Upon written request, the surrender value or all or part of the
net death benefit may be placed under one or more of the payment options offered
by us at the time the request is made. If you make no election, we will pay the
benefit 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, when filing proof of claim,
may pay us any amount that otherwise would be deducted from the net death
benefit.
The amounts payable under these options are paid from the General Account. The
options are not based on the investment experience of the Variable Account.
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 Owner and Beneficiary provisions, you may change any option
selection before the net death benefit becomes payable. If you make no
selection, the beneficiary may select an option when the proceeds become
payable.
Form 1027-95 21
<PAGE>
Summary:
Flexible Premium Variable Life Insurance Policy.
Adjustable Sum Insured.
Death Proceeds Payable at Death of Insured.
Flexible Premiums Payable to the Final Premium Payment Date.
Coverage to the Final Premium Payment Date and Amount of Policy Value Not
Guaranteed.
Nonparticipating.
Form 1027-95
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GUARANTEED DEATH BENEFIT RIDER
This rider is a part of the policy to which it is attached if it is listed in
the specifications page. The rider is issued in consideration of the payment of
the amount shown in the specifications page.
While this rider is in effect, the policy will not lapse if the following tests
are met:
1. Within 48 months following the date this policy is issued and the
effective date of issue of any increase in the face amount, the sum of
your payments less any outstanding loans, partial withdrawals and
withdrawal charges is greater than the minimum monthly payment multiplied
by the number of months which have elapsed since that date; and
2. On each policy anniversary, (a) must exceed (b) where, since the date this
policy was issued:
(a) is the sum of your payments less any partial withdrawals, partial
withdrawal charges and outstanding loan which is classified as a
preferred loan; and
(b) is the sum of the minimum guaranteed death benefit payments. The
minimum guaranteed death benefit payment amount is shown on the
specifications page or on a new specifications page in the event of
a policy change. The minimum guaranteed death benefit payment will
be prorated in any year in which there is a policy change.
If the policy values is less than the surrender charge on a monthly processing
date, the monthly insurance protection charge will be deducted from the policy
value. If the policy value is less than the monthly insurance protection charge,
the entire policy value will be applied to this charge.
If this rider is in effect on the final payment date, a death benefit will be
provided while this rider remains in force. The death benefit will be the face
amount as of the final payment date or the policy value as of the date due proof
of death is received by the Company, whichever is greater. Monthly insurance
protection charges will not be deducted after the final payment date if the
policy qualifies for the Guaranteed Death Benefit.
The Guaranteed Death Benefit will end and may not be reinstated on the first to
occur of the following:
1. Foreclosure of an outstanding loan; or
2. The date on which the sum of your payments does not meet or exceed
the applicable Guaranteed Death Benefit test; or
3. Any policy change that results in a negative guideline level
premium; or
4. The effective date of a change from the Adjustable Death Benefit
Option to the Level Death Benefit Option if such change occurs
within 5 policy years of the final payment date; or
5. A request for a partial withdrawal or preferred loan is made after
the final payment date.
Form 1099-97
<PAGE>
It is possible that the policy value will not be sufficient to keep the policy
in force on the first monthly processing date following the date this rider
terminates. The net amount payble to keep the policy in force will never exceed
the surrender charge plus three monthly deductions.
IN WITNESS WHEREOF, the Company has, by its President and Secretary, execeuted
this rider at Worcester, Massachusetts on the date of issue of this rider.
/s/ Richard M. Reilly /s/ [Illegible]
President Secretary
Form 1099-97
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
====================== Other Insured Term Insurance Rider ======================
This rider is a part of the policy to which it is attached if it is shown in the
specifications pages of the policy. The insured under the policy is the person
referred to as the insured under this rider. "Other insured" refers to each
person other than the insured who is insured under this rider.
=================================== Benefit ====================================
Benefit--We will provide term insurance on the life of each "other insured" for
whom an "other insured" Specification Page is issued. We will pay the term
insurance benefit upon receipt of due proof that an "other insured" died prior
to his or her term insurance expiry date while this rider is in force. Unless
otherwise requested, the term insurance benefit will be paid to you.
An Other Insured Schedule Page shows for each "other insured":
- - the name and age;
- - the adminstrative charge, if any;
- - the term insurance benefit;
- - the effective date of the term insurance; and
- - the term expiry date.
========================== Benefit Change Provisions ===========================
Change Provisions--You may change the amount of term insurance with respect to
each "other insured" if such request is made:
- - during the lifetime of the "other insured"; and
- - on written request while this policy is in force.
Increase--To increase the amoount of term insurance, you and the "other insured"
must complete the application and provide us with the following:
- - evidence of insurability;
- - the "other insured" must be under age 81; and
- - the "other insured" must be approved by us according to our underwriting
rules; and
- - you must pay us a $50 transaction charge, plus the amount needed to keep
the policy in force if the surrender value is less than this amount.
The increased amount of term insurance will become effective on the first
monthly processing date on, or following, the date all the conditions are met. A
supplemental Other Insured specifications page will be issued. This page will
include the following information:
- - the name of the "other insured";
- - the effective date of the increased term insurance;
- - the amount of the increase in the term insurance; and
- - minimum monthly payment, guideline premiums and charges.
No increase may be less than the Company's minimum limit in effect on the date
of the request.
Decrease--You may decrease the amount of term insurance on an "other insured" at
any time. It will be effective on the monthly processing date after we receive
your written reqest. Such term insurance will be decreased or eliminated in the
following order:
- - first, the most recent increase;
Form 1088-95 (Over)
<PAGE>
- - second, the next most recent increases successively; and
- - last, the original amount of term insurance.
A supplemental Other Insured Specifications Page issued will include the
following information:
- - the name of the "other insured";
- - the effective date of the decrease; and
- - the amount of the decrease and the benefit remaining in force.
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--You may convert the term insurance on the life of an "other insured"
if such request is made:
- - prior to the "other insured's" age 71;
- - while the "other insured" is alive; and
- - while this rider is in force.
Evidence of insurability will not be required.
New Policy Description--The new policy will be a flexible premium variable life
insurance policy. The new policy will be issued:
- - on the life of an "other insured" only;
- - for the same underwriting class which applies to the "other insured" under
this rider; and
- - at the "other insured's" age and for the insurance protection 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 net death benefit may not be less than our minimum issue limit. The net
death benefit may not exceed the term insurance benefit in effect on the date
conversion is requested.
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 this rider
would have expired. The new policy will be subject to any assignments
outstanding against this rider.
=================================== General ====================================
Owner--You are the owner of this rider. However, if you are the insured and at
the time of your death 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 the 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:
- - the expiration of the conversion period; or
- - the date of issue of the conversion policy.
Form 1088-95
<PAGE>
Our Right to Contest the Rider is Limited--We cannot contest the initial term
insurance benefit if this rider has been in force for two years from the date it
is issued, and the "other insured" is alive at the end of this two-year period.
If the term insurance benefit is increased or the underwriting class is changed
at your request, we cannot contest the increase or change after it has been in
force for two years from its effective date and the "other insured" is alive.
Suicide Exclusion--If an "other insured", while sane or insane, commits suicide
within two years of the date this rider is issued, we will not pay a death
benefit. The beneficiary will receive only the total amount of payments made to
us for the term insurance on the life of the "other insured" who committed
suicide. If the term insurance benefit is increased at your request, and then an
"other insured" commits suicide within two years, while sane or insane, we will
not pay the increased amount. Instead the beneficiary will receive the
administrative charge and charges paid for this increase, plus any net death
benefit otherwise payable.
Misstatement of Age--If the age of an "other insured" is not correctly stated,
we will adjust the amount we will pay under this rider. The amount will be the
term insurance benefit that would have been purchased by the last monthly
payment charge for this rider using the correct age.
Charges--Charges for this rider are paid as a part of the monthly insurance
protection charge due under the policy.
The maximum charges for each "other insured" are shown in each "Other Insured's"
Specification Page or pages. There may be no more than five "other insureds"
under this rider.
Termination--This rider will terminate on the first to occur of:
- - the end of the grace period of a premium in default; or
- - the termination or maturity of the policy; or
- - the monthly processing date following a request for termination.
Term insurance for each "other insured" will terminate on that "other insured's"
term expiry date.
General--The specifications pages (page 3 or 3.1 of the policy) will show the
date of issue of this rider.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
Signed for the Company at Dover, Delaware
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1088-95
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
================ OPTION TO ACCELERATE DEATH BENEFITS ENDORSEMENT ===============
This rider is a part of the policy to which it is attached. The insured under
this rider is the insured under the policy. This rider does not apply to any
benefits provided by rider.
Benefit--While this rider is in force, you may elect to receive a portion of the
net death benefit, called the "living benefit," prior to the insured's death
under either the terminal illness option or the nursing home option, subject to
the definitions, conditions and limitations in this endorsement. This option may
only be exercised once.
Definitions--"Option amount" means that portion of the death benefit which you
elect to apply under this option. The option amount must be at least $25,000 and
may not exceed the lesser of:
- - one-half of the death benefit on the date the option is elected; or
- - the amount that would reduce the face amount to our minimum issue limit
for this policy; or
- - $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 rider, and is the
amount used to determine the monthly benefit. The living benefit will not be
less than the surrender value of the policy multiplied by the option percentage.
The following factors will be used to calculate the living benefit:
- - age;
- - sex, unless the policy is issued on a unisex basis;
- - life expectancy;
- - policy value;
- - outstanding loan;
- - rate of interest currently being credited to the Fixed Account including
those values which are subject to outstanding loan;
- - face amount;
- - death benefit option;
- - current insurance protection charges;
- - administrative charges; and
- - an expense charge of $150.
An amount equal to the outstanding loan multiplied by the option percentage will
be deducted from the living benefit. The remaining outstanding loan 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; that is, based on changes in future expectations. We will
not change these factors to recoup any prior losses or distribute past gains
under the rider.
"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;
3. it meets all the requirements listed below:
- it is licensed as a nursing home by the state in which it is
located;
- its main function is to provide skilled, intermediate or custodial
nursing care;
- it is engaged in providing continuous room and board accommodations
to 3 or more persons;
- it is under the supervision of a registered nurse (RN) or licensed
practical nurse (LPN);
- it maintains a daily medical record of each patient; and
- 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" shall include:
- - a request signed by the insured to disclose all facts concerning the
insured's health;
Form 1089-95 1
<PAGE>
- - records of the attending physician, including a prognosis of the insured;
and
- - if we request, a medical examination of the insured at our expense
conducted by a physician we choose.
Conditions--Upon written request you may elect to receive payment under one of
the accelerated death benefit options subject to the following conditions:
- - the policy is in force;
- - a written consent has been given by any collateral assignee, irrevocable
beneficiary and the insured if you are not the insured; and
- - the insured qualifies for the option you elect.
Terminal Illness Option--If you provide proof of claim satisfactory to us that
the insured's life expectancy is 12 months or less, you 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 rider calculated at the interest rate we use to determine those payments.
