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Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
Initial Registration
GROUP VEL ACCOUNT OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 Lincoln Street
Worcester, MA 01653
(Address of Principal Executive Office)
(508) 855-1000
(Registrant's telephone number including area code)
Abigail M. Armstrong, Secretary and Counsel
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, Massachusetts 01653
(Name and complete Address of Agent for Service of Process)
It is proposed that this filing will become effective:
____immediately upon filing prsuant to Paragraph (b)
____on (________) pursuant to Paragraph (b)
____60 days after filing pursuant to Paragraph (a) (1)
____on (________) pursuant to Paragraph (a)(1)
____on (________) pursuant to Paragraph (a) (2) of Rule 485
FLEXIBLE PREMIUM VARIABLE LIFE
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The $500 filing fee required by
said rule is paid herewith.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such date or
dates as the Commission, acting pursuant to said section 8(a), may determine.
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This prospectus describes certificates issued under group flexible premium
variable life insurance policies ("Certificates") offered by First Allmerica
Financial Life Insurance Company ("Company") to eligible applicants
("Certificate Owners") who are members of a non-qualified benefit plan. Within
limits, you may choose the amount of initial premium desired and the initial
Death Benefit. You have the flexibility to vary the frequency and amount of
premium payments, subject to certain restrictions and conditions. You may
withdraw a portion of the Certificate's surrender value, or the Certificate may
be fully surrendered at any time, subject to certain limitations.
The Certificates permit you to allocate Net Premiums among up to seven of
twenty sub-accounts ("Sub-Accounts") of the Group VEL Account, a separate
account of the Company, and a fixed interest account ("General Account") of the
Company (together "Accounts"). Each Sub-Account invests its assets in a
corresponding investment portfolio of Allmerica Investment Trust ("Trust"),
Variable Insurance Products Fund ("Fidelity VIP"), Variable Insurance Products
Fund II ("Fidelity VIP II"), T. Rowe Price International Series, Inc. ("T. Rowe
Price"), Delaware Group Premium Fund, Inc. ("DGPF") or INVESCO Variable
Investment Funds, Inc. ("INVESCO VIF"). The Trust is managed by Allmerica
Investment Management Company, Inc. ("Allmerica Investment"). Fidelity VIP and
Fidelity VIP II are managed by Fidelity Management & Research Company ("Fidelity
Management"). T. Rowe Price is managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"). The International Equity Series, which is the only investment
portfolio of DGPF available under the Certificates, is managed by Delaware
International Advisers Ltd. ("Delaware International"). INVESCO VIF, which is
managed by INVESCO Funds Group, Inc. ("INVESCO"), is available only to employees
of INVESCO and its affiliates.
In certain circumstances, a Certificate may be considered a "modified
endowment contract." Under the Internal Revenue Code, any Certificate loan,
partial withdrawal or surrender from a modified endowment contract may be
subject to tax and tax penalties. See "FEDERAL TAX CONSIDERATIONS -- Modified
Endowment Contracts."
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY OR CERTIFICATE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE CERTIFICATES ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CERTIFICATES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CERTIFICATES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS
IN THE CERTIFICATES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF
VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED , 1996
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
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(Continued from cover page)
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, DGPF, and INVESCO
VIF are open-end, diversified series investment companies. Eleven different
investment portfolios of the Trust are available under the Certificates: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Small Cap Value Fund (the "Funds"). Four of Fidelity VIP's
investment portfolios are available: Fidelity VIP High Income Portfolio (which
invests in higher yielding, higher risk, lower rated debt securities), Fidelity
VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and Overseas
Portfolio ("Portfolios"). One investment portfolio of Fidelity VIP II
("Portfolio") is available: the Fidelity VIP Asset Manager Portfolio. One
investment portfolio of T. Rowe Price ("Portfolio") is available: the T. Rowe
Price International Stock Portfolio. One investment portfolio of DGPF ("Series")
is available: the International Equity Series. The Total Return Fund and the
Industrial Income Fund of INVESCO VIF are available only to employees of INVESCO
and its affiliates. Each Fund, Portfolio and Series has its own investment
objectives. See "INVESTMENT OBJECTIVES AND POLICIES" in this prospectus. The
accompanying prospectuses of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe
Price, DGPF and INVESCO VIF describe the investment objectives and certain
attendant risks of each Underlying Fund. Due to state insurance regulations, an
underlying fund may not be available in all states.
There is no guaranteed minimum Certificate value. The value of a Certificate
will vary up or down to reflect the investment experience of allocations to the
Sub-Accounts and the fixed rates of interest earned by allocations to the
General Account. The Certificate value will also be adjusted for other factors,
including the amount of charges imposed. The Certificate will remain in effect
so long as the Certificate value less any outstanding debt is sufficient to pay
certain monthly charges imposed in connection with the Certificate. The
Certificate value may decrease to the point where the Certificate will lapse and
provide no further death benefit without additional premium payments.
If the Certificate is in effect at the death of the Insured, the Company
will pay a death benefit (the "Death Proceeds") to the beneficiary. Prior to the
Final Premium Payment Date, the Death Proceeds equal the Death Benefit, less any
debt, partial withdrawals, and any due and unpaid charges. After the Final
Premium Payment Date, the Death Proceeds equal the Surrender Value of the
Certificate. If the Guideline Premium Test is in effect (See ELECTION OF DEATH
BENEFIT OPTIONS), you may choose either Death Benefit Option 1 (the Death
Benefit is fixed in amount) or Death Benefit Option 2 (the Death Benefit
includes the Certificate value in addition to a fixed insurance amount) and may
change between Death Benefit Option 1 and Option 2, subject to certain
conditions. If the Cash Value Accumulation Test is in effect, Death Benefit
Option 3 (the Death Benefit is fixed in amount) will apply. A Minimum Death
Benefit, equivalent to a percentage of the Certificate value, will apply if
greater than the Death Benefit otherwise payable under Option 1, Option 2 or
Option 3.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................ 5
SUMMARY.............................................................................. 8
PERFORMANCE INFORMATION.............................................................. 14
DESCRIPTION OF THE COMPANY, THE GROUP VEL ACCOUNT,
THE TRUST, VIP, VIP II, T. ROWE PRICE, DGPF AND INVESCO VIF......................... 18
INVESTMENT OBJECTIVES AND POLICIES................................................... 20
INVESTMENT ADVISORY SERVICES......................................................... 22
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.................................... 26
VOTING RIGHTS........................................................................ 26
THE CERTIFICATE...................................................................... 27
Enrollment Form for a Certificate.................................................. 27
Free Look Period................................................................... 28
Conversion Privileges.............................................................. 28
Premium Payments................................................................... 29
Allocation of Net Premiums......................................................... 29
Transfer Privilege................................................................. 30
Election of Death Benefit Options.................................................. 30
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST.............................. 31
Death Proceeds..................................................................... 31
Change in Death Benefit Option..................................................... 34
Change in Face Amount.............................................................. 34
Increases.......................................................................... 34
Decreases.......................................................................... 35
Certificate Value and Surrender Value.............................................. 35
Calculation of Certificate Value................................................... 35
The Unit........................................................................... 36
Net Investment Factor.............................................................. 36
Payment Options.................................................................... 36
Optional Insurance Benefits........................................................ 37
Surrender.......................................................................... 37
Paid-Up Insurance Option........................................................... 37
Partial Withdrawal................................................................. 37
CHARGES AND DEDUCTIONS............................................................... 38
Premium Expense Charge............................................................. 38
Monthly Deduction From Certificate Value........................................... 39
Cost of Insurance.................................................................. 39
Calculation of the Charge.......................................................... 39
Cost of Insurance Rates............................................................ 40
Monthly Certificate Administrative Charge.......................................... 41
Monthly Group VEL Account Administrative Charge.................................... 41
Monthly Mortality and Expense Risk Charge.......................................... 41
Charges Reflected in the Assets of the Group VEL Account........................... 41
Surrender Charge................................................................... 42
Charges on Partial Withdrawal...................................................... 43
Transfer Charges................................................................... 44
Charge for Change in Face Amount................................................... 44
Other Administrative Charges....................................................... 44
CERTIFICATE LOANS.................................................................... 44
CERTIFICATE TERMINATION AND REINSTATEMENT............................................ 45
OTHER CERTIFICATE PROVISIONS......................................................... 47
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY...................................... 49
</TABLE>
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<TABLE>
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DISTRIBUTION......................................................................... 49
REPORTS.............................................................................. 50
LEGAL PROCEEDINGS.................................................................... 50
FURTHER INFORMATION.................................................................. 50
INDEPENDENT ACCOUNTANTS.............................................................. 51
FEDERAL TAX CONSIDERATIONS........................................................... 51
Taxation of the Certificates....................................................... 51
Modified Endowment Contracts....................................................... 52
MORE INFORMATION ABOUT THE GENERAL ACCOUNT........................................... 53
FINANCIAL STATEMENTS................................................................. 54
APPENDIX A -- OPTIONAL BENEFITS...................................................... A-1
APPENDIX B -- PAYMENT OPTIONS........................................................ A-2
APPENDIX C -- ILLUSTRATIONS.......................................................... A-3
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES............................... A-11
</TABLE>
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SPECIAL TERMS
AGE: The Insured's age as of the nearest birthday measured from a Certificate
anniversary.
