<PAGE>
Registration No. 33-83604
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. 6
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 (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on May 1, 1999 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 Rule 24f-2
Notice for the issuer's fiscal year ended December 31, 1998 will be filed on or
before March 30, 1999.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
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<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
- ------------ ---------------------
<S> <C>
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; Fidelity VIP; T. Rowe Price; Investment
Objectives and Policies
12 . . . . . Summary; The Trust; Fidelity VIP; T. Rowe Price
13 . . . . . Summary; The Trust; Fidelity VIP; T. Rowe Price; Investment
Advisory Services to the Trust; Investment Advisory Services to
Fidelity 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; Fidelity 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; Fidelity 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
<PAGE>
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
</TABLE>
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
ALLMERICA SELECT LIFE
PLEASE READ THIS PROSPECTUS This Prospectus provides important information
CAREFULLY BEFORE INVESTING about the Allmerica Select Life individual
AND KEEP IT FOR FUTURE flexible payment variable life insurance
REFERENCE. policy issued by Allmerica Financial Life
Insurance and Annuity Company. The policies
VARIABLE LIFE POLICIES are funded through Allmerica Select
INVOLVE RISKS INCLUDING Separate Account II, a separate investment
POSSIBLE LOSS OF PRINCIPAL. account of this Company that is referred to
as the Variable Account.
The Variable Account is subdivided into
Sub-Accounts. Each Sub-Account invests
exclusively in shares of one of the following
Funds of Allmerica Investment Trust, Variable
Insurance Products Fund and T. Rowe Price
International Series, Inc.:
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<CAPTION>
THIS PROSPECTUS FUND MANAGER
MUST BE ---- -------
ACCOMPANIED BY <S> <C>
PROSPECTUSES OF Select Emerging Markets Fund Schroder Capital Management International Inc.
THE FUNDS. 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 & Research Company
Select Growth and Income Fund J. P. Morgan Investment Management Inc.
Fidelity VIP Equity-Income
Portfolio Fidelity Management & Research Company
Fidelity VIP High Income
Portfolio Fidelity Management & Research Company
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
Policy owners may, within limits, choose the
amount of initial payment and vary the
THIS LIFE POLICY IS NOT: frequency and amount of future payments. The
Policy allows partial withdrawals and full
- -A BANK DEPOSIT OR surrender of the Policy's surrender value,
OBLIGATION; within limits. The Policies are not suitable
- -FEDERALLY INSURED; for short-term investment because of the
- -ENDORSED BY ANY BANK substantial nature of the surrender charge. If
OR GOVERNMENTAL AGENCY. 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.
This Prospectus can also be obtained from
the Securities and Exchange Commission's
website (HTTP://www.sec.gov).
IT MAY NOT BE ADVANTAGEOUS TO REPLACE
EXISTING INSURANCE WITH THE POLICY.