If you do not wish to receive monthly payments, you 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)
you provide proof of claim satisfactory to the us that the insured is expected
to remain in the nursing home until death, you 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 due under
this rider calculated at the interest rate we use to determine those payments.
You may elect a longer payment period than that shown in the table. If you do,
monthly payments will be reduced so that the present value of the monthly
payments 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%.
<TABLE>
<CAPTION>
MINIMUM MONTHLY
PAYMENT PAYMENT FOR
PERIOD EACH $1,000
IN YEARS OF LIVING BENEFIT
<S> <C>
1 $85.21
2 $43.64
3 $29.80
4 $22.89
5 $18.74
6 $15.99
7 $14.02
8 $12.56
9 $11.42
10 $10.51
11 $ 9.77
12 $ 9.16
13 $ 8.64
14 $ 8.20
15 $ 7.82
16 $ 7.49
17 $ 7.20
18 $ 6.94
19 $ 6.71
20 $ 6.51
21 $ 6.33
22 $ 6.17
23 $ 6.02
24 $ 5.88
25 $ 5.76
26 $ 5.65
27 $ 5.54
28 $ 5.45
29 $ 5.36
30 $ 5.28
</TABLE>
We reserve the right to set a maximum monthly benefit, which will not be less
than $5,000.
If you do not wish to receive monthly payments, you may elect to receive a
single sum equal to the living benefit.
Form 1089-95 2 (Continued on page 3)
<PAGE>
Effect on Policy--The policy's death benefit will be decreased by the option
amount. Such decrease will be effective on the monthly payment processing date
following the date of the written request. Existing insurance will be decreased
or eliminated in the following order:
- - first, the most recent increase;
- - second, the next most recent increases successively; and
- - 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:
- - the surrender charge applicable to any increased face amount which is
eliminated in the order set forth above; plus
- - 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:
- - the effective date of the decrease;
- - the amount of the decrease and the benefit remaining in force;
- - the revised surrender charge;
- - the revised minimum monthly factor, if any; and
- - the new guideline premiums.
The policy value will be reduced in the same proportion as the reduction in the
death benefit. Riders will continue in force.
First to Die Policy--The following provisions apply if this rider is attached to
a First to Die Flexible Premium Adjustable Life Insurance Policy: The "insured"
shall mean the first insured to qualify for benefits under this rider. No
additional living benefits will be provided if other insureds qualify prior to
the death of the first insured to die. If the first to die under the policy is
not the first insured to qualify under this rider. The net death benefit as
adjusted by this rider will be paid to the beneficiary of the policy and payment
of the living benefit will continue as provided in this rider.
Exclusion--No benefit will be paid under this rider 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--This endorsement will terminate on the first to occur of:
- - the end of the grace period of a premium in default; or
- - the termination or maturity of the policy while the insured is alive; or
- - at any time on your written request.
General--The specification pages (page 3 or 3.1 of the policy) will show the
date of issue of this rider.
The living benefit will be made available to you on a voluntary basis only.
Accordingly:
(a) If you are required by law to exercise this option to satisfy the claim of
creditors, whether in bankruptcy or otherwise, you are not eligible for
this benefit.
(b) If you are required by a government agency to exercise this option in
order to apply for, obtain, or retain a government benefit or entitlement,
you are not eligible for this benefit.
Except as otherwise provided, all conditions and provisions of the policy apply
to this endorsement.
Signed for the Company at Dover, Delaware
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1089-95 3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
============================ Waiver Of Payment Rider ===========================
This rider is a part of the policy to which it is attached if it is shown in the
specification pages of the policy. The insured under the policy is the insured
under this rider.
Benefit--While the insured is totally disabled, we will add to the policy value
the waiver of payment benefit. This benefit is the larger of:
- - the amount shown in the specifications page; or
- - the minimum monthly payment for the face amount covered by this rider
during a period when the minimum monthly payment applies; or
- - the monthly insurance protection charges applicable to the face amounts
and other riders covered by this rider.
The waiver of payment benefit is subject to:
- - our receipt of due proof of such total disability; and
- - evidence the total disability:
- began while this rider was in force; and
- began before the policy anniversary nearest age 65; and
- has continued for at least 4 months; and
- - the other terms and conditions of this rider.
The benefit will begin with the policy month following the date total disability
begins or the policy 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 policy value with any benefit which
applies to the time during which benefits are payable.
Each monthly benefit will be allocated in accordance with the payment allocation
in effect on the date each benefit is credited to the policy value.
If the insured's total disability occurs before the policy anniversary nearest
age 60, the benefit will end when total disability ends. If the total disability
occurs on or after the policy anniversary nearest age 60, the benefit will
continue during such total disability but not beyond the policy 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 attendance at school if the insured is not old enough to legally end his
or her formal education. Otherwise "occupation" means:
- - during the first 60 months of disability, the occupation of the insured
when such disability began; and
- - 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:
- - speech;
- - hearing in both ears; or
- - the sight of both eyes; or
- - the use of both hands; or
- - the use of both feet; or
- - the use of one hand and one foot.
Risks Not Covered--No benefit will be provided if total disability results,
directly or indirectly, from:
- - 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
- - any bodily injury occurring or disease first manifesting itself prior to
the date of issue of this rider. However, no claim for total disability
commencing after two years from the date of issue will be denied on the
ground that the disease or impairment not excluded from coverage by name
or specific description existed prior to the date of issue of this rider.
Form 1086-94 (over)
<PAGE>
Notice and Proof of Claim--Written notice of claim must be sent to our Principal
Office:
- - during the lifetime of the insured; and
- - while the insured is totally disabled; and
- - not later than 12 months after this rider terminates.
Proof of claim must be sent to our 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 at 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 chosen by us. Such medical exams 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 policy anniversary nearest age 65.
Benefit Changes--The benefit may be changed on written request. Any increase is
subject to:
- - evidence of insurability;
- - the insured must be under age 60 and insurable according to our
underwriting rules; and
- - payment to us of the amount needed to keep the policy in force if the
surrender value is less than all charges due on the policy.
No increases, when added to the existing benefit, shall exceed the following
limits:
<TABLE>
<CAPTION>
- ---------------------------------------------------
Maximum Benefit Table
- ---------------------------------------------------
Monthly Benefit
Attained Per $1,000
Age Face Amount
- ---------------------------------------------------
<S> <C>
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
- ---------------------------------------------------
</TABLE>
The waiver of premium benefit will be reduced if it exceeds the maximum benefit
after the face amount of the policy 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. The changed benefit will be
shown in a supplementary specifications page. The charges for an increased
benefit will be shown in a Supplemental Insurance Protection Charge Table if the
insured's underwriting class changes.
Incontestability--Except for failure to pay the monthly insurance protection
charges, this rider cannot be contested after the end of the following time
periods:
- - the initial benefit cannot be contested after the rider has been in force
during the insured's lifetime and without the occurrence of the total
disability of the insured for two years from the date of issue; and
- - 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--This rider will terminate on the first to occur of:
- - the end of the grace period of a premium in default; or
- - the termination or maturity of the policy; or
- - the day before the policy anniversary nearest age 65, except as provided
in the Benefit provision; or
- - the end of the policy month following a request for termination.
Rider Charge--Charges for this rider are paid as a part of the monthly insurance
protection charges due under the policy.
The monthly charge is the waiver charge shown in the Insurance Protection Charge
Table multiplied by the greater of:
- - the monthly insurance protection charges applicable to the face amount and
other riders covered by this rider; or
- - one-half of the waiver of payment benefit shown in specifications page.
Form 1086-94
<PAGE>
General--The specifications page (page 3 of the policy) will show the date of
issue of this rider.
When an increase in face amount or an additional rider is applied for, waiver of
payment coverage must also be requested. We reserve the right to decline
issuance of the waiver of payment coverage for the increased face amount or
additional rider benefit.
If total disability begins during the grace period of a past due premium, such a
premium will be payable.
The waiver of payment benefit will not reduce any amount payable under the
policy.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
Signed for the Company at Dover, Delaware.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1086-94
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
========================= Guaranteed Insurability Rider ========================
This rider is a part of the policy to which it is attached if it is shown in the
specifications pages of the policy. The insured under the policy is the insured
under this rider.
Benefit--On each option date you may increase the face amount of insurance
without evidence of insurability if written request is made:
- - during the lifetime of the insured;
- - while this rider and policy are in force; and
- - subject to the terms of this rider.
Option Dates--The first option date for this rider is shown in the
specifications pages of the policy. Option dates will then occur on every second
anniversary of the first option date until the policy anniversary nearest age 40
or until the fifth option date, whichever is later.
Exercise of Increase Option--Options may be exercised on the life of the insured
not earlier than 60 days prior to, nor later than 31 days after an option date.
The specifications page of the policy shows the "option amount" and the "total
option amount". The total option amount is the maximum aggregate face amount of
insurance which may be purchased through this rider. Each time the option to
increase the face amount of insurance is exercised, the total option amount is
reduced by the amount of the insurance purchased. The face amount which may be
purchased at one time may not exceed the option amount or the total amount
remaining, if less. The increased face amount may not be less than $10,000.
The insurance protection charges for the increased face amount will be
calculated in the same manner as these charges for other increases in the face
amount. The guaranteed insurance protection charges will not exceed the
guaranteed charges in effect on the date of issue of this rider.
Supplemental specifications pages will be issued. They will include the
following information:
- - the effective date of the increased face amount;
- - the amount of the increase; and
- - the surrender charge.
The supplemental specifications pages will also show a new minimum monthly
payment and new guideline premiums which will apply to the entire policy. There
is no administrative charge for the exercise of this option.
If the surrender value on the date of issue of an increase is less than the
insurance protection charges due on the policy you must pay the grace period
premium to us.
The effective date of the increased face amount will be the monthly processing
date following the date of the written request. If the insured dies after the
date of the written request and before the increased face amount takes effect,
we will refund any premium paid to exercise this option.
The time periods in the suicide and incontestable clauses for the increased face
amount will be measured from the date of issue of this rider.
Waiver of Payments--If this policy contains a waiver of payment rider on the
effective date of the increased face amount, the waiver of payment benefit may
be increased without evidence of insurability. If waiver of payment benefits are
being paid on the increase date, the increased benefit will become payable on
the increase date.
If on the effective date of an increase the waiver or payment benefit is
designated in the specification pages as the monthly insurance protection
charges, this benefit will be increased by the insurance protection charges for
the increased face amount.
If the waiver of payment benefit on an increase date is shown in the
specification page as dollar amount, this benefit will be increased by the
smaller of:
- - the waiver of payment benefit on the option date minus 1/12 of the sum of
the payments made by you over the last 12 policy months.
- - the amount shown in the waiver of payment benefit table.
<TABLE>
<CAPTION>
- ---------------------------------------------------
Waiver of Premium Benefit Table
- ---------------------------------------------------
Monthly Benefit
Attained Increase Per $1,000
Ages Face Amount Increased:*
- ---------------------------------------------------
<S> <C>
18-19 $ .50
20-29 .63
30-39 1.00
40-49 1.50
50-54 2.00
55-59 2.75
- ---------------------------------------------------
</TABLE>
* In no event may the waiver of payment
benefit be increased to exceed the
monthly equivalent of the periodic payment.