BENEFICIARY: The person(s) designated by the owner of the Certificate to
receive the insurance proceeds upon the death of the Insured.
CERTIFICATE CHANGE: Any change in the Face Amount, the addition or deletion of
a rider, or a change in the Death Benefit Option.
CERTIFICATE VALUE: The total amount available for investment under a
Certificate at any time. It is equal to the sum of (a) the value of the Units
credited to a Certificate in the Sub-Accounts and (b) the accumulation in the
General Account credited to that Certificate.
COMPANY: First Allmerica Financial Life Insurance Company
DATE OF ISSUE: The date set forth in the Certificate used to determine the
Monthly Processing Date, Certificate months, Certificate years, and Certificate
anniversaries.
DEATH BENEFIT: The amount payable upon the death of the Insured, before the
Final Premium Payment Date, prior to deductions for Debt outstanding at the time
of the Insured's death, partial withdrawals and partial withdrawal charges, if
any, and any due and unpaid Monthly Deductions. The amount of the Death Benefit
will depend on the Death Benefit Option chosen, but will always be at least
equal to the Face Amount.
DEATH PROCEEDS: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Death Benefit Option, less Debt
outstanding at the time of the Insured's death, partial withdrawals, if any,
partial withdrawal charges, and any due and unpaid Monthly Deductions. After the
Final Premium Payment Date, the Death Proceeds equal the Surrender Value of the
Certificate.
DEBT: All unpaid Certificate loans plus interest due or accrued on such loans.
DELIVERY RECEIPT: An acknowledgment, signed by the Certificate Owner and
returned to the Company's Principal Office, that the Certificate Owner has
received the Certificate and the Notice of Withdrawal Rights.
EVIDENCE OF INSURABILITY: Information, satisfactory to the Company, that is
used to determine the Insured's Underwriting Class.
FACE AMOUNT: The amount of insurance coverage applied for. The Face Amount of
each Certificate is set forth in the specification pages of the Certificate.
FINAL PREMIUM PAYMENT DATE: The Certificate anniversary nearest the Insured's
95th birthday. The Final Premium Payment Date is the latest date on which a
premium payment may be made. After this date, the Death Proceeds equal the
Surrender Value of the Certificate.
GENERAL ACCOUNT: All the assets of the Company other than those held in a
Separate Account.
GROUP VEL ACCOUNT: A Separate Account of the Company to which the Certificate
Owner may make Net Premium allocations.
GUIDELINE ANNUAL PREMIUM: The annual amount of premium that would be payable
through the Final Premium Payment Date of a Certificate for the specified Death
Benefit, if premiums were fixed by the Company as to both timing and amount, and
monthly cost of insurance charges were based on the 1980 Commissioners Standard
Ordinary Mortality Tables (Mortality Table B, Smoker or Non-Smoker, for unisex
Certificates), net investment earnings at an annual effective rate of 5%, and
fees and charges as set forth in the Certificate and any Certificate riders. The
Death Benefit Option 1 Guideline Annual Premium is used when calculating the
maximum surrender Charge.
INSURANCE AMOUNT AT RISK: The Death Benefit less the Certificate Value.
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ISSUANCE AND ACCEPTANCE: The date the Company mails the Certificate if the
enrollment form is approved with no changes requiring your consent; otherwise,
the date the Company receives your written consent to any changes.
LOAN VALUE: The maximum amount that may be borrowed under the Certificate.
MINIMUM DEATH BENEFIT: The minimum Death Benefit required to qualify the
Certificate as "life insurance" under Federal tax laws. The Minimum Death
Benefit varies by Age. It is calculated by multiplying the Certificate Value by
a percentage determined by the Insured's Age.
MONTHLY PROCESSING DATE: The date on which the Monthly Deduction is deducted
from Certificate Value.
MONTHLY DEDUCTION: Charges deducted monthly from the Certificate Value of a
Certificate prior to the Final Premium Payment Date. The charges include the
monthly cost of insurance, the monthly cost of any benefits provided by rider,
the monthly Certificate administrative charge, the monthly Group VEL Account
administrative charge and the monthly mortality and expense risk charge.
MONTHLY DEDUCTION SUB-ACCOUNT: A Sub-Account of the Separate Account to which
the payor that you name under the Payor Option may allocate Net Premiums to pay
all or a portion of the insurance charges and administrative charges. The
Monthly Deduction Sub-Account is currently Sub-Account 3 which invests in the
Money Market Fund of Allmerica Investment Trust.
NET PREMIUM: An amount equal to the premium less any premium expense charge.
PAID-UP INSURANCE: Life insurance coverage for the life of the Insured, with no
further premiums due.
PRINCIPAL OFFICE: The Company's office, located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
PRO-RATA ALLOCATION: In certain circumstances, you may specify from which
Sub-Account certain deductions will be made or to which Sub-Account Certificate
Value will be allocated. If you do not, the Company will allocate the deduction
or Certificate Value among the General Account and the Sub-Accounts excluding
the Monthly Deduction Sub-Account in the same proportion that the Certificate
Value in the General Account and the Certificate Value in each Sub-Account bear
to the total Certificate Value on the date of deduction or allocation.
SEPARATE ACCOUNT: A Separate Account consists of assets segregated from the
Company's other assets. The investment performance of the assets of each
Separate Account is determined separately from the other assets of the Company.
The assets of a Separate Account which are equal to the reserves and other
contract liabilities are not chargeable with liabilities arising out of any
other business which the Company may conduct.
SUB-ACCOUNT: A subdivision of the Group VEL Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund or the
Variable Insurance Products Fund II, the International Stock Portfolio of T.
Rowe Price International Series, Inc. or the International Equity Series of the
Delaware Group Premium Fund, Inc. The Total Return Fund and the Industrial
Income Fund of INVESCO VIF are available to employees of INVESCO Inc., and its
affiliates.
SURRENDER VALUE: The amount payable upon a full surrender of the Certificate.
It is the Certificate Value, less any Debt and any surrender charges.
UNDERLYING FUNDS: The Funds of Allmerica Investment Trust, the Portfolios of
Variable Insurance Products Fund and Variable Insurance Products Fund II, the
Portfolio of T. Rowe Price International Series, Inc. the Series of Delaware
Group Premium Fund, Inc. and the Funds of INVESCO Variable Investment Funds,
Inc. which are available under the Certificates.
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UNDERLYING INVESTMENT COMPANIES: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc., Delaware Group Premium Fund, Inc., and INVESCO Variable Investment
Funds, Inc.
UNDERWRITING CLASS: The risk classification that the Company assigns the
Insured based on the information in the enrollment form and any other Evidence
of Insurability considered by the Company. The Insured's Underwriting Class will
affect the cost of insurance charge and the amount of premium required to keep
the Certificate in force.
UNIT: A measure of your interest in a Sub-Account.
VALUATION DATE: A day on which the net asset value of the shares of any of the
Underlying Funds is determined and Unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Certificate is
received) when there is a sufficient degree of trading in an Underlying Fund's
securities such that the current net asset value of the Sub-Accounts may be
materially affected.
VALUATION PERIOD: The interval between two consecutive Valuation Dates.
WRITTEN REQUEST: A Request by the Certificate Owner in writing, satisfactory to
the Company.
YOU OR YOUR: The Certificate Owner, as shown in the enrollment form or the
latest change filed with the Company.
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SUMMARY
THE CERTIFICATE -- The Certificate issued under a group flexible premium
variable life policy offered by this prospectus allows you, subject to certain
limitations, to make premium payments in any amount and frequency. As long as
the Certificate remains in force, it will provide for: (a) life insurance
coverage on the named Insured; (b) Certificate Value; (c) surrender rights and
partial withdrawal rights; (d) loan privileges; and (e) in some cases,
additional insurance benefits available by rider for an additional charge.
The Certificates provide death benefits, Certificate Value, and other
features traditionally associated with life insurance policies. The Certificates
are "variable" because, unlike the fixed benefits of ordinary whole life
insurance, the Certificate Value will, and under certain circumstances the Death
Proceeds may, increase or decrease depending on the investment experience of the
Sub-Accounts of the Group VEL Account. They are "flexible premium" Certificates,
because, unlike traditional insurance policies, there is no fixed schedule for
premium payments. Although you may establish a schedule of premium payments
("planned premium payments"), failure to make the planned premium payments will
not necessarily cause a Certificate to lapse nor will making the planned premium
payments guarantee that a Certificate will remain in force. Thus, you may, but
are not required to, pay additional premiums.
The Certificate will remain in force until the Surrender Value is
insufficient to cover the next Monthly Deduction and loan interest accrued, if
any, and a grace period of 62 days has expired without adequate payment being
made by you.
SURRENDER CHARGES -- At any time that a Certificate is in effect, a
Certificate Owner may elect to surrender the Certificate and receive its
Surrender Value. A surrender charge may be calculated upon issuance of the
Certificate and upon each increase in Face Amount. The surrender charge may be
imposed, depending on the group to which the Certificate is issued, for up to 15
years from the Date of Issue or any increase in the Face Amount and you request
a full surrender or a decrease in Face Amount.