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES
OR DETERMINED THAT THE INFORMATION IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
CORRESPONDENCE MAY BE MAILED TO DATED MAY 1, 1999
ALLMERICA SELECT 440 LINCOLN STREET
P.O. BOX 8179 WORCESTER, MASSACHUSETTS 01653
BOSTON, MA 02266-8179 (508) 855-1000
</TABLE>
<PAGE>
TABLE OF CONTENTS
SPECIAL TERMS 4
SUMMARY 7
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND THE
UNDERLYING FUNDS 17
INVESTMENT OBJECTIVES AND POLICIES 19
INVESTMENT ADVISORY SERVICES 20
THE POLICY 23
Applying for a Policy 23
Free-Look Period 24
Conversion Privilege 24
Payments 24
Allocation of Net Payments 25
Transfer Privilege 25
Death Benefit 26
Guaranteed Death Benefit Rider 27
Level Option and Adjustable Option 28
Change to Level Option or Adjustable Option 30
Change in Face Amount 30
Policy Value 31
Payment Options 33
Optional Insurance Benefits 33
Surrender 33
Partial Withdrawal 34
Paid-up Insurance Option 34
CHARGES AND DEDUCTIONS 35
Payment Expense Charge 35
Monthly Insurance Protection Charges 35
Charges Against or Reflected in the Assets of the
Variable Account 38
Surrender Charge 38
Partial Withdrawal Costs 40
Transfer Charges 40
Charge for Change in Face Amount 41
Other Administrative Charges 41
POLICY LOANS 41
Preferred Loan Option 42
Loan Interest Charged 42
Repayment of Outstanding Loan 42
Effect of Policy Loans 42
Policies Issued in Connection with TSA Plans 43
POLICY TERMINATION AND REINSTATEMENT 44
Termination 44
Reinstatement 44
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OTHER POLICY PROVISIONS 46
Policy Owner 46
Beneficiary 46
Assignment 46
Limit on Right to Challenge Policy 46
Suicide 46
Misstatement of Age or Sex 46
Delay of Payments 47
FEDERAL TAX CONSIDERATIONS 47
The Company and the Variable Account 47
Taxation of the Policies 47
Policy Loans 48
Policies Issued in Connection with TSA Plans 48
Modified Endowment Policies 49
VOTING RIGHTS 50
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY 51
DISTRIBUTION 53
SERVICES 53
REPORTS 54
LEGAL PROCEEDINGS 54
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS 54
FURTHER INFORMATION 55
MORE INFORMATION ABOUT THE FIXED ACCOUNT 55
General Description 55
Fixed Account Interest 55
Transfers, Surrenders, Partial Withdrawals and
Policy Loans 56
INDEPENDENT ACCOUNTANTS 56
YEAR 2000 DISCLOSURE 57
FINANCIAL STATEMENTS 58
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
APPENDIX F-PERFORMANCE INFORMATION F-1
3
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SPECIAL TERMS
AGE: how old the Insured is on the birthday closest to a Policy anniversary.
BENEFICIARY: the person or persons you name to receive the net death benefit
when the Insured dies.
COMPANY: Allmerica Financial Life Insurance and Annuity Company. "We," "our"
and "us" and "the Company" refer to Allmerica Financial in this Prospectus.
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 ("the Trust"): 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 following investment portfolios of Variable Insurance
Products Fund ("Fidelity VIP"): 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. ("T. Rowe Price").
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
4
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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.
5
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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 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.
7
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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.
8
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WHAT ARE MY INVESTMENT CHOICES?
You have a choice of fourteen funds:
Select Emerging Markets Fund
Managed by Schroder Capital Management International Inc.
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, LLC
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 J.P. Morgan Investment Management 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:
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- 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?
BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension consulting firm,
assists the Company in the selection of the Policy's Funds. In addition,
BARRA RogersCasey assists the Trust in the selection of investment advisers
for the Funds of the Trust. BARRA RogersCasey provides consulting services to
pension plans representing hundreds of billions of dollars in total assets
and, in its consulting capacity, monitors the investment performance of over
1000 investment advisers. BARRA RogersCasey is wholly-controlled by BARRA,
Inc. As a consultant, BARRA RogersCasey has no decision-making authority with
respect to the Funds, and is not responsible for any advice provided by
Allmerica Financial Investment Management Services, Inc. ("AFIMS") or the
investment advisers.
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 BARRA RogersCasey.
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 BARRA
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 Funds of the Trust, or the addition or
deletion of Funds. The committee includes members who may be affiliated or
unaffiliated with the Company and the Trust. The Sub-Advisers (other than
Allmerica Asset Management, Inc.) are not affiliated with the Company or the
Trust.
Fidelity Management & Research Company ("FMR") is the investment adviser of
Fidelity 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 the largest no-load international mutual fund asset managers with
approximately $32 billion (as of December 31, 1998) under management in its
offices in Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires.
For a listing of the Funds and their managers, see "WHAT ARE MY INVESTMENT
CHOICES?", above.
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.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, within limits.