- ---------------------------------------------------
Form 1087-95 (Over)
<PAGE>
Incontestability--Except for failure to pay the monthly insurance protection
charge, this rider cannot be contested after it has been in force for two years
from its date of issue and the insured is alive.
Termination--This rider will terminate on the first to occur of:
- - the end of the grace period of a premium in default; or
- - the end of the policy month following a request for termination; or
- - the last option date; or
- - the date of issue of an increase which, when added to the sum of all prior
increases under this rider, reduces the total option amount remaining to
less than $10,000.
General--The specification pages (page 3 or 3.1 of the policy) will show for
this rider:
- - the date of issue;
- - the first option date;
- - the option amount; and
- - the total option amount.
Except as otherwise provided, any additional benefits or riders will not be
added or increased without the our prior consent.
Reinstatement of this rider will not revive any option date which occurred
during the period of lapse.
Charges for this rider are payable as a part of the monthly insurance protection
charges due under this policy, The monthly insurance protection charge for this
rider is shown on page 5 or 5.1 of the policy.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
Signed for the Company at Dover, Delaware.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1087-95
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
===================== Life Insurance Exchange Option Rider =====================
This rider is a part of the policy to which it is attached if it is listed in
the specifications pages of the policy. The consideration for this rider is the
premium shown in the specification pages. The insured under this policy is the
insured under this rider. The successor insured will be the person named in the
application when the exchange option is exercised.
Exchange Option Benefit--While this rider is in force, you may exchange the
existing policy for a new policy of life insurance on the life of the successor
insured subject to the provisions and conditions of this rider.
Definitions--"Existing policy" means the policy to which this rider is attached
insuring the life of the insured.
"New policy" means the policy insuring the life of the successor insured.
Exercise of the Option--To exercise the exchange option you and the successor
insured must complete the application and provide us with the following:
- - evidence of insurability;
- - the successor insured must be under age 76;
- - the successor insured must be approved by us according to our underwriting
rules;
- - proof you have an insurable interest in the successor insured;
- - written consent of the exchange by all assignees and irrevocable
beneficiaries, if any, of this policy;
- - payment of the amount required, if any, by this rider, and
- - surrender of the existing policy.
If the successor insured is not approved, we will return to you any amounts paid
and the existing policy and this rider will remain in force.
Exchange Date--The exchange date will be the monthly processing date following
the later of:
(a) the date we receive your payment of any amount due for the exchange; and
(b) the date we approve the successor insured for the new policy.
Insurance provided by the existing policy shall terminate at the end of the day
preceding the exchange date. Insurance on the life of the successor insured will
begin on the exchange date. No death benefit will be paid if the successor
insured dies on or after the date of the application for the new policy and
before the exchange date. Instead, we will refund the amount paid on the new
policy.
Required Payment or Adjustment--If the exchange date is within one year of the
date of issue of the existing policy or any increase in the face amount, a
premium adjustment may be made. If the minimum monthly payment for the new
policy exceeds the minimum monthly payment for the existing policy, you must pay
the excess.
You must also pay the insurance protection charges for two months if the
surrender value is not large enough to pay such charges on the exchange date for
the successor insured.
After the first anniversary, the surrender value of the new policy on its date
of issue may not exceed the surrender value of this policy on the date of
exchange.
Any outstanding debt under the existing policy will be transferred to the new
policy; however, if the outstanding debt is greater than the loan value of the
new policy, the excess must be repaid to the Company before the exchange date.
New Policy Description--The date of issue of the new policy will be the later of
the date of issue of the existing policy and the policy anniversary following
the successor insured's date of birth. The time periods in the suicide and
incontestability provisions will be measured from the exchange date.
Form 1090-95 (Over)
<PAGE>
The new policy will be a flexible premium adjustable life insurance policy. The
insurance protection charges will be based on the rates in use on the date of
issue of the new policy for the successor insured's underwriting class on the
exchange date.
The face amount of the new policy may not be less than the our published minimum
issue limits nor greater than the face amount of the existing policy.
We may decline to include in the new policy any riders. Charges for riders
included in the new policy will be at the rates in use on the exchange date for
the successor insured's underwriting class.
Termination--This rider will terminate on the first to occur of:
- - the expiration of the grace period of any premium in default under the
existing policy, or
- - termination or maturity of this policy, or
- - upon written your request, or
- - the date before the policy anniversary nearest the insured's 70th
birthday, or
- - exercise of this exchange option.
General--Except as otherwise provided, all of the provisions and conditions of
the existing policy apply to this rider.
IN WITNESS WHEREOF, we have, by our President and Secretary, executed this rider
at Worcester, Massachusetts, on the date of issue of this rider.
/s/ [Illegible] /s/ Richard M. Reilly
Secretary President
Form 1090-95
<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
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information, and such other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year)
to have the prospectus for the Variable Products and the Fund's prospectus
printed together in one document, and to have the statement of additional
information for the Fund and the statement of additional information for the
Variable Products printed together in one document. Alternatively, the
Company may print the Fund's prospectus and/or its statement of additional
information in combination with other fund companies' prospectuses and
statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. For any prospectuses and statements of
additional information provided by the Company to the existing owners of
Variable Products who currently own shares of one or more of the Fund's
Portfolios, in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film or computer diskettes in lieu of
receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of x and y where x is the
number of such prospectuses distributed to owners of the Variable Products
who currently own shares of one or more of the Fund's Portfolios, and y is
the Fund's per unit cost of typesetting and printing the Fund's prospectus.
The same procedures shall be followed with respect to the Fund's statement of
additional information. The Company agrees to provide the Fund or its
designee with such information as may be reasonably requested by the Fund to
assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those
actually distributed to existing owners of the Variable Products.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distribution to contract owners. The Fund or its
designee shall bear the cost of printing, duplicating, and mailing of these
documents to current contract owners, and the Company shall bear the cost for
such documents used for purposes other than distribution to current contract
owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Fund and the Company shall follow the procedures, and
shall have the corresponding
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.
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<PAGE>
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Variable Insurance Product owners;
or (f) a decision by a Participating Insurance Company to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. Each of the Company and the Adviser will report any potential or
existing conflicts of which it is aware to the Board. Each of the Company
and the Adviser will assist the Board in carrying out its responsibilities
under SEC rules and regulations. The Adviser, and the participating
insurance companies and participating qualified plans will at least annually
submit to the Board such reports, materials, or data as the Board may
reasonably request so that the Board may fully carry out the obligations
imposed upon by the conditions contained in the Shared Funding Exemptive
Order, and said reports, materials, and data will be submitted more
frequently if deemed appropriate by the Board.
7.3. If it is determined by a majority of the Board, or a majority of
its members who are not "interested persons" of the Fund, the Adviser or the
Company as that term is defined in the 1940 Act (hereinafter "disinterested
members"), that a material irreconcilable conflict exists, the Company and
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (I.E., annuity contract
owners, life insurance policy owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account (at the Company's expense); provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the
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<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.
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8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Products or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company, each of its directors,
officers, and employees, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of shares of the Portfolio that it manages or the
Variable Products and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Products or Portfolio
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Products not supplied by the Fund or persons under its
control and other than statements or representations authorized by
the Company) or unlawful conduct of the Fund, Adviser(s) or
Distributor or persons under their control, with respect to the
sale or distribution of the Variable Products or Portfolio shares;
or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Variable Products, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Adviser; as limited by and in accordance
with the provisions of Sections 8.2(b) and 8.2(c) hereof.
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8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
8.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Adviser in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Adviser
of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or
sale of the Variable Products or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (hereinafter collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof), litigation or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund, as limited and in accordance with the
provisions of Sections 8.3(b) and 8.3(a);
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as may arise from such Indemnified Party's gross
negligence, bad faith, or willful misconduct the performance of
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
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
<PAGE>
- 2 -
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.
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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.
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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>
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(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>
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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>
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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
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
-1-
<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.
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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
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<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.
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<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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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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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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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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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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(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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(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.
-19-
<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.
-20-
<PAGE>
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.
-21-
<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.
-22-
<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
--------------------------------------
-23-
<PAGE>
Schedule A
----------
Accounts
--------
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account VA-K November 1, 1990
-24-
<PAGE>
Schedule B
----------
Contracts
---------
1. Contract Form A3018-91
---------------
-25-
<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.)
-26-
<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>
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.
<PAGE>
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>
AGREEMENT FOR LOCKBOX SERVICES
This Agreement is entered into as of July 1, 1997, by and between Boston
Financial Data Services Inc. ("BFDS") and First Allmerica Financial Life
Insurance Company, its subsidiaries and affiliates ("Customer") for the
lockbox services provided in the Exhibit(s) attached hereto and hereby made a
part of this Agreement.
WHEREFORE the parties hereto in consideration of the mutual covenants
contained herein and intending to be legally bound, agree as follows:
A. SERVICES:
Upon Customer's authorization of the postmaster in Boston to permit employees
of BFDS to access the P.O. Box specified and subject to the terms and
conditions of this Agreement, BFDS hereby agrees to provide Customer with the
services described in the Exhibit(s) attached hereto.
B. INVOICES:
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit _A_. These fees will
remain in effect for a period of three years with an allowable increase in
year two and three no greater than the calculated Northeast CPI for the
previous period. In addition, BFDS will charge such account for all
reasonable out-of-pocket expenses, such as courier fees, incurred by BFDS in
connection with any rent paid by BFDS for the P.O. Box. Payment on all
invoices submitted by BFDS shall be due net thirty (30) days from receipt of
invoice.
C. TERMINATION:
This Agreement may be terminated by either party with material cause at any
time by 30 days prior written notice to the other, and without cause at any
time by 90 days prior written notice to the other. Either party may
terminate this Agreement at any time on notice to the other in the event of
dissolution or insolvency or the commencement of any proceedings under any
bankruptcy or insolvency law by or against the other.
D. LIABILITY AND INDEMNIFICATION:
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000.00 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurer(s) licensed to do business in the Commonwealth of
Massachusetts and having an A. M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
E. FORCE MAJEURE:
Neither party shall be responsible for delays or failure in performance
resulting from causes beyond its control, including, without limitation, acts
of God, riots, acts of war, governmental regulations, fire, communication
line failures, power failures, earthquakes, or other disasters.
F. NO ADVERTISEMENT:
BFDS shall not (a) make any mention of this Agreement in any advertisement or
promotional material; or (b) issue or release any publicity statement or
release concerning this Agreement or the services provided, or to be
provided,
<PAGE>
hereunder, without the written consent of Customer being first obtained.
G. SOLICITATION:
BFDS shall not solicit any of Customer's employees while said employees are
employed by Customer, and for one (1) year following the date that Customer's
employee has terminated employment with Customer, unless otherwise expressly
agreed in writing by Customer.