The maximum surrender charge calculated upon issuance of the Certificate is
equal to the sum of (a) plus (b) where (a) is a deferred administrative charge
equal to $8.50 per thousand dollars of the initial Face Amount and (b) is a
deferred sales charge of 50% (less any premium expense charge not associated
with state and local premium taxes) of premiums received up to the Guideline
Annual Premium, depending on the group to which the Certificate is issued. In
accordance with limitations under state insurance regulations, the amount of the
maximum surrender charge will not exceed a specified amount per thousand dollars
of initial Face Amount, as indicated in "APPENDIX C -- CALCULATION OF MAXIMUM
SURRENDER CHARGES." The maximum surrender charge remains level for the first 24
Certificate months, reduces uniformly each month for the balance of the
surrender charge period, and is zero thereafter. If you surrender the
Certificate during the first two years following the Date of Issue before making
premium payments associated with the initial Face Amount which are at least
equal to one Guideline Annual Premium, the actual surrender charge imposed may
be less than the maximum. See "THE CERTIFICATE -- Surrender" and "CHARGES AND
DEDUCTIONS -- Surrender Charge."
A separate surrender charge will apply to and is calculated for each
increase in Face Amount. The maximum surrender charge for the increase is equal
to the sum of (a) plus (b) where (a) is equal to $8.50 per thousand dollars of
increase, and (b) is a deferred sales charge of 50% (less any premium expense
charge not associated with state and local premium taxes) of premiums associated
with the increase, up to the Guideline Annual Premium for the increase. In
accordance with limitations under state insurance regulations, the amount of the
surrender charge will not exceed a Specified amount per thousand dollars of
increase, as indicated in "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER
CHARGES." As is true for the initial Face Amount, (a) is a deferred
administrative charge and (b) is a deferred sales charge. This maximum surrender
charge remains level for the first
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24 Certificate months following the increase, reduces uniformly each month for
the balance of the surrender charge period, and is zero thereafter. During the
first two Certificate years following an increase in Face Amount, before making
premium payments associated with the increase in Face Amount which are at least
equal to one Guideline Annual Premium, the actual surrender charge with respect
to the increase may be less than the maximum. See "THE CERTIFICATE -- Surrender"
and "CHARGES AND DEDUCTIONS -- Surrender Charge."
In the event of a decrease in Face Amount, any surrender charge imposed is a
fraction of the charge that would apply to a full surrender of the Certificate.
See "THE CERTIFICATE -- Surrender" and "CHARGES AND DEDUCTIONS -- Surrender
Charge."
PREMIUM EXPENSE CHARGE -- A charge may be deducted from each premium payment
for state and local premium taxes paid by the Company for the Certificate and to
compensate the Company for federal taxes imposed for deferred acquisition costs
("DAC taxes") and for sales expenses related to the Certificates. State premium
taxes generally range from 0.75% to 5%, while local premium taxes (if any) vary
by jurisdiction within a state. The DAC tax deduction may range from zero to 1%
of premiums, depending on the group to which the Certificate is issued. The DAC
tax deduction is a factor that the Company must use when calculating the maximum
sales load it can charge under SEC rules. The charge for sales expenses may
range from zero to 5%, depending on the characteristics of the group to which
the Certificate is issued and the actual sales expense incurred by the Company.
See "CHARGES AND DEDUCTIONS -- Premium Expense Charge."
MONTHLY DEDUCTIONS FROM CERTIFICATE VALUE -- On the Date of Issue and each
Monthly Processing Date thereafter prior to the Final Premium Payment Date,
certain charges ("Monthly Deductions") will be deducted from the Certificate
Value. The Monthly Deduction includes a charge for cost of insurance, a charge
for the cost of any additional benefits provided by rider and a charge for
Certificate administrative expenses that may be up to $10, depending on the
group to which the Certificate is issued. The Monthly Deduction may also include
a charge for Group VEL administrative expenses and a charge for mortality and
expense risks. The Group VEL administrative charge may continue for up to 10
Certificate years and may be up to 0.25% of Certificate Value in each
Sub-Account, depending on the group to which the Certificate was issued. The
mortality and expense risk charge may be up to 0.90% of Certificate Value in
each Sub-Account.
You may specify from which Sub-Account the cost of insurance charge, the
charge for Certificate administrative expenses and the charge for the cost of
additional benefits provided by rider will be deducted. If the Payor Provision
is in force, all cost of insurance charges and administrative charges will be
deducted from the Monthly Deduction Sub-Account. If no allocation is specified,
the Company will make a Pro-Rata Allocation.
The Group VEL administrative charge and the mortality and expense risk
charge are assessed against each Sub-Account that generates a charge. In the
event that a charge is greater than the value of the Sub-Account to which it
relates on a Monthly Processing Date, the unpaid balance will be totaled and the
Company will make a Pro-Rata Allocation.
Monthly Deductions are made on the Date of Issue and on each Monthly
Processing Date until the Final Premium Payment Date. No Monthly Deductions will
be made on or after the Final Premium Payment Date. See "CHARGES AND DEDUCTIONS
- -- Monthly Deductions from Certificate Value."
TRANSACTION CHARGES -- Each of the charges listed below is designed to
reimburse the Company for administrative costs incurred in the applicable
transaction.
TRANSACTION CHARGE ON PARTIAL WITHDRAWALS -- A transaction charge, which is
up to the smaller of 2% of the amount withdrawn or $25, is assessed at the time
of each partial withdrawal to reimburse the Company for the cost of processing
the withdrawal. In addition to the transaction charge, a partial withdrawal
charge may also be made under certain circumstances. See "CHARGES AND DEDUCTIONS
- -- Charges On Partial Withdrawal."
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CHARGE FOR CHANGE IN FACE AMOUNT -- For each increase or decrease in Face
Amount, a charge of $2.50 per $1,000 of increase or decrease up to $40, will be
deducted from Certificate Value. This charge is designed to reimburse the
Company for underwriting and administrative costs associated with the change.
See "THE CERTIFICATE -- Change In Face Amount" and "CHARGES AND DEDUCTIONS --
Charge For Change In Face Amount."
TRANSFER CHARGE -- The first twelve transfers of Certificate Value in a
Certificate year will be free of charge. Thereafter, with certain exceptions, a
transfer charge of $10 will be imposed for each transfer request to reimburse
the Company for the costs of processing the transfer. See "THE CERTIFICATE --
Transfer Privilege" and "CHARGES AND DEDUCTIONS -- Transfer Charges."
OTHER ADMINISTRATIVE CHARGES -- The Company reserves the right to impose a
charge for the administrative costs associated with changing the Net Premium
allocation instructions, for changing the allocation of any Monthly Deductions
among the various Sub-Accounts, or for a projection of values. See "CHARGES AND
DEDUCTIONS -- Other Administrative Charges."
CHARGES OF THE UNDERLYING INVESTMENT COMPANIES -- In addition to the charges
described above, certain fees and expenses are deducted from the assets of the
Underlying Investment Companies. See "CHARGES AND DEDUCTIONS -- Charges
Reflected in the Assets of the Group VEL Account." The levels of fees and
expenses vary among the Underlying Investment Companies.
CERTIFICATE VALUE AND SURRENDER VALUE -- The Certificate Value is the total
amount available for investment under a Certificate at any time. It is the sum
of the value of all Units in the Sub-Accounts of the Group VEL Account and all
accumulations in the General Account of the Company credited to the Certificate.
The Certificate Value reflects the amount and frequency of Net Premiums paid,
charges and deductions imposed under the Certificate, interest credited to
accumulations in the General Account, investment performance of the
Sub-Account(s) to which Certificate Value has been allocated, and partial
withdrawals. The Certificate Value may be relevant to the computation of the
Death Proceeds. You bear the entire investment risk for amounts allocated to the
Group VEL Account. The Company does not guarantee a minimum Certificate Value.
The Surrender Value will be the Certificate Value, less any Debt and
surrender charges. The Surrender Value is relevant, for example, in the
computation of the amounts available upon partial withdrawals, Certificate loans
or surrender.
DEATH PROCEEDS -- The Certificate provides for the payment of certain Death
Proceeds to the named Beneficiary upon the death of the Insured. Prior to the
Final Premium Payment Date, the Death Proceeds will be equal to the Death
Benefit, reduced by any outstanding Debt, partial withdrawals, partial
withdrawal charges, and any Monthly Deductions due and not yet deducted through
the Certificate month in which the Insured dies. Three Death Benefit Options are
available. Under Option 1 and Option 3, the Death Benefit is the greater of the
Face Amount of the Certificate or the applicable Minimum Death Benefit. Under
Option 2, the Death Benefit is the greater of the Face Amount of the Certificate
plus the Certificate Value or the Minimum Death Benefit. The Minimum Death
Benefit is equivalent to a percentage (determined each month based on the
Insured's Age) of the Certificate Value. On or after the Final Premium Payment
Date, the Death Proceeds will equal the Surrender Value. See "THE CERTIFICATE --
Death Proceeds."
The Death Proceeds under the Certificate may be received in a lump sum or
under one of the Payment Options the Company offers. See "APPENDIX B -- Payment
Options."