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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
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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.
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<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.
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<PAGE>
WHAT ARE THE EXPENSES AND FEES OF THE FUNDS?
The following table shows the expenses of the Funds for 1998. For more
information concerning fees and expenses, see the prospectuses of the Funds.
CHARGES OF THE UNDERLYING FUNDS In addition to the charges described above,
certain fees and expenses are deducted from the assets of the Underlying Funds.
The levels of fees and expenses vary among the Underlying Funds. The following
table shows the expenses of the Underlying Funds for 1998. For more information
concerning fees and expenses, see the prospectuses of the Underlying Funds.
<TABLE>
<CAPTION>
Total Fund Expenses
Management Fee Other Fund (after any applicable
Underlying Fund (after any voluntary waiver) Expenses reimbursements)
- --------------- ---------------------------- ---------- ---------------------
<S> <C> <C> <C>
Select Emerging Markets Fund @ 1.00%* 1.19% 2.19%(1)(2)*
Select International Equity Fund 0.90% 0.12% 1.02%(1)(2)
T. Rowe Price International Stock Portfolio 1.05% 0.00% 1.05%
Select Aggressive Growth Fund 0.88% 0.07% 0.95%(1)(2)
Select Capital Appreciation Fund 0.94% 0.10% 1.04%(1)(2)
Select Value Opportunity Fund 0.90%(1)* 0.08% 0.98%(1)(2)*
Select Growth Fund 0.81%** 0.05% 0.86%(1)(2)**
Select Strategic Growth Fund @ 0.39%* 0.81% 1.20%(1)(2)*
Fidelity VIP Growth Portfolio 0.59% 0.09% 0.68%(3)
Select Growth and Income Fund 0.68% 0.05% 0.73%(1)(2)
Fidelity VIP Equity-Income Portfolio 0.49% 0.09% 0.58%(3)
Fidelity VIP High Income Portfolio 0.58% 0.12% 0.70%
Select Income Fund 0.54%* 0.10% 0.64%(1)
Money Market Fund 0.26% 0.06% 0.32%(1)
</TABLE>
@ Select Emerging Markets Fund and Select Strategic Growth Fund commenced
operations on February 20, 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.
* Amount has been adjusted to reflect a voluntary expense limitation
currently in effect for Select Emerging Markets Fund, Select Value
Opportunity Fund, and Select Strategic Growth Fund. Without these
adjustments, the Management Fees and Total Fund Expenses would have been
1.35% and 2.54%, respectively for Select Emerging Markets Fund, 0.91%
and 0.99%, respectively, for Select Value Opportunity Fund, and 0.85%
and 1.66%, respectively for the Select Strategic Growth Fund.
** Effective June 1, 1998, the management fee for the Select Growth Fund was
revised. The Management Fee and Total Fund Expense ratios shown in the
table above have been adjusted to assume that the revised rates took effect
January 1, 1998.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. (the "Manager") has declared a voluntary expense limitation of 1.35%
of average net assets for Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for Select Value Opportunity Fund, 1.50% for
Select International Equity Fund, 1.20% for Select Growth Fund, 1.10% for
Select Growth and Income Fund, 1.00% for Select Income Fund, and 0.60%
for Money Market Fund. The total operating expenses of these Funds of the
Trust were less than their respective expense limitations throughout 1998.
Until further notice, the Manager 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 the Manager from the Fund after subtracting fees paid by
the Manager to a sub-adviser.
14
<PAGE>
Until further notice, the Select Value Opportunity Fund's 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 declaration of a voluntary expense management fee or expense limitation
in any year does not bind the Manager to declare future expense limitations
with respect to these Funds. These limitations may be terminated at
any time.
(2) 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 annual fund operating expense ratios
would have been 2.19% for Select Emerging Market Fund, 0.92% for Select
Aggressive Growth Fund, 1.02% for Select Capital Appreciation Fund, 0.94%
for Select Value Opportunity Fund, 1.01% for Select International Equity
Fund, 0.84% for Select Growth Fund, 1.14% for Select Strategic Growth
Fund, and 0.70% for Select Growth and Income Fund.