H. CONFIDENTIALITY:
As used herein, the term "confidential information" shall mean non-public
information that either party designates as confidential, or which, under the
circumstances, ought to be treated as confidential. Confidential information
may be in any tangible form, including without limitation written or printed
text or documents, audio or video tapes, CD's or disks and computer disks or
tapes, whether in machine readable or user readable form. Confidential
information shall include without limitation information relating directly or
indirectly to the marketing or promotion of either party's products, released
or unreleased software or other programs, trade secrets, business policies
and/or practices, and any information received by or about third parties,
including claimants, that either party is obligated to treat as confidential.
Customer and BFDS hereby acknowledge and agree that, in providing sufficient
information or access to BFDS to allow BFDS to perform in accordance with
this Agreement, or otherwise allowing BFDS to perform as required hereunder,
Customer and/or its agents, servants, customers or employees may disclose to
BFDS, or BFDS may otherwise obtain, certain information that is confidential
and/or proprietary to Customer and/or its agents, servants, employees,
customers or the dependents thereof. Customer and BFDS hereby also
acknowledge and agree that, in providing sufficient information or access to
Customer to allow Customer to perform in accordance with this Agreement, or
otherwise allowing Customer to perform as required hereunder, BFDS and/or its
agents, servants, customers or employees may disclose to Customer, or
Customer may otherwise obtain, certain information that is confidential
and/or proprietary to BFDS and/or its agents, servants, employees, customers
or the dependents thereof. Accordingly, the parties hereby agree to keep
such information confidential and prevent its unauthorized disclosure. Each
party shall: (a) not make any copies of the other's (and/or its agents'
servants' or employees', or customers') confidential information without
first obtaining the written consent of such other and/or the appropriate
individual(s) therefor; (b) not utilize any confidential information of the
other (and/or any confidential information of its agents, servants,
employees, or customers) except in the furtherance of the obligations and
responsibilities specified hereunder, and for no other purpose(s) whatsoever;
and (c) return any such confidential information in its possession to the
other immediately upon (i) the other's demand therefor, (ii) the
accomplishment of the purpose for which such confidential information is or
was held or obtained, or (iii) the expiration or other termination of this
Agreement. In the event of any breach or threatened breach by either party
(or any of either party's agents, servants, vendors, principles, owners,
affiliated persons or employees) of the covenants, agreements and/or
conditions contained in this section, the other party and/or the appropriate
agents, servants, employees, claimants, or customers shall be entitled to an
injunction prohibiting such breach in addition to any other legal and/or
equitable remedies available to them and/or the appropriate individual(s) in
connection with such breach. The parties acknowledge that any confidential
information disclosed to it is valuable, proprietary and unique and that any
disclosure thereof in breach of this Agreement shall result in irreparable
harm. The agreements, covenants and conditions contained in this section
shall survive the expiration or any earlier termination of this Agreement.
I. ASSIGNMENT:
II.
Notwithstanding the foregoing, Customer may, without the consent of BFDS,
assign or transfer this Agreement to any present or future affiliate or
<PAGE>
subsidiary of First Allmerica Financial Life Insurance Company. BFDS agrees
to release Customer from all obligations under this Agreement in the event
that such obligations are assumed under the preceding sentence by a
corporation or entity whose financial responsibility is equivalent to or
greater than that of Customer. As used herein, the term "Customer" shall
include First Allmerica Financial Life Insurance Company and all of its
present or future affiliates or subsidiaries, including without limitation
all corporate successors of any of the foregoing that may result from merger,
consolidation, reorganization, demutualization or conversion. As used
herein, the term "affiliate" shall include any entity controlling, controlled
by or under common control with, First Allmerica Financial Life Insurance
Company, or which following a merger, consolidation, demutualization or
reorganization involving First Allmerica Financial Life Insurance Company is
controlled by an entity that controlled First Allmerica Financial Life
Insurance Company or that First Allmerica Financial Life Insurance Company
controlled or that was under common control with First Allmerica Financial
Life Insurance Company, in each case, prior to such merger, consolidation,
demutualization or reorganization. BFDS may not, without the consent of
Customer, assign or transfer this Agreement to any present or future
affiliate or subsidiary of Boston Financial Data Services, Inc.
J. NOTICE:
Any notice under this Agreement shall be deemed to have been given if sent by
mail, postage prepaid, to the following addresses: if to Customer - First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester, MA
01653, Attn: Manager, Cash Management, N479; or such other address as
Customer may designate by written notice to BFDS; if to BFDS - Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
K. SEVERABILITY:
Each and every covenant, provision, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term or clause.
L. ENTIRE AGREEMENT:
This Agreement constitutes the entire Agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter hereof,
whether written or oral, and may not be changed or otherwise terminated,
orally or otherwise, except as expressly provided herein or by an instrument
in writing signed by a duly authorized representative of Customer and BFDS.
M. GOVERNING LAW:
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
The Exhibits attached hereto are hereby made a part of this Agreement.
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by a duly authorized representative of both parties. If any terms are
inconsistent between this Agreement and any Exhibits attached hereto, the
terms of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement effective as of the date first
written above.
BOSTON FINANCIAL DATA SERVICES, INC.
BY: /s/ STEPHEN HILL
<PAGE>
TITLE: VICE PRESIDENT
DATE:
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
BY: /s/ EDWARD A. OSTROUT
TITLE: ASSISTANT TREASURER
DATE: JULY 24, 1997
<PAGE>
EXHIBIT A
(ALLMERICA FINANCIAL FEE PROPOSAL BOSTON FINANCIAL DATA SERVICES MAY 1997)
(REV. 7-14-97)
<PAGE>
Allmerica Financial
440 Lincoln Street
Worcester, MA 01653
Re: Retail Lockbox Agreement (Page 1 of 3)
Boston Financial Data Services Inc, ("BFDS") is pleased to establish a
lockbox service for your organization. The lockbox will be operated in
conjunction with Post Office Box No (the "P.O. Box") (See Attached) Boston,
MA, our unique zip code of 02266, and your deposit account(s) at Bank of
Boston entitled (the "Account").
We understand that you have authorized the postmaster in Boston to
permit employees of BFDS to access the P.O. Box. Subject to the terms of
this Agreement, BFDS hereby agrees to provide the following services:
1. BFDS will collect all mail received at the P.O. Box at
various times each day.
2. All checks removed by BFDS from the P.O. Box will be deposited
into the Account as instructed within the client's operating
procedures.
3. BFDS shall not have any responsibilities to read any letter
or other communication received in the P.O. Box, although
checks received with any letter or other communication will
be deposited in the Account. Likewise, any post-dated check
which BFDS determines will be received by the drawee bank by
the date of such check will be deposited in the Account.
BFDS is authorized to endorse checks deposited in the Account
with the endorsement "absence of endorsement guaranteed" or
other similar endorsements and you agree to indemnify BFDS
against any loss, cost or expense resulting from such
endorsement.
4. All processing, depositing and collection of checks shall be
subject to the established procedures followed from time to
time by BFDS in connection with any regular deposit received
by BFDS.
5. Checks returned unpaid because of insufficient funds will be
automatically forwarded for collection a second time; if
unpaid after the second presentation, such checks, together
with advice of debit, will be sent to you.
6. As compensation for services hereunder, you shall pay BFDS mutually
agreed upon fees and expenses.
These fees are to be applied to your account and will remain in effect
for a period of three years with an allowable increase in year two and
three no greater than the calculated Northeast CPI for the previous
period. In addition, BFDS will charge the Account for all out-of-pocket
expenses, such as courier fees, incurred by BFDS in connection with any
rent paid by BFDS for the P.O. Box.
7. This Agreement may be terminated by either party at any time by 90- days
prior written notice to the other, provided that BFDS may terminate this
Agreement at any time on notice to you in the event of your dissolution
or
<PAGE>
insolvency or the commencement of any proceedings under any bankruptcy or
insolvency law or by or against you.
8. BFDS, in performing its duties under this Agreement, shall not be liable
to you except for gross negligence or willful misconduct. BFDS shall
not be responsible for delays or failure in performance resulting from
causes beyond its control including, without limitation, acts of God,
strikes, lockouts, riots, acts of war, governmental regulations, fire,
communication line failures, power failures, earthquakes or other
disasters. BFDS shall also not be liable for special or consequential
damages.
9. Any notice under this Agreement shall be deemed to have been given if
sent by mail, postage prepaid, to the following addresses: If to you,
the address set forth on page one hereof, or to such other address as
you may designate by written notice to BFDS; if to BFDS, Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
10. This Agreement constitutes the entire Agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof, whether written or oral.
11. BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However,
BFDS has the right to make copies of such records, in its discretion.
To the extent that any records maintained on behalf of Allmerica are
subject to section 31a-1 under the Investment Company Act of 1940 ("1940
Act"), BFDS agrees to preserve such records for the periods prescribed
by rule 31a-2 under the 1940 Act.
12. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in conjunction
with any investigation or inquiry relating to the services to be
provided by BFDS. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Insurance Commissioner of any
state with any information or reports in connection with services
provided under this Agreement which such Commissioner may reasonably
request in order to ascertain whether the variable contracts operations
of Allmerica are being conducted in a manner consistent with the state's
regulations concerning variable contracts and any other applicable law
or regulation.
13. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
BOSTON FINANCIAL DATA SERVICES INC.
BY: /s/ Stephen Hill
TITLE: Vice President
DATE: 11/4/97
ALLMERICA FINANCIAL
BY: /s/ Edward A. Ostrout
TITLE: Assistant Treasurer
DATE: 11/5/97
<PAGE>
Service Level Agreement
Boston Financial Data Services
First Allmerica Financial Life Insurance Company
and
Allmerica Financial Life Insurance and Annuity Company
THIS AGREEMENT is entered into as of this _____ day of January, 1998 by and
among First Allmerica Financial Life Company and Allmerica Financial Life
Insurance and Annuity Company (collectively, "Allmerica") and Boston Financial
Data Services, Inc., ("BFDS").
WHEREAS, Allmerica and BFDS have entered into a Retail Lockbox Agreement and
Allmerica wishes to obtain from BFDS additional mailroom services in connection
with said Retail Lockbox Agreement,
NOW, THEREFORE, in consideration of their mutual promises, Allmerica and BFDS
hereby agree as follows:
1. SERVICES
BFDS hereby agrees to provide Customer with Services ("Services")
according to the specifications ("Service Levels") described in the
following Exhibits(s), which are attached hereto and made a part of this
Agreement:
1. Exhibit B "Boston Financial Data Services--Operations Support Services--
Service
Level Agreement--Allmerica Financial"
2. Exhibit C "Allmerica Financial--Notes for BFDS on Allmerica's intended
Procedures"
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by duly authorized representatives of both parties. If any terms are
inconsistent between this Agreement and any exhibits attached hereto, the
terms of this Agreement shall prevail.
Material failure to provide the Services and Service Levels set forth in the
Exhibits shall be considered a Default for the purposes of section 4.