FLEXIBILITY TO ADJUST DEATH BENEFIT -- Subject to certain limitations, you
may adjust the Death Benefit, and thus the Death Proceeds, at any time prior to
the Final Premium Payment Date, by increasing or decreasing the Face Amount of
the Certificate. Any change in the Face Amount will affect the monthly cost of
insurance charges and the amount of the surrender charge. If the Face Amount is
decreased, a pro-rata surrender charge may be imposed. The Certificate Value is
reduced by the amount of the charge. See "THE CERTIFICATE -- Change In Face
Amount."
10
<PAGE>
The minimum increase in Face Amount will vary by group, but will in no event
exceed $10,000. Any increase may also require additional Evidence of
Insurability satisfactory to the Company. The increase is subject to a "free
look period" and, during the first 24 months after the increase, to a conversion
privilege. See "THE CERTIFICATE -- Free Look Period, -- Conversion Privileges."
You may, depending on the group to which the Certificate is issued, have the
flexibility to add additional insurance benefits by rider. These may include the
Waiver of Premium Rider, Other Insured Rider, Children's Insurance Rider,
Accidental Death Benefit Rider, Option to Accelerate Benefits Rider and Exchange
Option Rider. See "APPENDIX A -- OPTIONAL BENEFITS."
The cost of these optional insurance benefits will be deducted from
Certificate Value as part of the Monthly Deduction. See "CHARGES AND DEDUCTIONS
- -- Monthly Deduction From Certificate Value."
CERTIFICATE ISSUANCE -- If at the time of enrollment you make a payment
equal to at least one Monthly Deduction for the Certificate as applied for, the
Company will provide conditional insurance, equal to the amount applied for but
not to exceed $500,000. If the enrollment form is approved, the Certificate will
be issued as of the date the terms of the conditional insurance agreement are
met.
If you do not wish to make any payment at the time of enrollment form,
insurance coverage will not be in force until delivery of the Certificate and
payment of sufficient premium during the lifetime of the Insured.
If any premiums are paid prior to the issuance of the Certificate, such
premiums will be held in the Company's General Account. If your enrollment form
is approved and the Certificate is issued and accepted, the initial premiums
held in the General Account will be credited with interest at a specified rate
beginning not later than the date of receipt of the premiums at the Company's
Principal Office. IF A CERTIFICATE IS NOT ISSUED AND ACCEPTED, THE INITIAL
PREMIUMS WILL BE RETURNED TO YOU WITHOUT INTEREST.
If your Certificate provides for a full refund of the initial payment under
its "Right to Examine Certificate" provision as required in your state, all
Certificate Value in the General Account that you initially designated to go to
the Sub-Accounts will be allocated to the Money Market Fund of the Trust upon
Issuance and Acceptance of the Certificate. All Certificate Value will be
allocated as you have chosen no later than the expiration of the period during
which you may exercise the "Right to Examine Certificate" provision.
ALLOCATION OF NET PREMIUMS -- Net Premiums are the premiums paid less any
premium expense charge. The Certificate together with its attached enrollment
form constitutes the entire agreement between the Company and you. Net Premiums
may be allocated to one or more Sub-Accounts of the Group VEL Account, to the
General Account, or to any combination of Accounts. You bear the investment risk
of Net Premiums allocated to the Sub-Accounts. Allocations may be made to no
more than seven Sub-Accounts at any one time. The minimum allocation is 1% of
Net Premium. All allocations must be in whole numbers and must total 100%. See
"THE CERTIFICATE -- Allocation of Net Premiums."
Premiums allocated to the Company's General Account will earn a fixed rate
of interest. Net Premiums and minimum interest are guaranteed by the Company.
For more information, see "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
INVESTMENT OPTIONS -- The Certificates permit Net Premiums to be allocated
either to the Company's General Account or to the Group VEL Account. The Group
VEL Account is currently comprised of twenty Sub-Accounts. Each Sub-Account
invests exclusively in a corresponding Underlying Fund of the Allmerica
Investment Trust ("Trust") managed by Allmerica Investment, of the Variable
Insurance Products Fund ("Fidelity VIP") or the Variable Insurance Products Fund
II ("Fidelity VIP II") managed by Fidelity Management, of T. Rowe Price
International Series, Inc. ("T. Rowe Price") managed by Rowe Price-Fleming
International, Inc., of the Delaware Group Premium Fund, Inc.
11
<PAGE>
("DGPF") managed by Delaware International, or of the INVESCO Variable
Investment Funds, Inc., (available only to employees of INVESCO and its
affiliates) managed by INVESCO. In some states, insurance regulations may
restrict the availability of particular Underlying Funds. The Certificates
permit you to transfer Certificate Value among the available Sub-Accounts and
between the Sub-Accounts and the General Account of the Company, subject to
certain limitations described under "THE CERTIFICATE -- Transfer Privilege."
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, DGPF and INVESCO
VIF are open-end, diversified series management investment companies. The
following different Underlying Funds of the Trust (each a "Fund") are available
under the Certificates: the Growth Fund, Investment Grade Income Fund, Money
Market Fund, Equity Index Fund, Government Bond Fund, Select International
Equity Fund, Select Aggressive Growth Fund, Select Capital Appreciation Fund,
Select Growth Fund, Select Growth and Income Fund and Small Cap Value Fund. Four
different Underlying Funds of Fidelity VIP (each a "Portfolio") are available
under the Certificates: High Income Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP Overseas Portfolio.
One Underlying Fund of Fidelity VIP II ("Portfolio") is available: the Fidelity
VIP Asset Manager Portfolio. One Underlying Fund of T. Rowe Price ("Portfolio")
is available: the T. Rowe Price International Stock Portfolio. One Underlying
Fund of DGPF ("Series") is available: the International Equity Series. The
Industrial Income Fund and the Total Return Fund of INVESCO VIF are available
only to employees of INVESCO and its affiliates.
Each of the Underlying Funds has its own investment objectives. However,
certain Portfolios have investment objectives similar to certain Funds or
Series.
The value of each Sub-Account will vary daily depending upon the performance
of the Underlying Fund in which it invests. Each Sub-Account reinvests dividends
or capital gains distributions received from an Underlying Fund in additional
shares of that Underlying Fund.
There can be no assurance that the investment objectives of the Underlying
Funds can be achieved. For more information, see "DESCRIPTION OF THE COMPANY,
THE GROUP VEL ACCOUNT, ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS
FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES,
INC., DELAWARE GROUP PREMIUM FUND, INC., AND INVESCO VARIABLE INVESTMENT FUNDS,
INC."
FREE LOOK PERIOD -- The Certificate provides for an initial Free Look
Period. You may cancel the Certificate by mailing or delivering it to the
Principal Office or to an agent of the Company on or before the latest of (a) 45
days after the enrollment form for the Certificate is signed, (b) 10 days after
you receive the Certificate, or (c) 10 days (20 or 30 days if required in your
state) after the Company mails or personally delivers a Notice of Withdrawal
Rights to you.
If your Certificate provides for a full refund of the initial premium under
its "Right to Examine Certificate" provision as required in your state, your
refund will be the greater of (a) your entire premium or (b) the Certificate
Value plus deductions under the Certificate or by the Underlying Funds for
taxes, charges or fees. If your Certificate does not provide for a full refund
of the initial premium, you will receive the Certificate Value in the Group VEL
Account, plus premiums paid, including fees and charges, minus the amounts
allocated to the Group VEL Account, plus the fees and charges imposed on amounts
in the Group VEL Account. After an increase in Face Amount, a right to cancel
the increase also applies. See "THE CERTIFICATE -- Free Look Period."
CONVERSION PRIVILEGES -- During the first 24 Certificate months after the
Date of Issue, subject to certain restrictions, you may convert this Certificate
to a flexible premium fixed adjustable life insurance Certificate by
simultaneously transferring all accumulated value in the Sub-Accounts to the
General Account and instructing the Company to allocate all future premiums to
the General Account. A similar conversion privilege is in effect for 24
Certificate months after the date of an increase in Face Amount. Where required
by state law, and at your request, the Company will issue a flexible
12
<PAGE>
premium adjustable life insurance Certificate to you. The new Certificate will
have the same face amount, issue age, date of issue, and risk classifications as
the original Certificate. See "THE CERTIFICATE -- Conversion Privileges."
PARTIAL WITHDRAWAL -- After the first Certificate year, you may make partial
withdrawals in a minimum amount of $500 from the Certificate Value. Under Option
1, the Face Amount is reduced by the amount of the partial withdrawal, and a
partial withdrawal will not be allowed if it would reduce the Face Amount below
$40,000.
A transaction charge which is described in "CHARGES AND DEDUCTIONS --
Charges On Partial Withdrawal," will be assessed to reimburse the Company for
the cost of processing each partial withdrawal. A partial withdrawal charge may
also be imposed upon a partial withdrawal. Generally, amounts withdrawn during
each Certificate year in excess of 10% of the Certificate Value ("excess
withdrawal") are subject to the partial withdrawal charge. The partial
withdrawal charge is equal to 5% of the excess withdrawal up to the surrender
charge on the date of withdrawal. If no surrender charge is applicable at the
time of withdrawal, no partial withdrawal charge will be deducted. The
Certificate's outstanding surrender charge will be reduced by the amount of the
partial withdrawal charge deducted. See "THE CERTIFICATE -- Partial Withdrawal"
and "CHARGES AND DEDUCTIONS -- Charges On Partial Withdrawal."