(3) A portion of the brokerage commissions the Portfolio paid was used to
reduce Fund expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby credits
realized as a result of 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 0.66% for Fidelity VIP
Growth Portfolio.
The Underlying Fund information above was provided by the Underlying
Funds and was not independently verified by the Company.
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.
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<PAGE>
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 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.
16
<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, 1998, the Company had over $XX 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 Standards
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, Fidelity 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 are
held separate from the assets of the other funds. Each fund
17
<PAGE>
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 & 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.
18
<PAGE>
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, Fidelity VIP and T.
Rowe Price that accompany this Prospectus. The prospectuses of the Trust,
Fidelity 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 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 J. P. Morgan Investment Management
Inc.
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<PAGE>
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, 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
20
<PAGE>
Under the management agreement with the Trust, AFIMS has entered into
agreements with investment advisers ("Sub-Advisers") selected by AFIMS and
Trustees in consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"),
a pension consulting firm. The cost of such consultation services is borne by
AFIMS. As a consultant, BARRA RogersCasey has no decision-making authority
with respect to the Funds, and is not responsible for any advice provided by
AFIMS or the Sub-Advisers.
Under each Sub-Adviser 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. The Sub-Advisers (other than Allmerica Asset Management, Inc.) are
not affiliated with the Company or the Trust.
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>
<CAPTION>
<S> <C> <C>
Select Emerging Markets Fund * 1.35%
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation Fund First $100 million 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 First $250 million 0.85%
Next $250 million 0.80%
Next $250 million 0.70%
Over $750 million 0.70%
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%
Next $50 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>
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<PAGE>
* For the Select Emerging Markets 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.
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.
22
<PAGE>
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 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.
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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
- 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
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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 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 may 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
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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
- 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."
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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
- 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.
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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.
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
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.
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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 $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.
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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.
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
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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.
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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
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 INSURANCE 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."
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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."
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
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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."
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); directors of First Allmerica
and its affiliates and subsidiaries; 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.
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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.
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
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- 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
We will adjust the monthly insurance protection charge for any decreases in
face amount. See "THE POLICY - 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.
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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.
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, Fidelity 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.
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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.
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.
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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.
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
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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
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."
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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.
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.
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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.
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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.
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.
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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.
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.
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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, 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.
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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.
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
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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. 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.
48
<PAGE>
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.
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.
49
<PAGE>
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.
50
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------- -----------------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice President,
Director First Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica since 1991
Warren E. Barnes Vice President and Corporate Controller of First Allmerica
Vice President and since 1998; Vice President and Co-Controller, First Allmerica
Corporate Controller 1997; Vice President and Assistant Controller, First Allmerica 1996
to 1997; Assistant Vice President and Assistant Controller,
First Allmerica 1995 to 1996; Assistant Vice President Corporate
Accounting and Reporting, First Allmerica 1993 to 1995
Robert E. Bruce Director and Chief Information Officer of First Allmerica since 1997;
Director and Chief Vice President of First Allmerica since 1995; Corporate Manager, Digital
Information Officer Equipment Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer of First Allmerica since 1996;
Director, Vice President and Vice President, First Allmerica since 1991
Chief Investment Officer
John F. Kelly Director of First Allmerica since 1996; General Counsel since 1981;
Director, Vice President Senior Vice President since 1986, and Assistant Secretary, First
and General Counsel Allmerica since 1991
J. Barry May Director of First Allmerica since 1996; Director and President,
Director 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 Citizens Insurance
Director 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 Executive Officer,
Director and Chairman First Allmerica since 1989
of the Board
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------- -----------------------------------------------
<S> <C>
Edward J. Parry, III Director and Chief Financial Officer of First Allmerica since 1996;
Director, Vice President, Vice President and Treasurer, First Allmerica since 1993
Chief Financial Officer,
and Treasurer
Richard M. Reilly Director of First Allmerica since 1996; Vice President, First Allmerica
Director, President and since 1990; Director, Allmerica Investments, Inc. since 1990; Director
Chief Executive Officer and President, Allmerica Financial Investment Management Services, Inc.