TERMINATION.
2. COMPENSATION
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit A.
<PAGE>
3. LIMITATION OF LIABILITY
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurers(s) licensed to do business in the Commonwealth of
Massachusetts and having an A.M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance Policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
Neither party shall not responsible for delays or failure in performance
resulting from causes beyond its control including, without limitation,
acts, of God, strikes, lockouts, rots, acts of war, governmental
regulations, fire, communication line failures, power failures, earthquakes
or other disasters.
4. TERMINATION
This Agreement may be terminated: (a) by either party at any time by 90 days
prior written notice to the other; (b) at any time by mutual written consent
of the parties; or (c) by either party immediately, upon notice to the other
party that the other party is in Default. The occurrence of any one or more
of the following events shall constitute a Default under the Agreement by
the party to whom the event relates:
(a) Any failure or refusal by a party to substantially perform or satisfy
any material term or condition of the Agreement, if such failure or
refusal continues for more than 30 days after the earlier of (i) notice
thereof to such defaulting party by the other party, or (ii) actual
knowledge by the failing party that it is failing to perform or satisfy a
material term or condition of the Agreement.
(b) The voluntary or involuntary bankruptcy or insolvency of a party, the
voluntary or involuntary dissolution or liquidation of a party, the
admission in writing by a party of its inability to pay its debts as
they mature, or the assignment by a party for the benefit of creditors.
- 2 -
<PAGE>
5. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other party.
If to the Fund:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
If to Allmerica:
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
6. RECORDS
BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are the property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However, BFDS
has the right to make copies of such records, in its discretion. To the
extent that any records maintained on behalf of Allmerica are subject to
section 312a-1 under the Investment Company Act of 1940 ("1940 Act") BFDS
agrees to preserve such records for the periods prescribed by Rule 31a-2
under the 1940 Act.
7. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
8. SEVERABILITY
Each and every covenant, profession, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term, or clause.
If any provision of the Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
- 3 -
<PAGE>
9. ASSIGNMENT
Customer may, without the consent of BFDS, assign or transfer this Agreement
to any present or future affiliate or subsidiary of First Allmerica
Financial Life Insurance Company. As used herein, the term "affiliate"
shall include any entity controlling, controlled by or under common control
with, First Allmerica Financial Life Insurance Company. BFDS may not,
without the consent of Customer, assign or transfer this Agreement to any
present or future affiliate or subsidiary of BFDS. This Agreement or any of
the rights and obligations hereunder may not be assigned by any party
without the prior written consent of all parties hereto.
10. REGULATORY AUTHORITIES
Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD,
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Insurance Commissioner of any state with any
information or reports in connection with services provided under this
Agreement which such Commissioner may request in order to ascertain whether
the insurance operations of the Company are being conducted in a manner
consistent with applicable laws and regulations.
11. CAPTIONS
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12. CONTROLLING LAW
This Agreement shall be governed by and its provisions shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
- 4 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
BOSTON FINANCIAL DATA SERVICES, INC.
By: /s/ John E. Ciardi
-----------------------------------------------------
Title: Vice President - Operations Support Services
-----------------------------------------------------
Date: 2/4/98
-----------------------------------------------------
- 5 -
<PAGE>
Allmerica Financial Life Authorization to
ALLMERICA S E L E C T Insurance and Annuity Company Obtain Information
================================================================================
- ---------------
Name of Insured
- --------------- ----------------------------------------------------------------
(Please Print)
- --------------------------------------------------------------------------------
AUTHORIZATION TO OBTAIN INFORMATION
- --------------------------------------------------------------------------------
To all physicians, medical professionals, hospitals, clinics, other health care
providers, employers, Medical Information Bureau, Inc. (MIB), consumer reporting
agencies, other insurance support organizations, the United States Internal
Revenue Service, the Puerto Rico Bureau of Income Tax, and other persons who
have the types of information described below about the proposed insured:
I authorize you to give the Company, its reinsurers, or its agent; (a) all
information you have as to illness, injury, medical history, diagnosis,
treatment, and prognosis (including any drug or alcohol abuse condition or
treatment) with respect to any physical or mental condition of the proposed
insured; and (b) any non-medical information, including but not limited to, an
investigative consumer report and copies of my tax returns filed with the United
States Internal Revenue Service and/or the Puerto Rico Bureau of Income Tax,
which the company believes it needs to perform the business functions described
below. I also authorize the Company to give MIB health or non-medical
information it has about me and that of any minor member of my family applying
for insurance.
The information obtained will be used to determine if the proposed insured is
eligible for: (a) the insurance requested; or (b) benefits under a policy which
is in force. It will also be used for any other business purpose which relates
to the insurance requested or the policy which is in force. This authorization
will be valid for 30 months. I know that under Federal Regulations, I may revoke
this authorization as it applies to drug and alcohol abuse treatment at any
time; but my revocation will not affect any information that has been released
prior thereto. I know that I may request a copy of this form. I agree that a
photocopy is as valid as the original. I have received the Insurance Information
Practices notice.
- --------------------------------------------------------------------------------
Signature of proposed insured
(if proposed insured is a minor, signature of legal guardian)
- --------------------------------------------------------------------------------
Signature of spouse (if proposed for insurance)
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
PERSONAL HISTORY INTERVIEW INFORMATION
- --------------------------------------------------------------------------------
Proposed Insured's (Professional Title)
- --------------------------------------------------------------------------------
Application For
| | Adult | | Juvenile Amount $___________
- --------------------------------------------------------------------------------
Home Telephone: (Area Code) and No.
(___)___________________________
Business Telephone: (Area Code) and No.
(___)____________________________
- --------------------------------------------------------------------------------
Driver's License Information
No. ___________________ State _______________
- --------------------------------------------------------------------------------
Allmerica may be contacting you to discuss this application. The best time for
us to call you is at (Eastern Time):
| | Home | | Business
1st Choice ________________
2nd Choice ________________
- --------------------------------------------------------------------------------
Broker Dealer Firm _____________________________________________________________
Registered Representative ______________________________________________________
FOR HOME OFFICE USE ONLY
- --------------------------------------------------------------------------------
Date Received in P.H.I Unit ___________
Attempts to Call
Date/Time _______________ Date/Time ________________
Date/Time _______________ Date/Time ________________
Date/Time _______________ Date/Time ________________
Date call completed _____________ Time | |AM | |PM
- --------------------------------------------------------------------------------
Remarks
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS-157 Rev 2/98
<PAGE>
- ---------------- Allmerica Financial Life Supplementary Application
ALLMERICA SELECT Insurance and Annuity Company for Other Insured Rider
- ----------------
================================================================================
- --------------------------------------------------------------------------------
1 THE INSURED(S)
- --------------------------------------------------------------------------------
-
______________________________________________________________________________
First Name Middle Last
_____/____/____ M/___ D/___ Y/___ M| | F| |
Social Security Number Date of Birth Sex
Existing Life Insurance $ ______________________________________________________
Amount of Insurance Requested $ ________________________________________________
-
______________________________________________________________________________
First Name Middle Last
_____/____/____ M/___ D/___ Y/___ M| | F| |
Social Security Number Date of Birth Sex
Existing Life Insurance $ ______________________________________________________
Amount of Insurance Requested $ ________________________________________________
-
______________________________________________________________________________
First Name Middle Last
_____/____/____ M/___ D/___ Y/___ M| | F| |
Social Security Number Date of Birth Sex
Existing Life Insurance $ ______________________________________________________
Amount of Insurance Requested $ ________________________________________________
- --------------------------------------------------------------------------------
2 BENEFICIARY
- --------------------------------------------------------------------------------
The beneficiary shall be the owner, if living, otherwise the owner's estate. The
owner may name another as beneficiary (attach Nomination of Beneficiary and
Request, if applicable). The right is reserved to the owner to change the
beneficiary without the beneficiary's consent, unless this right is released by
a subsequent instrument.
- --------------------------------------------------------------------------------
3 INFORMATION ABOUT THE INSURED(S)
- --------------------------------------------------------------------------------
3a Will the proposed insurance replace or change any existing annuity or life
insurance contract? | |Yes | |No
If yes, list company name and policy number.
3b During the last 3 years has any person listed in item 1 above had a motor
vehicle license suspended or revoked or been convicted of driving while
intoxicated or been convicted of more than one moving violation?
Spouse | |Yes | |No Child | |Yes | |No
3c During the last 3 years has any person listed in item 1 participated in or
intend to participate in
| |Scuba diving | |Parachuting | |Motor racing
| |Hang gliding or similar flying activities
Spouse | |Yes | |No Child | |Yes | |No
3d During the last 3 years has any person listed in item 1 flown or intend to
fly as a trainee, pilot or crewmember?
Spouse | |Yes | |No
Child | |Yes | |No
3e Has the spouse listed in item 1 smoked one or more cigarettes in the last
12 months? | |Yes | |No
3f The spouse listed in item 1 currently uses:
| |cigars | |pipe | |chewing tobacco
| |other tobacco product ___________________________________________________
3g Does any person listed in item 1 intend to travel outside of the United
States and Canada in the next 6 months?
Spouse | |Yes | |No Child | |Yes | |No
Please indicate country ____________________________________________________
Details: ___________________________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
IT IS UNDERSTOOD AND AGREED: (1) That the representations above recorded are
true and complete to the best of my knowledge and belief; (2) That no liability
exists until this rider is delivered and the first premium paid during the
lifetime of the proposed insured(s) and then only if the proposed insured(s) has
(have) not consulted or been treated by any physician or practitioner of any
healing art nor had any special tests since the date of this application; but,
if the premium is paid prior to delivery of the rider and a conditional receipt
is delivered by the registered representative, insurance shall be effective
subject to the terms of the conditional receipt; (3) No registered
representative or broker is authorized to amend, alter, or modify the terms of
this agreement.
______________________________________________________________________________
Signed at City State
______________________________________________________________________________
Full signature of Spouse if proposed for insurance Date
This application is made at the request of the undersigned who hereby agrees to
be bound by each statement, representation and agreement herein and further
agrees that any contract of insurance issued in connection with this application
shall be issued on the condition that each statement, representation and
agreement shall be binding upon the owner(s) to the same extent and degree as if
made by the owner(s).
______________________________________________________________________________
Signed at City State Date
______________________________________________________________________________
Full signature of insured under the basic policy
______________________________________________________________________________
Full signature(s) of owner(s) (other than insured)
______________________________________________________________________________
Official title/capacity (cannot be insured)
AS-159 Rev 9/95
<PAGE>
- ---------------- Allmerica Financial Life Information on
ALLMERICA SELECT Insurance and Annuity Company Second Insured
- ----------------
================================================================================
- --------------------------------------------------------------------------------
1 SECOND INSURED
- --------------------------------------------------------------------------------
______________________________________________________________________________
First Name Middle Last
______________________________________________________________________________
Street Address Years at this Address
______________________________________________________________________________
City State Zip
(___)___________________________________________________________M/___D/___Y/__
Daytime Telephone Number Date of Birth
M | | F| |
______________________________________________________________________________
Sex Social Security Number
- --------------------------------------------------------------------------------
2 INFORMATION ABOUT THE INSURED
- --------------------------------------------------------------------------------
2a Current Employment.