LOAN PRIVILEGE -- You may borrow against the Certificate Value. The total
amount you may borrow is the Loan Value. Loan Value in the first Certificate
Year is 75% of an amount equal to Certificate Value less surrender charge,
Monthly Deductions, and interest on Debt to the end of the Certificate year.
Thereafter, Loan Value is 90% of an amount equal to Certificate Value less the
surrender charge.
Certificate loans will be allocated among the General Account and the
Sub-Accounts in accordance with your instructions. If no allocation is made by
you, the Company will make a Pro-Rata Allocation among the Accounts. In either
case, Certificate Value equal to the Certificate loan will be transferred from
the appropriate Sub-Account(s) to the General Account, and will earn monthly
interest at an effective annual rate of at least 6%. Therefore, a Certificate
loan may have a permanent impact on the Certificate Value even though it is
eventually repaid. Although the loan amount is a part of the Certificate Value,
the Death Proceeds will be reduced by the amount of outstanding Debt at the time
of death.
Certificate loans will bear interest at a fixed rate of 8% per year, due and
payable in arrears at the end of each Certificate year. If interest is not paid
when due, it will be added to the loan balance. Certificate loans may be repaid
at any time. You must notify the Company if a payment is a loan repayment;
otherwise, it will be considered a premium payment. Any partial or full
repayment of Debt by you will be allocated to the General Account or
Sub-Accounts in accordance with your instructions. If you do not specify an
allocation, the Company will allocate the loan repayment in accordance with your
most recent premium allocation instructions. See "CERTIFICATE LOANS."
CERTIFICATE LAPSE AND REINSTATEMENT -- The failure to make premium payments
will not cause a Certificate to lapse unless: (a) the Surrender Value is
insufficient to cover the next Monthly Deduction plus loan interest accrued, if
any, or (b) Debt exceeds Certificate Value. A 62-day grace period applies to
each situation. Subject to certain conditions (including Evidence of
Insurability showing that the Insured is insurable according to the Company's
underwriting rules and the payment of sufficient premium), a Certificate may be
reinstated at any time within 3 years after the expiration of the grace period
and prior to the Final Premium Payment Date. See "CERTIFICATE TERMINATION AND
REINSTATEMENT."
TAX TREATMENT -- A Certificate is generally subject to the same federal
income tax treatment as a conventional fixed benefit life insurance policy.
Under current tax law, to the extent there is no change in benefits, you will be
taxed on Certificate Value withdrawn from the Certificate only to the extent
that the amount withdrawn exceeds the total premiums paid. Withdrawals in excess
of premiums paid will be treated as ordinary income. During the first 15
Certificate years, however, an "interest first"
13
<PAGE>
rule applies to any distribution of cash that is required under Section 7702 of
the Internal Revenue Code because of a reduction in benefits under the
Certificate. Death Proceeds under the Certificate are excludable from the gross
income of the Beneficiary, but in some circumstances the Death Proceeds or the
Certificate Value may be subject to federal estate tax. See "FEDERAL TAX
CONSIDERATIONS -- Taxation of the Certificates."
A Certificate offered by this prospectus may be considered a "modified
endowment contract" if it fails a "seven- pay" test. A Certificate fails to
satisfy the seven-pay test if the cumulative premiums paid under the Certificate
at any time during the first seven Certificate years exceeds the sum of the net
level premiums that would have been paid, had the Certificate provided for
paid-up future benefits after the payment of seven level premiums. If the
Certificate is considered a modified endowment contract, all distributions
(including Certificate loans, partial withdrawals, surrenders or assignments)
will be taxed on an "income-first" basis. With certain exceptions, an additional
10% penalty will be imposed on the portion of any distribution that is
includible in income. For more information, see "FEDERAL TAX CONSIDERATIONS --
Modified Endowment Contracts."
------------------------
The Certificate summarizes the provisions of the group policy under which it
is issued, which has the purpose of providing insurance protection for the
Beneficiary named therein. References to Certificate rights and features are
intended to represent a Certificate Owner's rights and benefits under the group
policy. This Summary is intended to provide only a very brief overview of the
more significant aspects of the Certificate. Further detail is provided in this
prospectus, the Certificate and the group policy. No claim is made that the
Certificate is in any way similar or comparable to a systematic investment plan
of a mutual fund.
PERFORMANCE INFORMATION
The Certificates were first offered to the public in 1996. However, the
Company may advertise "Total Return" and "Average Annual Total Return"
performance information based on the periods that the Underlying Funds have been
in existence. The results for any period prior to the Certificates being offered
will be calculated as if the Certificates had been offered during that period of
time, with all charges assumed to be those applicable to the Sub-Accounts, the
Underlying Funds, and (in Table I) under a "representative" Certificate that is
surrendered at the end of the applicable period. For more information on charges
under the Certificates, see CHARGES AND DEDUCTIONS.
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,
1995. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the Sub-Account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results.
Performance information may be compared, in reports and promotional
literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow
Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of variable life separate
accounts or other investment products tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds and other
investment products by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons, such as
Morningstar, Inc., who rank such investment products on overall performance or
other criteria; or (iii) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
14
<PAGE>
The Company may provide information on various topics of interest to
Certificate Owners and prospective Certificate Owners in sales literature,
periodic publications or other materials. These topics may include the
relationship between sectors of the economy and the economy as a whole and its
effect on various securities markets, investment strategies and techniques (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments.
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.
15
<PAGE>
TABLE I: SUB-ACCOUNT PERFORMANCE
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE CERTIFICATE
The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Certificate charges
(including surrender charges) for a representative Certificate. It is assumed
that the Insured is male, Age 36, standard (nonsmoker) Premium Class, that the
Face Amount of the Certificate is $250,000, that an annual premium payment of
$3,000 (approximately one Guideline Annual Premium) was made at the beginning of
each Certificate year, that ALL premiums were allocated to EACH Sub-Account
individually, and that there was a full surrender of the Certificate at the end
of the applicable period.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/95
-------------------------------------------
UNDERLYING ONE-YEAR SINCE YEARS SINCE
SUB-ACCOUNT FUND TOTAL RETURN 3 YEARS 5 YEARS INCEPTION INCEPTION*
- ----------- ------------------------------------------------------- ------------ ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Growth Fund............................................ -93.55% -26.79% -1.98% 2.38% 10.67%
2 Investment Grade Income Fund........................... -100.00% -32.20% -9.58% 0.30% 10.67%
3 Money Market Fund...................................... -100.00% -37.52% -16.09% -1.01% 10.67%
4 Equity Index Fund...................................... -90.85% -23.87% -9.35% -0.35% 5.26%
5 Government Bond Fund................................... -100.00% -34.60% N/A -16.81% 4.35%
6 Select Aggressive Growth Fund.......................... -93.96% -22.70% N/A -12.41% 3.36%
7 Select Growth Fund..................................... -100.00% -33.33% N/A -24.98% 3.36%
8 Select Growth and Income Fund.......................... -95.53% -25.77% N/A -22.88% 3.36%
9 Small Cap Value Fund................................... -100.00% N/A N/A -38.13% 2.67%
11 Select International Equity Fund....................... -100.00% N/A N/A -71.17% 1.67%
12 Select Capital Appreciation Fund....................... N/A N/A N/A -88.61% 0.67%
102 Fidelity VIP High Income Portfolio..................... -100.00% -26.42% 0.93% 2.45% 10.28%
103 Fidelity VIP Equity-Income Portfolio................... -91.72% -17.74% 3.64% 4.34% 9.23%
104 Fidelity VIP Growth Portfolio.......................... -91.50% -20.52% 3.04% 5.98% 9.23%
105 Fidelity VIP Overseas Portfolio........................ -100.00% -23.08% -11.71% -2.69% 8.92%
106 Fidelity VIP II Asset Manager Portfolio................ -100.00% -29.83% -6.17% -3.07% 6.32%
150 T. Rowe International Stock Portfolio.................. -100.00% N/A N/A -76.13% 1.58%
207 DGPF International Equity Series....................... -100.00% N/A N/A -29.20% 3.17%
301 INVESCO VIF Industrial Income Fund..................... -100.00% N/A N/A -75.69% 1.42%
302 INVESCO VIF Total Return Fund.......................... -96.39% N/A N/A -70.17% 1.59%
</TABLE>
- ------------------------
* The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and Select
Growth and Income; 4/30/93 for Small Cap Value; 5/01/94 for Select International
Equity; 4/28/95 for Select Capital Appreciation; 10/09/86 for Fidelity VIP
Equity-Income and Fidelity VIP Growth; 9/19/85 for Fidelity VIP High Income;
1/28/87 for Fidelity VIP Overseas; 9/06/89 for Fidelity VIP II Asset Manager;
10/29/92 for DGPF International Equity; and 3/31/94 for the T. Rowe Price
International Stock; 8/10/94 for the INVESCO VIF Industrial Income and 6/2/94
for the INVESCO VIF Total Return.