since 1990
Robert P. Restrepo, Jr. Chief Executive Officer of Travelers Property & Casualty Company 1996-1998;
Director Senior Vice President of Aetna Life & Casualty Company 1993-1996
Eric A. Simonsen Director of First Allmerica since 1996; Vice President, First Allmerica
Director and Vice President since 1990; Chief Financial Officer, First Allmerica 1990 to 1996
Phillip E. Soule Director of First Allmerica since 1996; Vice President, First Allmerica
Director since 1987
</TABLE>
52
<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, overrides and promotional incentives or payments may also be
provided to General Agents, independent marketing organizations and
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.
53
<PAGE>
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
-- 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, Fidelity 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.
54
<PAGE>
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 Fidelity 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, Fidelity 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
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.
55
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.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1998 and 1997 and
for each of the two years in the period ended December 31, 1998, and the
financial statements of Allmerica Select Separate Account II of the Company
as of December 31, 1998 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 PricewaterhouseCoopers 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.
56
<PAGE>
YEAR 2000 DISCLOSURE
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.
Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The
Company is presently completing the process of modifying or replacing
existing software and believes that this action will resolve the Year 2000
issue. However, if such modifications and conversions are not made, or are
not completed timely, or should there be serious unanticipated interruptions
from unknown sources, the Year 2000 issue could have a material adverse
impact on the operations of the Company. Specifically, the Company could
experience, among other things, an interruption in its ability to collect and
process premiums, process claim payments, safeguard and manage its invested
assets, accurately maintain policyholder information, accurately maintain
accounting records, and perform customer service. Any of these specific
events, depending on duration, could have a material adverse impact on the
results of operations and the financial position of the Company.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. The Company's total Year 2000 project cost and estimates to complete
the project include the estimated costs and time associated with the impact
of a third party's Year 2000 issue, and are based on presently available
information. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have material adverse
effect on the Company. The Company does not believe that it has material
exposure to contingencies related to the Year 2000 issue for the products it
has sold. 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.
The Company will utilize both internal and external resources to reprogram or
replace, and test both information technology and embedded technology systems
for Year 2000 modifications. The Company plans to complete the mission
critical elements of the Year 2000 by December 31, 1998. The cost of the Year
2000 project will be expensed as incurred over the next two years and is
being funded primarily through a reallocation of resources from discretionary
projects. Therefore, the Year 2000 project is not expected to result in any
significant incremental technology cost and is not expected to have a
material effect on the results of operations. Through September 30, 1998, the
Company and its affiliates have incurred and expensed approximately $47
million related to the assessment of, and preliminary efforts in connection
with, the project and the development of a remediation plan. The total
remaining cost of the project is estimated at between $30-$40 million.
The Company's contingency plans related to the Year 2000 issue are addressed
in a plan developed jointly with an outside vendor. The plan contains
immediate steps to keep business functions operating while unforeseen Year
2000 issues are being addressed. It outlines responses to situations that may
affect critical business functions and also provides triage guidance, a
documented order of actions to respond to problems. During the triage
process, business priorities are established and "Critical Points of Failure"
are identified as having a significant impact on the business. The Company's
contingency plans are designed to keep a business unit's operation
functioning in the event of a failure or delay due to Year 2000 record format
and date calculation changes.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
59
<PAGE>
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.
60
<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
Age of Insured Percentage of
on Date of Death Policy Value
---------------- -------------
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
80 105%
85 105%
90 105%
95 and above 100%
For the ages not listed, the progression between the listed ages is linear.