Name of Employer ___________________________________________________________
Occupation and Responsibilities ____________________________________________
____________________________________________________________________________
2b Income.
My annual earned income is $ _______________
My annual unearned income is $ _______________
My net worth is $ _______________
2c I had an illness or injury during the past six months that has prevented
me from working five consecutive days.
| |Yes | |No If yes, please explain:
____________________________________________________________________________
____________________________________________________________________________
2d During the past three years I had a motor vehicle license suspended or
revoked or been convicted of either driving while intoxicated or of more
than one moving violation.
| |Yes | |No If yes, please explain:
____________________________________________________________________________
____________________________________________________________________________
2e During the past three years I have participated in or I intend to
participate in:
| |Scuba diving | | Skydiving | |Motor racing
| |Hang gliding or similar flying activity
2f During the past three years I have flown as or I intend to fly as a
trainee, pilot or crew member.
| |Yes | |No
2g During the past year, I have smoked one or more cigarettes.
| |Yes | |No
2h I currently use:
| |Cigars | |Pipe | |Chewing tobacco
| |Other tobacco product (Please specify) _________________________________
2i I will be traveling outside of the United States or Canada in the next six
months:
| |Yes | |No, If yes, please indicate country:
____________________________________________________________________________
- --------------------------------------------------------------------------------
3 OWNER AND BENEFICIARY
- --------------------------------------------------------------------------------
The owner and beneficiary are as indicated in sections 3A and 6 of the
accompanying Variable Life Application. If Section 3A is left blank, the owner
will be the insured Listed in section 1 of the Variable Life Application.
- --------------------------------------------------------------------------------
4 REPLACEMENT OF OTHER CONTRACTS
- --------------------------------------------------------------------------------
Will the proposed policy replace any existing annuity or life insurance
contract?
| |Yes | |No
If yes, list company name and policy number.
____________________________________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
SIGNATURE[S]
- --------------------------------------------------------------------------------
It is agreed that: (1) The application consists of the application form, the
medical questionnaires and this supplemental application for the second
insured; (2) The representations are true and complete to the best of my
knowledge and belief; (3) No liability exists and the insurance applied for
will not take effect until the policy is delivered and the premium is paid
during the lifetime of the proposed insured(s) and then only if the proposed
insured(s) has (have) not consulted or been treated by any physician or
practitioner of any healing art nor had any tests listed in the application
since its completion; but, if the premium is paid prior to delivery of the
policy and a conditional receipt is delivered by the registered
representative, insurance will be effective subject to terms of the
conditional receipt; and (4) No registered representative or broker is
authorized to amend, alter, or modify the terms of this agreement.
________________________________________________________________________________
Signed at City State
________________________________________________________________________________
Signature of Second Insured Date
________________________________________________________________________________
Signature of Owners (if other than Insured) Date
________________________________________________________________________________
Signed at City State
AS-194 (Rev. 11/95)
<PAGE>
Allmerica Financial Life Authorization to
ALLMERICA S E L E C T Insurance and Annuity Company Obtain Information
================================================================================
- ---------------
Name of Insured
- --------------- ----------------------------------------------------------------
(Please Print)
- --------------------------------------------------------------------------------
AUTHORIZATION TO OBTAIN INFORMATION
- --------------------------------------------------------------------------------
To all physicians, medical professionals, hospitals, clinics, other health care
providers, employers, Medical Information Bureau, Inc. (MIB), consumer reporting
agencies, other insurance support organizations, the United States Internal
Revenue Service, the Puerto Rico Bureau of Income Tax, and other persons who
have the types of information described below about the proposed insured:
I authorize you to give the Company, its reinsurers, or its agent; (a) all
information you have as to illness, injury, medical history, diagnosis,
treatment, and prognosis (including any drug or alcohol abuse condition or
treatment) with respect to any physical or mental condition of the proposed
insured; and (b) any non-medical information, including but not limited to, an
investigative consumer report and copies of my tax returns filed with the United
States Internal Revenue Service and/or the Puerto Rico Bureau of Income Tax,
which the company believes it needs to perform the business functions described
below. I also authorize the Company to give MIB health or non-medical
information it has about me and that of any minor member of my family applying
for insurance.
The information obtained will be used to determine if the proposed insured is
eligible for: (a) the insurance requested; or (b) benefits under a policy which
is in force. It will also be used for any other business purpose which relates
to the insurance requested or the policy which is in force. This authorization
will be valid for 30 months. I know that under Federal Regulations, I may revoke
this authorization as it applies to drug and alcohol abuse treatment at any
time; but my revocation will not affect any information that has been released
prior thereto. I know that I may request a copy of this form. I agree that a
photocopy is as valid as the original. I have received the Insurance Information
Practices notice.
- --------------------------------------------------------------------------------
Signature of proposed insured
(if proposed insured is a minor, signature of legal guardian)
- --------------------------------------------------------------------------------
Signature of spouse (if proposed for insurance)
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
PERSONAL HISTORY INTERVIEW INFORMATION
- --------------------------------------------------------------------------------
Proposed Insured's (Professional Title)
- --------------------------------------------------------------------------------
Application For
| | Adult | | Juvenile Amount $___________
- --------------------------------------------------------------------------------
Home Telephone: (Area Code) and No.
(___)___________________________
Business Telephone: (Area Code) and No.
(___)____________________________
- --------------------------------------------------------------------------------
Driver's License Information
No. ___________________ State _______________
- --------------------------------------------------------------------------------
Allmerica may be contacting you to discuss this application. The best time for
us to call you is at (Eastern Time):
| | Home | | Business
1st Choice ________________
2nd Choice ________________
- --------------------------------------------------------------------------------
Broker Dealer Firm _____________________________________________________________
Registered Representative ______________________________________________________
FOR HOME OFFICE USE ONLY
- --------------------------------------------------------------------------------
Date Received in P.H.I Unit ___________
Attempts to Call
Date/Time _______________ Date/Time ________________
Date/Time _______________ Date/Time ________________
Date/Time _______________ Date/Time ________________
Date call completed _____________ Time | |AM | |PM
- --------------------------------------------------------------------------------
Remarks
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AS-157 Rev 9/95
<PAGE>
CONDITIONAL RECEIPT FOR
ADVANCE PAYMENT OF PREMIUM Worcester, Massachusetts 01653
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (THE "COMPANY")
A payment of $________ has been received on ____________________ (date) with the
application for insurance on the life of_________________________, the proposed
insured. ALL PREMIUM CHECKS MUST BE MADE PAYABLE TO THE INSURANCE COMPANY: DO
NOT MAKE CHECK PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK.
Received for the Company by_________________
CONDITIONAL INSURANCE AGREEMENT
THERE IS NO INSURANCE UNDER THIS AGREEMENT UNTIL ALL THE CONDITIONS HAVE
BEEN MET.
GENERAL
Definitions
"Underwriting Date" means the date of the application, the medical questionnaire
or the Conditional Receipt, whichever date is later. If an Other Insured Rider
is applied for, the "Underwriting Date" for coverage on the Other Insured is the
later of the date of the Conditional Receipt, the Supplemental Application for
the Other Insured or the Medical Exam if required.
"Standard Underwriting Class" means acceptable under the Company's underwriting
rules for the plan and amount of insurance applied for without any additional
premium charge or restrictive rider.
"Non-standard Underwriting Class" means acceptable for the type of insurance
applied for under the Company's underwriting rules but subject to higher charges
or a restrictive rider.
General
Any check or draft is accepted subject to collection. No agent or broker is
authorized to amend, alter, or modify the terms of this agreement. All
statements in the application are representations, not warranties. If you do not
hear from us within 60 days of the date of this agreement, please write to us
without delay, stating the facts concerning the application. Our address is 440
Lincoln Street, Worcester, MA 01653.
CONDITIONS TO BE MET
Conditions Precedent
The following conditions precedent must be met before we have any liability
under this agreement other than the return of the premium received.
1. The application must be completed and signed by the proposed insured(s)
and the owner, if not the insured.
2. The proposed insured(s) must be in a standard or non-standard underwriting
class on the underwriting date.
3. The proposed insured(s) must be under the age of 71.
4. The proposed insured(s) must have undergone a medical exam if required by
us.
5. If the date of the Conditional Receipt is later than the date of the
medical questionnaire and the Supplemental Application for the Other
Insured (if applicable), the proposed insured must not have consulted or
been treated by any physician or practitioner of any healing art nor had
any tests listed in the application since their completion.
If all of the above conditions have been met, some insurance will be provided
under this agreement. However, the insurance will be subject to all of the
further provisions of this agreement.
Insurance Not In Force. If a person proposed for life insurance is not
insurable on either a standard or a non-standard basis, no life insurance
will be in force.
AS-156 Rev 9/95
<PAGE>
BENEFITS
Amount of Insurance. If a proposed insured is in a standard underwriting class,
the death benefit provided under this agreement will be the lesser of the amount
applied for or the limit described below.
If a proposed insured is in a non-standard underwriting class which requires
higher insurance charges, the amount of the death benefit will be reduced. The
reduced benefit will be in the same ratio to the amount applied for as the
insurance charge for a policy issued in a standard underwriting class is to the
total insurance charge that would be required on the policy the Company is
willing to issue; but in no event more than the maximum limit set forth below.
If the proposed insured is in a non-standard underwriting class which does not
require a higher premium, the death benefit provided under this agreement will
be the lesser of the following:
(a) the amount applied for;
(b) the maximum limit applicable to the proposed insured; and
(c) the premium paid if the proposed insured's death comes within the
terms of the restrictive rider which would have been attached to the
policy when issued.
Maximum Limit. The maximum limit under this agreement for life insurance, is an
amount which when added to any death benefit provided under any life insurance
policy or conditional insurance agreement having a date of issue or underwriting
date respectively within 90 days prior to the underwriting date of this
agreement does not exceed the following applicable amounts:
(a) If the insured is in a standard underwriting class, for issue ages 0
through 15, $50,000; 16 through 60, $500,000; 61 through 65,
$250,000; 66 through 70, $100,000; 71 and over, none.
(b) If the insured is in a non-standard underwriting class, for issue
ages 0 through 15, $25,000; 16 through 60, $250,000; 61 through 65,
$125,000; 66 through 70, $50,000; 71 and over, none.
The maximum limit will not be increased because payment has been made to the
Company which is larger than the premium required for such reduced insurance.
Upon receipt of due proof of the death of the proposed insured that portion of
the premium paid for any excess insurance shall be paid to the beneficiary named
in this application.
Suicide Exclusion. If the proposed insured commits suicide while this agreement
is in force, the Company's liability will be limited to the return of the
premium paid.