16
<PAGE>
TABLE II: SUB-ACCOUNT PERFORMANCE
EXCLUDING MONTHLY CERTIFICATE CHARGES AND SURRENDER CHARGES
The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses, all Sub-Account charges, and premium tax and
expense charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE
CERTIFICATES OR SURRENDER CHARGES. It is assumed that an annual premium payment
of $3,000 (approximately one Guideline Annual Premium) was made at the beginning
of each Certificate year and that ALL premiums were allocated to EACH
Sub-Account individually.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/95
-------------------------------------------
UNDERLYING ONE-YEAR SINCE YEARS SINCE
SUB-ACCOUNT FUND TOTAL RETURN 3 YEARS 5 YEARS INCEPTION INCEPTION*
- ----------- ------------------------------------------------------- ------------ ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Growth Fund............................................ 31.26% 11.06% 15.02% 14.03% 10.67%
2 Investment Grade Income Fund........................... 16.47% 6.95% 8.61% 8.27% 10.67%
3 Money Market Fund...................................... 4.61% 3.04% 3.34% 4.73% 10.67%
4 Equity Index Fund...................................... 34.60% 13.33% 8.80% 15.56% 5.26%
5 Government Bond Fund................................... 11.75% 5.17% N/A 6.47% 4.35%
6 Select Aggressive Growth Fund.......................... 30.75% 14.25% N/A 18.77% 3.36%
7 Select Growth Fund..................................... 23.14% 6.11% N/A 8.73% 3.36%
8 Select Growth and Income Fund.......................... 28.81% 11.85% N/A 10.36% 3.36%
9 Small Cap Value Fund................................... 16.24% N/A N/A 8.86% 2.67%
11 Select International Equity Fund....................... 18.24% N/A N/A 7.74% 1.67%
12 Select Capital Appreciation Fund....................... N/A N/A N/A 38.47% 0.67%
102 Fidelity VIP High Income Portfolio..................... 19.32% 11.34% 17.54% 10.50% 10.28%
103 Fidelity VIP Equity-Income Portfolio................... 33.52% 18.21% 19.91% 12.01% 9.23%
104 Fidelity VIP Growth Portfolio.......................... 33.79% 15.98% 19.38% 13.50% 9.23%
105 Fidelity VIP Overseas Portfolio........................ 8.41% 13.95% 6.86% 6.06% 8.92%
106 Fidelity VIP II Asset Manager Portfolio................ 15.60% 8.73% 11.45% 9.95% 6.32%
150 T. Rowe International Stock Portfolio.................. 9.89% N/A N/A 6.06% 1.58%
207 DGPF International Equity Series....................... 12.40% N/A N/A 7.45% 3.17%
301 INVESCO VIF Industrial Income Fund..................... 28.40% N/A N/A 20.10% 1.42%
302 INVESCO VIF Total Return Fund.......................... 21.99% N/A N/A 14.35% 1.59%
</TABLE>
- ------------------------
* The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and Select
Growth and Income; 4/30/93 for Small Cap Value; 5/01/94 for Select International
Equity; 4/28/95 for Select Capital Appreciation; 10/09/86 for Fidelity VIP
Equity-Income and Fidelity VIP Growth; 9/19/85 for Fidelity VIP High Income;
1/28/87 for Fidelity VIP Overseas; 9/06/89 for Fidelity VIP II Asset Manager;
10/29/92 for DGPF International Equity; and 3/31/94 for the T. Rowe Price
International Stock; 8/10/94 for the INVESCO VIF Industrial Income and 6/2/94
for the INVESCO VIF Total Return.
17
<PAGE>
DESCRIPTION OF THE COMPANY, THE GROUP VEL ACCOUNT,
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND,
VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL
SERIES, DELAWARE GROUP PREMIUM FUND, INC. AND
INVESCO VARIABLE INVESTMENT FUNDS, INC.
THE COMPANY -- The Company, organized under the laws of Massachusetts in
1844, is the fifth oldest life insurance company in America. Effective October
16, 1995, the Company converted from a mutual life insurance company known as
State Mutual Life Assurance Company of America to a stock life insurance company
and adopted its present name. The Company is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC"). The Company's principal office is
located at 440 Lincoln Street, Worcester, Massachusetts 01653, telephone
508-855-1000 ("Principal Office").
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
THE GROUP VEL ACCOUNT -- The Group VEL Account was authorized by vote of the
Board of Directors of the Company on August 20, 1991. The Group VEL Account is
registered with the Securities and Exchange Commission ("Commission") as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"). Such
registration does not involve the supervision of its management or investment
practices or policies of the Group VEL Account or the Company by the Commission.
The assets used to fund the variable portion of the Certificates are set
aside in the Group VEL Account and are kept separate and apart from the general
assets of the Company. Under Massachusetts law, assets equal to the reserves and
other liabilities of the Group VEL Account may not be charged with any
liabilities arising out of any other business of the Company. The Group VEL
Account currently has twenty Sub-Accounts. Each Sub-Account is administered and
accounted for as part of the general business of the Company, but the income,
capital gains, or capital losses of each Sub-Account are allocated to such
Sub-Account, without regard to other income, capital gains, or capital losses of
the Company or the other Sub-Accounts. Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Allmerica Investment Trust, the
Variable Insurance Products Fund, the Variable Insurance Products Fund II, T.
Rowe Price International Series, Inc., the Delaware Group Premium Fund, Inc. or
the INVESCO Variable Investment Fund Inc. ("Underlying Investment Companies").
ALLMERICA INVESTMENT TRUST -- Allmerica Investment Trust is an open-end,
diversified management investment company registered with the Commission under
the 1940 Act. Such registration does not involve supervision by the Commission
of the investments or investment policy of the Trust or its separate investment
Funds.
The Trust was established as a Massachusetts business trust on October 11,
1984, for the purpose of providing a vehicle for the investment of assets of
various separate accounts established by State Mutual, the Company, or other
affiliated insurance companies. Eleven investment portfolios of the Trust
("Funds") are available under the Certificates, each issuing a series of shares:
the Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth
and Income Fund and Small Cap Value Fund. The assets of each Fund are held
separate from the assets of the other Funds. Each Fund operates as a separate
investment vehicle and the income or losses of one Fund generally have no effect
on the investment performance of another Fund. Shares of the Trust are not
offered to the general public but solely to such separate accounts.
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<PAGE>
Allmerica Investment serves as investment adviser of the Trust and has
entered into sub-advisory agreements with other investment managers
("Sub-Advisers") who manage the investments of the Funds. See "INVESTMENT
ADVISORY SERVICES TO THE TRUST."
VARIABLE INSURANCE PRODUCTS FUND -- Variable Insurance Products Fund
("Fidelity VIP"), managed by Fidelity Management & Research Company ("Fidelity
Management"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981 and registered
with the Commission under the 1940 Act. Four of its investment portfolios are
available under the Certificates: High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. Fidelity Management, a registered investment adviser under the
Investment Advisers Act of 1940, 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. Fidelity Management is the
original Fidelity company, founded in 1946. It provides a number of mutual funds
and other clients with investment research and portfolio management services.
The Portfolios of Fidelity VIP as part of their operating expenses pay an
investment management fee to Fidelity Management. See "INVESTMENT ADVISORY
SERVICES TO FIDELITY VIP AND FIDELITY VIP II."
VARIABLE INSURANCE PRODUCTS FUND II -- Variable Insurance Products Fund II
("Fidelity VIP II"), managed by Fidelity Management (see "INVESTMENT ADVISORY
SERVICES TO FIDELITY VIP AND FIDELITY VIP II"), is an open-end, diversified,
management investment company organized as a Massachusetts business trust on
March 21, 1988 and registered with the Commission under the 1940 Act. One of its
investment portfolios is available under the Certificates: the Asset Manager
Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. -- T. Rowe Price International
Series, Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International,
Inc. ("Price-Fleming") (See "INVESTMENT ADVISORY SERVICES TO T. ROWE Price"), is
an open-end, diversified, management investment company organized as a Maryland
corporation in 1994 and registered with the Commission under the 1940 Act. One
of its investment portfolios is available under the Certificates: the
International Stock Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. -- Delaware Group Premium Fund, Inc.
("DGPF") is an open-end, diversified management investment company registered
with the Commission under the 1940 Act. DGPF was established to provide a
vehicle for the investment of assets of various separate accounts supporting
variable insurance policies. One investment portfolio ("Series") is available
under the Certificates, the International Equity Series. The investment adviser
for the International Equity Series is Delaware International Advisers Ltd.
("Delaware International"). See "INVESTMENT ADVISORY SERVICES TO DGPF."
INVESCO VARIABLE INVESTMENT FUNDS, INC. -- INVESCO Variable Investment
Funds, Inc. ("INVESCO VIF") is an open-end, diversified management investment
company that was organized as a Maryland Corporation on August 19, 1993 and is
registered with the Commission under the 1940 Act. INVESCO Funds Group, Inc.
("INVESCO") is the investment adviser of the Industrial Income Fund and the
Total Return Fund, the only Funds of INVESCO VIF that are available under the
Certificates. These two Funds are available only to employees of INVESCO and its
affiliates.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set
forth below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND IN THEIR
RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. The statements of additional information of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved.
SUB-ACCOUNT 1 -- invests solely in shares of the Growth Fund of the Trust.
The Growth Fund is invested in common stocks and securities convertible into
common stocks that are believed to represent significant underlying value in
relation to current market prices. The objective of the Growth Fund is to
achieve long-term growth of capital. Realization of current investment income,
if any, is incidental to this objective.