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 your 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 becomes 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
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 Charges 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 1998, ranged
from an annual rate of 0.32% to an annual rate of 2.19% 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 (the "Manager") has declared a voluntary expense limitation of 1.35% of
average net assets for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.50% for the Select International Equity Fund, 1.25% for
the Select Value Opportunity Fund, 1.20% for the Select Growth Fund, 1.10%
for the Select Growth and Income Fund, 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
1998. These limitations may be terminated at any time.
Until further notice, the Manager 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 the Manager from the Fund
after subtracting fees paid by the Manager 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.
D-1
<PAGE>
The hypothetical returns shown in the tables 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 rates 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 to1 earn interest,
(after taxes) at 5%, compounded annually.
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT VARIABLE LIFE POLICY
AMOUNT = $100,000
MALE NON-SMOKER AGE 30
SUM INSURED OPTION 2
BASED ON CURRENT MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year (1) Value Value (2) Benefit Value Value (2) Benefit Value Value (2) Benefit
------ ------------ --------- --------- ------- -------- --------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $2,000 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
AMOUNT = $100,000
MALE NON-SMOKER AGE 30
SUM INSURED OPTION 2
BASED ON GUARANTEED MONTHLY INSURANCE PROTECTION
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year (1) Value Value (2) Benefit Value Value (2) Benefit Value Value (2) Benefit
------ ------------ --------- --------- ------- -------- --------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $2,000 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>
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
Age at
Issue or Male Male Female Female Unisex Unisex
Increase Nonsmoker Smoker Nonsmoker Smoker Nonsmoker Smoker
-------- --------- ------ --------- -------- --------- -------
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
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
E-1
Age at
Issue or Male Male Female Female Unisex Unisex
Increase Nonsmoker Smoker Nonsmoker Smoker Nonsmoker Smoker
-------- --------- ------ --------- -------- --------- -------
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
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.
E-3
<PAGE>
APPENDIX F
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
-- 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.
F-1
<PAGE>
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, 1998. "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.
F-2
<PAGE>
TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
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
ONE-YEAR OR LIFE OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
</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; 8/23/95 for the T.
Rowe Price International Stock; and February 20, 1998 for the Select Emerging
Markets Fund and the Select Strategic Growth Fund.
PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE
BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE
INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE
PORTFOLIO OF THE UNDERLYING FUND IN WHICH A SUB-ACCOUNT INVESTS AND THE
MARKET CONDITIONS DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED
AS A REPRESENTATION OF WHAT MAY BE ACHIEVED IN THE FUTURE.
F-3
<PAGE>
TABLE I(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
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
ONE-YEAR OR LIFE OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
</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; 8/23/95 for the T.
Rowe Price International Stock; and February 20, 1998 for the Select Emerging
Markets Fund and the Select Strategic Growth Fund.
PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE
BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE
INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE
PORTFOLIO OF THE UNDERLYING FUND IN WHICH A SUB-ACCOUNT INVESTS AND THE
MARKET CONDITIONS DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED
AS A REPRESENTATION OF WHAT MAY BE ACHIEVED IN THE FUTURE.
F-4
<PAGE>
TABLE II(A):
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
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 5 OF FUND
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
</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; 3/31/94 for the T. Rowe Price International Stock;
and February 20, 1998 for the Select Emerging Markets Fund and Select
Strategic Growth Fund.
PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE
BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE
INVESTMENT OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE
PORTFOLIO OF THE UNDERLYING FUND IN WHICH A SUB-ACCOUNT INVESTS AND THE
MARKET CONDITIONS DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED
AS A REPRESENTATION OF WHAT MAY BE ACHIEVED IN THE FUTURE.
F-5
<PAGE>
TABLE II(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
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
ONE-YEAR OR LIFE
TOTAL 5 OF FUND
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
</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; 3/31/94 for the T. Rowe Price International Stock;
and February 20, 1998 for 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.
F-6
<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.
<PAGE>
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b) (11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
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:
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 was previously filed on April 16, 1998 in
Post-Effective Amendment No.5, are is incorporated by reference
herein.