TERMINATION
Termination. This agreement may be terminated at any time prior to incurrence
of a claim. The Company's sole liability shall be limited to the refund of
the premium paid. Such termination will occur on the earliest of the
following:
1. The delivery of the insurance issued on this application.
2. The date the Company mails a termination notice with a refund of your
payment to you.
3. Ninety days after the underwriting date.
AS-156
<PAGE>
Allmerica Financial Life
ALLMERICA S E L E C T Insurance and Annuity Company Variable Life
Application
- --------------------------------------------------------------------------------
1 INSURED The person upon whose life this insurance
coverage is proposed.
- --------------------------------------------------------------------------------
________________________________________________________________________________
First Name Middle Last
________________________________________________________________________________
Street Address Years at this Address
________________________________________________________________________________
City State Zip
( )
- --------------------------------------------------------------------------------
Daytime Telephone Number
M/___ D/___ Y/___ M |_| F |_|
Date of Birth Sex
- -
- ---------------------------------------
Social Security Number
- --------------------------------------------------------------------------------
2 PAYMENT The monetary contribution to the policy.
- --------------------------------------------------------------------------------
Check one:
|_| I have enclosed a check for my initial payment of $_________
($100 minimum) and have received a conditional receipt.
(Please make check payable to Allmerica Financial Life
Insurance and Annuity Company)
|_| My initial payment will be transferred from another insurance company.
Approximate amount $______________________
Name of transferring company____________________
My Transfer of Assets form is attached. Yes |_|
My Transfer of Assets form has been sent to the
transferring company. Yes |_|
2a I want to make future payments of $__________:
|_| Annually |_| Semi-Annually |_| Quarterly
|_| Monthly (I have included a voided check and Bank
Drafting Form.)
- --------------------------------------------------------------------------------
3 POLICYOWNER The person or entity exercising the policy's
contractual rights.
- --------------------------------------------------------------------------------
3a The policyowner will be the insured unless specified here:
________________________________________________________________________________
Name
________________________________________________________________________________
Street Address
________________________________________________________________________________
City State Zip
Social Security or Tax I.D. Number ______________________
3b Payment reminder notices will be sent to the policyowner unless specified
otherwise here:
________________________________________________________________________________
Name
________________________________________________________________________________
Street Address
________________________________________________________________________________
City State Zip
- --------------------------------------------------------------------------------
4 ALLOCATION How I want my payments allocated.
- --------------------------------------------------------------------------------
Complete Section 4a and Section 4b. Future payments will be allocated according
to this selection unless changed by me.
4a |_| Allocate my payment as follows: Use whole percentages. If dollar cost
averaging is used, please complete a Dollar Cost Averaging form. You may
allocate your payments to no more than 7 of the 14 variable accounts
listed below and the Fixed Account.
YOUR TOTAL ALLOCATION MUST EQUAL 100%.
______________% Select Emerging Markets
______________% Select International Equity
______________% T. Rowe Price International Stock
______________% Select Aggressive Growth
______________% Select Capital Appreciation
______________% Select Value Opportunity
______________% Select Growth
______________% Select Strategic Growth
______________% Fidelity Growth Portfolio
______________% Select Growth and Income
______________% Fidelity Equity Income Portfolio
______________% Fidelity High Income Portfolio
______________% Select Income
______________% Allmerica Money Market
______________% Fixed Account
______________%
100 % Total
4b |_| Deductions of all charges will be made pro rata according to the value of
each account and the Fixed Account.
OR
|_| Deduct all charges from ___________________________
(Enter any single account, except the Fixed Account)
AS-158-95 PAGE 1
Rev 2/98
<PAGE>
- --------------------------------------------------------------------------------
5 INSURANCE How much life insurance I want.
- --------------------------------------------------------------------------------
5a I want $_____________ in life insurance coverage.
5b I want insurance coverage to be: (Choose one)
|_| Level - Insurance coverage remains constant.
|_| Adjustable - Insurance coverage changes with the value of your
investment.
5c I want the following additional insurance benefits:
|_| Waiver of payment upon disability
|_| Waiver of charges upon disability
|_| Living benefits
|_| Other Insured Rider (Complete Supplementary Application)
|_| Guaranteed Insurability Rider $_____________________
|_| Exchange Option Rider
|_| ____________________________________________________
- --------------------------------------------------------------------------------
6 BENEFICIARY
- --------------------------------------------------------------------------------
The Primary Beneficiary is the person or entity who will receive the policy
proceeds. The Contingent Beneficiary is the person or entity who will receive
the policy proceeds should the Primary Beneficiary not survive the insured.
________________________________________________________________________________
Name of Primary Beneficiary Relationship to Insured
________________________________________________________________________________
Name of Contingent Beneficiary Relationship to Insured
|_| 10-day Common Disaster Clause*
|_| ______________-day Common Disaster Clause*
* A Common Disaster Clause requires that the beneficiary survive the insured for
a specified length of time before becoming entitled to the policy proceeds.
This assures that the contingent beneficiary will receive the policy proceeds
rather than the estate of the primary beneficiary.
- --------------------------------------------------------------------------------
7 REPLACEMENT OF OTHER CONTRACTS
- --------------------------------------------------------------------------------
Will the proposed policy replace any existing annuity or life insurance
contract?
|_|Yes |_|No
If yes, list company name and policy number.
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
8 INFORMATION ABOUT THE INSURED
- --------------------------------------------------------------------------------
8a Current Employment.
Name of Employer __________________________________________________________
Occupation and Responsibilities ___________________________________________
________________________________________________________________________________
8b Income.
My annual earned income is $________________________________________
My annual unearned income is $________________________________________
My net worth is $________________________________________
8c I had an illness or injury during the past six months that has prevented me
from working five consecutive days.
|_| Yes |_| No If yes, please explain:
________________________________________________________________________________
________________________________________________________________________________
8d During the past three years I had a motor vehicle license suspended or
revoked or been convicted of either driving while intoxicated or of more
than one moving violation.
|_| Yes |_| No If yes, please explain:
________________________________________________________________________________
________________________________________________________________________________
8e During the past three years I have participated in or I intend to
participate in:
|_| Scuba diving |_| Skydiving |_| Motor racing
|_| Hang gliding or similar flying activity
8f During the past three years I have flown as or I intend to fly as a
trainee, pilot or crew member.
|_|Yes |_|No
8g During the past year, I have smoked one or more cigarettes.
|_|Yes |_|No
8h I currently use:
|_| Cigars |_| Pipe |_| Chewing tobacco
|_| Other tobacco product
(Please specify)_________________________________________________
8i I will be traveling outside of the United States or Canada in the next six
months:
|_| Yes |_| No, If yes, please indicate country:
___________________________________________________________________________
AS-158-95 PAGE 2
<PAGE>
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9 TELEPHONE ACCESS
- --------------------------------------------------------------------------------
I will automatically be able to transfer account values and change the
allocation of future investments by telephone or fax unless I check the box
below.
|_| I do not accept this Telephone Access privilege.
(Please see additional information in the fourth paragraph of the section
below.)
- --------------------------------------------------------------------------------
ACKNOWLEDGMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
I acknowledge receipt of current Prospectuses describing the Allmerica Select
policy I am applying for, and the underlying Funds.
I understand that any death benefits in excess of the face amount and any policy
value of the flexible premium variable life insurance policy applied for, may
increase or decrease to reflect the investment experience of the sub-accounts of
the variable account. The policy value allocated to the Fixed Account will
accumulate interest at a rate set by the Company which will not be less than the
minimum guaranteed rate of 4% annually. There is no guaranteed minimum policy
value. The policy value may decrease to the point where the policy will lapse
and provide no further death benefit without additional premium payments.
It is agreed that: (1) The application consists of this application form, the
medical questionnaire and the supplemental application to apply for insurance on
family members, if it applies; (2) The representations are true and complete to
the best of my knowledge and belief; (3) No liability exists and the insurance
applied for will not take effect until the policy is delivered and the premium
is paid during the lifetime of the proposed insured(s) and then only if the
proposed insured(s) has (have) not consulted or been treated by any physician or
practitioner of any healing art nor had any tests listed in the application
since its completion; but, if the premium is paid prior to delivery of the
policy and a conditional receipt is delivered by the representative, insurance
will be effective subject to terms of the conditional receipt; and (4) No
registered representative or broker is authorized to amend, alter, or modify the
terms of this agreement.
Unless I did not accept the Telephone Access privilege in section 9 above, I
understand that Allmerica Financial Life Insurance and Annuity Company is
authorized to honor telephone requests by me, or by individuals authorized by
me, to transfer account values among sub-accounts and to change the allocation
of my future payments. I also understand that the withdrawal of funds from my
account cannot be transacted by telephone or fax instructions.
________________________________________________________________________________
Signed at City State
________________________________________________________________________________
Signature of Insured Date
________________________________________________________________________________
Signature of Owners (if other than Insured) Date
________________________________________________________________________________
Signed at City State
- --------------------------------------------------------------------------------
FOR FINANCIAL ADVISER USE ONLY
- --------------------------------------------------------------------------------
Does the policy applied for replace an existing annuity or life insurance
policy?
|_|Yes |_|No
If yes, attach replacement forms as required.
As Registered Representative, I certify witnessing the signature of the
applicant and that the information in this application has been accurately
recorded, to the best of my knowledge and belief.
Based on the information furnished by the Owner or Insured in this application,
I certify that I have reasonable grounds for believing the purchase of the
policy applied for is suitable for the Owner. I further certify that the
Prospectuses were delivered and that no written sales materials other than those
furnished or approved by the Company were used.
________________________________________________________________________________
Signature of Registered Representative Date
________________________________________________________________________________
Print Name of Registered Representative Reg Rep #
( ) ( )
- --------------------------------------------------------------------------------
Telephone FAX
- --------------------------------------------------------------------------------
Name of Broker/Dealer Branch #
- --------------------------------------------------------------------------------
Branch Office Street Address
- --------------------------------------------------------------------------------
City State Zip
Remarks:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
FOR HOME OFFICE USE ONLY
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
AS-158-95 PAGE 3
<PAGE>
April 15, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: ALLMERICA SELECT SEPARATE ACCOUNT II OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY FILE NOS. 33-83604 AND 811-8746
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 Allmerica Select
Separate Account II 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 Allmerica Select Separate Account II 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 Allmerica Select Separate Account II equal to the
reserves and other Policy liabilities of the Policies which are supported
by the Allmerica Select Separate Account II are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual flexible premium variable life insurance policies, when
issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement of the Allmerica Select
Separate Account II 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: ALLMERICA SELECT SEPARATE ACCOUNT II OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY FILE NOS. 33-83604 AND 811-8746
Gentlemen:
This opinion is furnished in connection with the filing by Allmerica Financial
Life Insurance and Annuity Company of a post-effective amendment to the
Registration Statement on Form S-6 of its flexible premium variable life
insurance policies ("Policies") allocated to the Allmerica Select Separate
Account II under the Securities Act of 1933. The prospectus included in the
post-effective amendment to 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 to the Registration Statement.