(2) Not Applicable.
(3) (a) Underwriting and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. was previously
filed on April 16, 1998 in Post-Effective Amendment No.5,
and is incorporated by reference herein.
(b) Registered Representatives/Agents Agreement was previously
filed on April 16, 1998 in Post-Effective Amendment No.5,
and is incorporated by reference herein.
(c) Sales Agreements (Select) were previously filed on April 16,
1998 in Post-Effective Amendment No.5, and are incorporated
by reference herein.
(d) Commission Schedule was previously filed on April 16, 1998
in Post-Effective Amendment No.5, and is incorporated by
reference herein.
(e) General Agent's Agreement was previously filed on April 16,
1998 in Post-Effective Amendment No.5, and is incorporated
by reference herein.
(f) Career Agent Agreement was previously filed on April 16,
1998 in Post-Effective Amendment No.5, and is incorporated
by reference herein.
(4) Not Applicable.
(5) Policy and Policy riders were previously filed on April 16, 1998
in Post-Effective Amendment No. 5, and are incorporated by
reference herein. 403(b) Life Insurance Policy Endorsement and
Riders were previously filed on April 16, 1998 in Post-Effective
Amendment No. 5, and are incorporated by reference herein.
(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.
<PAGE>
(8) (a) Participation Agreement with Allmerica Investment Trust was
previously filed on April 16, 1998 in Post-Effective
Amendment No.5, and is incorporated by reference herein.
(b) Participation Agreement with T. Rowe Price International
Series, Inc. was previously filed on April 16, 1998 in
Post-Effective Amendment No.5, and is incorporated by
reference herein.
(c) Participation Agreement with Variable Insurance Products
Fund, as amended, was previously filed on April 16, 1998 in
Post-Effective Amendment No.5, and is incorporated by
reference herein.
(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.
(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. was previously filed on April 16, 1998 in
Post-Effective Amendment No.5, and is incorporated by
reference herein.
(9) BFDS Agreements for lockbox and mailroom services were previously
filed on April 16, 1998 in Post-Effective Amendment No.5, and are
incorporated by reference herein.
(10) Application was previously filed on April 16, 1998 in
Post-Effective Amendment No.5, and is incorporated by reference
herein.
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 will be filed by amendment in Rule 485(b)
filing.
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) .was previously filed
on April 16, 1998 in Post-Effective Amendment No.5, and is
incorporated by reference herein.
8. Consent of Independent Accountants will be filed by amendment in
Rule 485(b) filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant 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 1st day of
February, 1999.
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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ---- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of February 1, 1999
--------------------- The Board
John F. O'Brien
/s/ Bruce C. Anderson Director
---------------------
Bruce C. Anderson
/s/ Warren E. Barnes Vice President and Corporate
--------------------- Controller
Warren E. Barnes
/s/ Robert E. Bruce Director and Chief
-------------------- Information Officer
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
--------------------- Chief Investment Officer
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and
--------------------- General Counsel
John F. Kelly
/s/ J. Barry May Director
---------------------
J. Barry May
/s/ James R. McAuliffe Director
---------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President,
- ------------------------ Chief Financial Officer and
Edward J. Parry III Treasurer
/s/ Richard M. Reilly Director, President and
----------------------- Chief Executive Officer
Richard M. Reilly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ---- ----
<S> <C> <C>
/s/ Robert P. Restrepo, Jr. Director
---------------------------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President
----------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
----------------------------
Phillip E. Soule
</TABLE>
<PAGE>
FORM S-6 EXHIBIT TABLE
Exhibit 3 Opinion of Counsel
<PAGE>
February 1, 1999
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 NO.'S: 33-83604 AND 811-8746
Gentlemen:
In my capacity as Assistant Vice President and 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 Post-Effective
Amendment to the Registration Statement and upon compliance with applicable
local law, will be legal and binding obligations of the Company in
accordance with their terms and when sold will be legally issued, fully
paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement of 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