Sincerely,
/s/ William H. Mawdsley
William H. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
Description of Issuance, Transfer and Redemption Procedures for Policies
Offered by the Allmerica Select Separate Account II ("Variable Account")
of Allmerica Financial Life Insurance and Annuity Company
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
The Allmerica Select Separate Account II ("Variable Account") of Allmerica
Financial Life Insurance and Annuity Company ("Company") is registered under the
Investment Company Act of 1940 ("1940 Act") as a unit investment trust. There
are currently 11 Sub-Accounts within the Variable Account. Procedures apply
equally to each subaccount and for purposes of this description are defined in
terms of the Variable Account, except where a discussion of both the Variable
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 T. Rowe Price
International Series, Inc. ("T. Rowe Price"), each of which is a "series" type
of mutual fund registered under the 1940 Act. The investment experience of a
Sub-Account of the Variable Account depends on the market performance of its
corresponding investment division of the Trust, VIPF or T. Rowe Price. Although
flexible premium variable life insurance policies funded through the Variable
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 Variable Account and that all transactions involve only the Sub-Accounts of
the Variable Account, except as otherwise explicitly stated herein.
I. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED TRANSACTIONS -- SECTION 22(d)
AND RULE 22C-l
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 Variable 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 $50
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 Policy Owners. The insurance
principle of pooling and distribution of mortality risks is based upon
the assumption that each Policy Owner 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 Insured's would discriminate unfairly in
favor of those Insured's representing greater mortality risks to the
disadvantage of those representing lesser risks. Accordingly, there
will be a different "price" for each actuarial category of Policy
Owners because different cost of insurance rates will apply. While
not all Policy Owners will be subject to the same cost of insurance
rate, there will be a single "rate" for all Policy Owners in a given
actuarial
1
<PAGE>
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.
b. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application from a prospective Policy
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 Policy Owner 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 Policy Owner 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. This coverage will
continue for a maximum of 90 days from the date of the
application or enrollment form or, if required, the completed
medical exam. 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 Policy Owner 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. If a
Policy is not issued, the premiums will be returned to the
Applicant without interest.
If the application or enrollment form is approved and the Policy
is issued and accepted, upon issuance and acceptance of the
Policy the Company generally allocates Policy Value according to
the Policy Owner's instructions. However, if the Policy provides
for a full refund of payments under its "Right to Examine Policy"
provision as required in certain states and described below under
Section II(g), the Company will initially allocate sub-account
investments to the Money Market Fund. The allocation to the
Money Market Fund will be for
- 14 days from issuance and acceptance of the Policy
- 24 days from issuance and acceptance for replacements in
states with an extended right to examine
- 34 days from issuance and acceptance for California citizens
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed Policy
Owner in connection with payment of the initial premium and will
not dilute any benefit it payable to any existing Policy Owner.
Although a Policy cannot be issued until the underwriting process
has been completed, the proposed Policy Owner will receive
immediate insurance coverage, if he has paid an initial premium
and proves to be insurable.
2
<PAGE>
The Company will require that the Policy be delivered within a
specific delivery period to protect itself against anti-selection
by the prospective Policy Owner 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 payment expense charge. The payment
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"), and
to partially compensate for sales expenses. It will be adjusted
to reflect any increase or decrease in the applicable state or
local premium tax rate.
The Policy Owner may allocate net premiums among the Company's
General Account and up to seven Sub-Accounts of the Variable
Account. The Policy Owner 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
Policy Owner 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 Variable 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 Policy Owner's instruction
or, if none, the premium payment allocation percentages then in
effect. Loan repayments allocated to the Variable Account cannot
exceed Policy value previously transferred from the Variable
Account to secure the debt.
A preferred loan option is available upon written request after
the first Policy year. It is available during Policy years 2-10
only if policy value, minus the surrender charge, is $50,000 or
more. The preferred loan option applies to up to 10% of this
amount. After the 10th Policy year, the preferred loan option is
available on all loans or on all or a part of the loan value.
The guaranteed annual interest rate credited to the policy value
securing a preferred loan will be 8%. The administrative
procedures described above are also applicable to preferred
loans.
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 Policy Owner and any assignee of record. The Policy Owner
will then have a grace period of 62 days, measured from the date
the notice is mailed, to make sufficient payments to
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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 Policy Owner 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 Policy Owner must
pay the amount shown in 2 above. 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:
- 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
- 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
- the monthly deduction due on the date of reinstatement.
The Policy Owner 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
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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 Policy
Owner qualifies for a lower classification. After the
reduced rating is determined, the Policy Owner 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 Policy Owner
is in a higher risk classification, the higher cost of
insurance rate will apply only to the increase in Face
Amount.
II. "REDEMPTION PROCEDURE"': SURRENDER AND RELATED TRANSACTIONS
The policies provide for the payment of monies to a Policy Owner
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 Variable 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
Policy Owner's benefits and may involve a transfer of the assets
supporting the Policy reserve out of the Variable Account. Any
combined transactions on the same day which counteract the effect
of each other will be allowed. The Company will assume the
Policy Owner 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 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
Policy Owner 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
Variable Account) may increase or decrease from day to day
depending on the investment experience of the Variable Account.
Calculation of the Policy value for any given day will reflect
the actual premiums paid, expenses
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charged and deductions taken. The Company will deduct a charge
for premium taxes, DAC taxes, and a 0.5% sales load from each
premium payment. The balance (net premium) is allocated to the
Variable Account according to Policy Owner's instructions. The
Company will also make monthly deductions from a Policy to cover
the cost of insurance, including optional benefits provided by
rider. 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.
A surrender charge applies only on a full surrender or decrease
in Face Amount within ten years of the date of issue or of an
increase in Face Amount. The maximum surrender charge has two
parts:
- A deferred administrative charge of $8.50 per thousand
dollars of the initial Face Amount or increase
- A deferred sales charge of 28.5% of payments received
or associated with the increase up to the guideline
annual premium for the increase
The maximum surrender charge is level for the first 24
Policy months, then reduces by 1/96th per month, reaching
zero after 10 Policy years. During the first two years
following the date of issue or increase, the actual
surrender charge may be less than the maximum surrender
charge calculated 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 Variable Account to the General
Account in an amount equal to the Policy reserves in the
Variable 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.
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 may be made on a decrease in the Face
Amount. A surrender charge may be deducted on a decrease in
the Face Amount. On a decrease, the surrender charge
deducted is a fraction of the charge that would apply to a
full surrender. The fraction is the product of the decrease
divided by the current Face Amount times the surrender
charge. Where a decrease causes a partial reduction in an
increase or in the initial Face Amount, the Company will
deduct a proportionate share of the surrender charge for
that increase or for the initial Face Amount.
b. CHARGES ON PARTIAL WITHDRAWAL
For each partial withdrawal, The Company deducts a
transaction fee of 2.0% of the amount withdrawn, not to
exceed $25. This fee is intended to reimburse us for the
cost of processing the withdrawal.
A partial withdrawal charge may also be deducted from Policy
Value. However, in any Policy year, the Policy Owner may
withdraw, without a partial withdrawal charge, up to 10% of
the policy value minus the total of any prior free
withdrawals in the same Policy year ("Free 10% Withdrawal").
The right to make the Free 10% Withdrawal is not cumulative
from Policy year to Policy year.
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The Company imposes the partial withdrawal charge on any
withdrawal greater than the Free 10% Withdrawal. The charge
is 5.0% of the excess withdrawal up to the surrender charge.
If no surrender charge applies on withdrawal, no partial
withdrawal charge will apply. The Company will reduce the
Policy's outstanding surrender charge by the partial
withdrawal charge deducted, proportionately reducing the
deferred sales and administrative charges. The partial
withdrawal charge deducted will decrease existing surrender
charges in inverse order.
c. DEATH BENEFIT
The Company will normally 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.
The death proceeds payable will depend on the option in effect at
the time of death. Under the Level Option, the death benefit is
the greater of either the Face Amount of insurance or the
Guideline Minimum Sum Insured. Under the Adjustable Option, the
death benefit is the greater of either (a) the Face Amount of
insurance PLUS Policy value or (b) 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.
<TABLE>
<CAPTION>
GUIDELINE MINIMUM SUM INSURED TABLE
Age of
Insured on Percentage of
Date of Death Policy Value
<S> <C>
40 and less . . . . . . . . . . . . . . . . . . . 250%
45: . . . . . . . . . . . . . . . . . . . . . . 215%
50: . . . . . . . . . . . . . . . . . . . . . . 185%
55: . . . . . . . . . . . . . . . . . . . . . . 150%
65: . . . . . . . . . . . . . . . . . . . . . . 120%
70: . . . . . . . . . . . . . . . . . . . . . . 115%
75: . . . . . . . . . . . . . . . . . . . . . . 105%
80: . . . . . . . . . . . . . . . . . . . . . . 105%
85: . . . . . . . . . . . . . . . . . . . . . . 105%
90: . . . . . . . . . . . . . . . . . . . . . . 105%
95: . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
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 Variable Account to the
general account in an amount equal to the reserve in the Variable
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 Policy
Owner and any assignee on the
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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 Policy Owner may
take a loan of up to 75% of Policy value minus surrender charges,
unpaid monthly insurance protection charges, and 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 Policy Owner within seven days after
such receipt.
The amount of any outstanding loan plus accrued interest is called
"debt". When a loan is made, the portion of the assets in the
Variable 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 Variable Account to the general account. Allocation of the loan
among Sub-Accounts will be according to the Policy Owner'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 canceled.
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% (8% for preferred loans).
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 Variable Account to one or more other Sub-Accounts.
Transfers from a Sub-Account of the Variable Account will take effect
as of the receipt of a written request at the Principal Office. The
first twelve transfers are free of charge; however, the Company will
make an administrative charge of $10 (guaranteed not to exceed $25)
for additional transfers in a Policy year. Transfers resulting
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<PAGE>
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 Policy Owner elects to have automatic transfers made each
month, the first automatic transfer counts as one transfer towards the
twelve 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 Policy Owner 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 Variable Account bears to the total unloaded
Policy value.
g. RIGHT OF WITHDRAWAL PROCEDURES
The Policy Owner has the right to examine and cancel the Policy by
returning it to the Company Along with a written request for
cancellation to the Company or one of its representatives on or before
the latest of:
- 45 days after the application or enrollment form for the Policy
is signed
- 10 days after receipt of the Policy (20 days when state law so
requires for the replacement of insurance and 30 days for
California citizens)
- 10 days after the Company mail a notice of withdrawal right.
If the Policy provides for a full refund under its "Right to Examine
Policy" provision as required in a particular state, the refund will
be the greater of the entire payment or the Policy value plus
deductions under the Policy or by the funds for taxes, charges or
fees. If the Policy does not provide for a full refund, the refund
will be the amounts allocated to the fixed account, the policy value
in the Variable Account, and all fees, charges and taxes which have
been imposed
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 Policy Owner 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 Policy Owner 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. 5 to the Registration Statement of the Allmerica
Select Separate Account II 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 Allmerica Select Separate Account II 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