SUB-ACCOUNT 2 -- invests solely in shares of the Investment Grade Income
Fund of the Trust. The Investment Grade Income Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
SUB-ACCOUNT 3 -- invests solely in shares of the Money Market Fund of the
Trust. The Money Market Fund is invested in a diversified portfolio of
high-quality, short-term debt instruments with the objective of obtaining
maximum current income consistent with the preservation of capital and
liquidity.
SUB-ACCOUNT 4 -- invests solely in shares of the Equity Index Fund of the
Trust. The Equity Index Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the composite price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index.
SUB-ACCOUNT 5 -- invests solely in the shares of the Government Bond Fund of
the Trust. The Government Bond Fund has the investment objectives of seeking
high income, preservation of capital and maintenance of liquidity, primarily
through investments in debt instruments issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and in related options, futures
and repurchase agreements.
SUB-ACCOUNT 6 -- invests solely in shares of the Select Aggressive Growth
Fund of the Trust. The Select Aggressive Growth Fund seeks above-average capital
appreciation by investing primarily in common stocks of companies which are
believed to have significant potential for capital appreciation.
SUB-ACCOUNT 7 -- invests solely in shares of the Select Growth Fund of the
Trust. The Select Growth Fund seeks to achieve growth of capital by investing in
a diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
SUB-ACCOUNT 8 -- invests solely in shares of the Select Growth and Income
Fund of the Trust. The Select Growth and Income Fund seeks a combination of
long-term growth of capital and current income. The Fund will invest primarily
in dividend-paying common stocks and securities convertible into common stocks.
SUB-ACCOUNT 9 -- invests solely in shares of the Small Cap Value Fund of the
Trust. The Small Cap Value Fund seeks long-term growth by investing principally
in a diversified portfolio of common stocks of smaller, faster-growing companies
considered to be attractively valued in the smaller company sector of the
market.
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<PAGE>
SUB-ACCOUNT 11 -- invests solely in shares of the Select International
Equity Fund of the Trust. The 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.
SUB-ACCOUNT 12 -- invests solely in shares of the Select Capital
Appreciation Fund of the Trust. The 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.
SUB-ACCOUNT 102 -- invests solely in shares of the Fidelity VIP High Income
Portfolio. The 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 "Risks of Lower-Rated Debt Securities" in the Fidelity VIP
prospectus.
SUB-ACCOUNT 103 -- invests solely in shares of the Fidelity VIP
Equity-Income Portfolio. The 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 the Standard & Poor's 500
Composite Stock Price Index. The Portfolio may invest in high yielding,
lower-rated securities (commonly referred to as "junk bonds") which are subject
to greater risk than investments in higher-rated securities. For a further
discussion of lower-rated securities, please see "Risks of Lower-Rated Debt
Securities" in the Fidelity VIP prospectus.
SUB-ACCOUNT 104 -- invests solely in shares of the Fidelity Growth
Portfolio. The 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.
SUB-ACCOUNT 105 -- invests solely in shares of the Fidelity VIP Overseas
Portfolio. The Fidelity VIP Overseas Portfolio seeks long-term growth of capital
primarily through investments in foreign securities and provides a means for
aggressive investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
SUB-ACCOUNT 106 -- invests solely in shares of the Fidelity VIP II Asset
Manager Portfolio. The Fidelity VIP II Asset Manager Portfolio seeks high total
return with reduced risk over the long-term by allocating its assets among
domestic and foreign stocks, bonds and short-term fixed-income instruments.
SUB-ACCOUNT 150 -- invests solely in shares of the T. Rowe Price
International Stock Portfolio. The T. Rowe Price International Stock Portfolio
seeks long-term growth of capital through investments primarily in common stocks
of established, non-U.S. companies.
SUB-ACCOUNT 207 -- invests solely in shares of the DGPF International Equity
Series. The DGPF International Equity Series seeks long-term growth without
undue risk to principal by investing primarily in equity securities of foreign
issuers providing the potential for capital appreciation and income.
SUB-ACCOUNT 301 -- invests solely in shares of the INVESCO VIF Industrial
Income Fund. The INVESCO VIF Industrial Income Fund seeks the best possible
current income while following sound investment practices. Capital growth
potential is an additional but secondary consideration in the selection of
portfolio securities. The Industrial Income Fund Seeks to achieve its objective
by investing
21
<PAGE>
in securities which will provide a relatively high yield and stable return and
which, over a period of years, may also provide capital appreciation. THIS
SUB-ACCOUNT IS AVAILABLE ONLY TO EMPLOYEES OF INVESCO AND ITS AFFILIATES.
SUB-ACCOUNT 302 -- invests solely in shares of the INVESCO VIF Total Return
Fund. The INVESCO VIF Total Return Fund seeks a high total return on investment
through capital appreciation and current income by investing in a combination of
equity securities (consisting of common stocks and, to a lesser degree,
securities convertible into common stock) and fixed income securities. THIS
SUB-ACCOUNT IS AVAILABLE ONLY TO EMPLOYEES OF INVESCO AND ITS AFFILIATES.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR
TO THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE
SUB-ACCOUNTS WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE
PROSPECTUSES OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE, DGPF,
AND INVESCO VIF ALONG WITH THIS PROSPECTUS. IN SOME STATES, INSURANCE
REGULATIONS MAY RESTRICT THE AVAILABILITY OF PARTICULAR SUB-ACCOUNTS.
If required in your state, in the event of a material change in the
investment policy of a Sub-Account or the Underlying Fund in which it invests,
you will be notified of the change. If you have Certificate Value in that
Sub-Account, the Company will transfer it without charge on written request by
you to another Sub-Account or to the General Account. The Company must receive
your written request within sixty (60) days of the later of (1) the effective
date of such change in the investment policy or (2) the receipt of the notice of
your right to transfer. You may then change your premium and deduction
allocation percentages.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST -- The overall responsibility for
the supervision of the affairs of the Trust vests in the Trustees. The Trust has
entered into a Management Agreement with Allmerica Investment Management Company
Inc. ("Allmerica Investment"), an indirect wholly-owned subsidiary of First
Allmerica, to handle the day-to-day affairs of the Trust. Allmerica Investment,
subject to review by the Trustees, is responsible for the general management of
the Funds. Allmerica Investment also performs certain administrative and
management services for the Trust, furnishes to the Trust all necessary office
space, facilities, and equipment, and pays the compensation, if any, of officers
and Trustees who are affiliated with Allmerica Investment.
Other than the expenses specifically assumed by Allmerica Investment under
the Management Agreement, all expenses incurred in the operation of the Trust
are borne by it, including fees and expenses associated with the registration
and qualification of the Trust's shares under the Securities Act of 1933, other
fees payable to the Commission, independent public accountant, legal and
custodian fees, association membership dues, taxes, interest, insurance
premiums, brokerage commission, fees and expenses of the Trustees who are not
affiliated with Allmerica Investment, expenses for proxies, prospectuses, and
reports to shareholders, and other expenses.
Pursuant to the Management Agreement with the Trust, Allmerica Investment
has entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.
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<PAGE>
For providing its services under the Management Agreement, Allmerica
Investment will receive a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:
<TABLE>
<CAPTION>
FUND NET ASSET VALUE RATE
- --------------------------------------------------------------------------------- --------------------- ---------
<S> <C> <C>
Growth Fund...................................................................... First $50 million 0.60%
$50-250 million 0.50%
Over $250 million 0.35%
Investment Grade Income Fund..................................................... First $50 million 0.50%
$50-250 million 0.35%
Over $250 million 0.25%
Money Market Fund................................................................ First $50 million 0.35%
$50-250 million 0.25%
Over $250 million 0.20%
Equity Index Fund................................................................ First $50 million 0.35%
$50-250 million 0.30%
Over $250 million 0.25%
Government Bond Fund............................................................. * 0.50%
Select International Equity Fund................................................. * 1.00%
Select Aggressive Growth Fund.................................................... * 1.00%
Select Capital Appreciation Fund................................................. * 1.00%
Select Growth Fund............................................................... * 0.85%
Select Growth and Income Fund.................................................... * 0.75%
Small Cap Value Fund............................................................. * 0.85%
</TABLE>
- ------------------------
* For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth Fund,
Select Growth and Income Fund and Small Cap Value Fund, each rate applicable to
Allmerica Investment does not vary according to the level of assets in the Fund.
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<PAGE>
Allmerica Investment's fee computed for each Fund will be paid from the
assets of such Fund. Allmerica Investment is solely responsible for the payment
of all fees for investment management services to the Sub-Advisers, who will
receive from Allmerica Investment a fee, computed daily at an annual rate based
on the average daily net asset value of each Fund as follows:
<TABLE>
<CAPTION>
SUB-ADVISER FUND NET ASSET VALUE RATE
- --------------------------------------- --------------------------------------- --------------------- ---------
<S> <C> <C> <C>
Miller, Anderson & Sherrerd Growth Fund * *
Allmerica Asset Management, Inc. Investment Grade Income Fund ** 0.20%
Allmerica Asset Management, Inc. Money Market Fund ** 0.10%
Allmerica Asset Management, Inc. Equity Index Fund ** 0.10%
Allmerica Asset Management, Inc. Government Bond Fund ** 0.20%
Bank of Ireland Asset Management
Limited Select International Equity Fund First $50 million 0,45%
Next $50 million 0.40%
Over $100 million 0.30%
Nicholas-Applegate Capital Management Select Aggressive Growth Fund ** 0.60%
Janus Capital Corporation Select Capital Appreciation Fund First $100 million 0.60%
Over $100 million 0.55%
Provident Investment Counsel Select Growth Fund First $50 million 0.50%
$50-150 million 0.45%
$150-250 million 0.35%
$250-350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
David L. Babson & Co. Small Cap Value ** 0.50%
</TABLE>
For the Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select Aggressive Growth Fund and Small Cap Value Fund,
each rate applicable to the Sub-Advisers does not vary according to the level of
assets in the Fund.
* Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd based on
the aggregate assets of the Growth Fund and certain other accounts of State
Mutual and its affiliates (collectively, the "Affiliated Accounts") which are
managed by Miller, Anderson & Sherrerd, under the following schedule:
<TABLE>
<CAPTION>
AGGREGATE AVERAGE NET
ASSETS RATE
- --------------------------- ---------
<S> <C>
First $50 million 0.500%
$50-100 million 0.375%
$100-500 million 0.250%
$500-850 million 0.200%
Over $850 million 0.150%
</TABLE>
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
24
<PAGE>
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II -- For
managing investments and business affairs, each Portfolio pays a monthly fee to
Fidelity Management. The Prospectuses of Fidelity VIP and Fidelity VIP II
contain additional information concerning the Portfolios, including information
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 Fidelity
Management at an annual fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by Fidelity Management. On an annual basis this rate
cannot rise above 0.37%, and drops as total assets in all these funds
rise.
2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month. One-twelfth of the
annual management fee rate is applied to net assets averaged over the
most recent month, resulting in a dollar amount which is the management
fee for that month.
The Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP Asset
Manager and Fidelity VIP Overseas 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 Fidelity Management. On an annual basis, this
rate cannot rise above 0.52%, and drops as total assets in all these
mutual funds rise.
2. An individual Portfolio fee rate of 0.20% for the Fidelity VIP
Equity-Income Portfolio, 0.30% for the Fidelity VIP Growth Portfolio,
0.40% for the Fidelity VIP II Asset Manager Portfolio and 0.45% for the
Fidelity VIP Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the Fidelity VIP High Income Portfolio may have a fee of as high as
0.82% of its average net assets. The Fidelity VIP Equity-Income Portfolio may
have a fee of as high as 0.72% of its average net assets. The Fidelity VIP
Growth Portfolio may have a fee of as high as 0.82% of its average net assets.
The Fidelity VIP Asset Manager Portfolio may have a fee of as high as 0.92% of
its average net assets. The Fidelity VIP Overseas Portfolio may have a fee of as
high as 0.97% of its average net assets. The actual fee rate may be less
depending on the total assets in the funds advised by Fidelity Management.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE -- The Investment Adviser for
the International Stock Portfolio is Rowe Price-Fleming International, Inc.
("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture between T.
Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of
America's largest international mutual fund asset managers with approximately
$20 billion under management in its offices in Baltimore, London, Tokyo and Hong
Kong. To cover investment management and operating expenses, the International
Stock Portfolio pays Price-Fleming a single, all-inclusive fee of 1.05% of its
average daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF -- Each Series of DGPF pays an
investment adviser an annual fee for managing the portfolios and making the
investment decisions for the Series. The investment adviser for the
International Equity Series is Delaware International Advisers Ltd. ("Delaware
International"). The annual fee paid by the International Equity Series to
Delaware International is equal to 0.75% of the average daily net assets of the
Series.
INVESTMENT ADVISORY SERVICES TO INVESCO VIF -- INVESCO Funds Group, Inc.
("INVESCO") is the investment adviser for INVESCO VIF, and is primarily
responsible for providing various administration services and supervising daily
business affairs. INVESCO Trust Company serves as sub-adviser to the Industrial
Income Fund. INVESCO Capital Management, Inc. serves as sub-adviser to the Total
Return Fund.
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<PAGE>
The Industrial Income Fund and the Total Return Fund each pay INVESCO a
monthly fee equal to 0.75% annually of the first $500 million of the Fund's
average daily net assets; 0.65% of the next $500 million of the Fund's average
net assets and 0.55% of the Fund's average net assets in excess of $1 billion.
The Prospectus of INVESCO VIF contains additional information concerning other
expenses paid by the Funds.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions
to, deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund are no longer available for investment or if in the Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Group VEL Account or the affected Sub-Account,
the Company may redeem the shares of that Underlying Fund and substitute shares
of another registered open-end management company. The Company will not
substitute any shares attributable to a Certificate interest in a Sub-Account
without notice to the Certificate Owner and prior approval of the Commission and
state insurance authorities, to the extent required by the 1940 Act or other
applicable law. The Group VEL Account may, to the extent permitted by law,
purchase other securities for other policies or permit a conversion between
policies upon request by a Certificate Owner.
The Company also reserves the right to establish additional Sub-Accounts of
the Group VEL Account, each of which would invest in shares corresponding to a
new Underlying Fund or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
Commission approval, the Company may, in its sole discretion, establish new Sub-
Accounts or eliminate one or more Sub-Accounts if marketing needs, tax
considerations or investment conditions warrant. Any new Sub-Accounts may be
made available to existing Certificate Owners on a basis to be determined by the
Company.
Shares of the Funds of the Trust are also issued to separate accounts of the
Company and its affiliates which issue variable annuity contracts ("mixed
funding"). Shares of the Portfolios of Fidelity VIP and Fidelity VIP II, the
Portfolio of T. Rowe Price, the Series of DGPF, and the Funds of INVESCO VIF 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 Certificate Owners or variable annuity
Certificate Owners. Although the Company and the Underlying Investment Companies
do not currently foresee any such disadvantages to either variable life
insurance Certificate Owners or variable annuity Certificate Owners, the Company
and the respective Trustees intend to monitor events in order to identify any
material conflicts between such Certificate Owners and to determine what action,
if any, should be taken in response thereto. If the Trustees were to conclude
that separate funds should be established for variable life and variable annuity
separate accounts, the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Certificate to reflect the substitution or
change and will notify Certificate Owners of all such changes. If the Company
deems it to be in the best interest of Certificate Owners, and subject to any
approvals that may be required under applicable law, the Group VEL Account or
any Sub-Account(s) may be operated as a management company under the 1940 Act,
may be deregistered under the 1940 Act if registration is no longer required, or
may be combined with other Sub-Accounts or other separate accounts of the
Company.
VOTING RIGHTS
To the extent required by law, the Company will vote Underlying Fund shares
held by each Sub-Account in accordance with instructions received from
Certificate Owners with Certificate Value in such Sub-Account. If the 1940 Act
or any rules thereunder should be amended or if the present
26
<PAGE>
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Certificates, the Company reserves
the right to do so.
Each person having a voting interest will be provided with proxy materials
of the respective Underlying Fund together with an appropriate form with which
to give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions received from all persons with an interest in such Sub-Account
furnishing instructions to the Company. The Company will also vote shares held
in the Group VEL Account that it owns and which are not attributable to
Certificates in the same proportion.
The number of votes which a Certificate Owner has the right to instruct will
be determined by the Company as of the record date established for the
Underlying Fund. This number is determined by dividing each Certificate Owner's
Certificate Value in the Sub-Account, if any, by the net asset value of one
share in the corresponding Underlying Fund in which the assets of the
Sub-Account are invested.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as (1) to cause a change in the subclassification or investment
objective of one or more of the Underlying Funds or (2) to approve or disapprove
an investment advisory contract for the Underlying Funds. In addition, the
Company may disregard voting instructions in favor of any change in the
investment policies or in any investment adviser or principal underwriter
initiated by Certificate Owners or the Trustees. The Company's disapproval of
any such change must be reasonable and, in the case of a change in investment
policies or investment adviser, based on a good faith determination that such
change would be contrary to state law or otherwise is inappropriate in light of
the objectives and purposes of the Underlying Funds. In the event the Company
does disregard voting instructions, a summary of and the reasons for that action
will be included in the next periodic report to Certificate Owners.
THE CERTIFICATE
ENROLLMENT FORM FOR A CERTIFICATE -- Upon receipt at its Principal Office of
a completed enrollment form from a prospective Certificate Owner, the Company
will follow certain insurance underwriting procedures designed to determine
whether the proposed Insured is insurable. This process may involve such
verification procedures as medical examinations and may require that further
information be provided by the proposed Certificate Owner before a determination
of insurability can be made. A Certificate cannot be issued until this
underwriting procedure has been completed. The Company reserves the right to
reject an enrollment form which does not meet the Company's underwriting
guidelines, but in underwriting insurance, the Company shall comply with all
applicable federal and state prohibitions concerning unfair discrimination.
If at the time of enrollment a prospective Certificate Owner makes a payment
equal to at least one Monthly Deduction for the Certificate as applied for,
pending underwriting approval, the Company will provide fixed conditional
insurance pursuant to a Conditional Insurance Agreement in the amount of
insurance applied for, up to a maximum of $500,000. This coverage will generally
continue for a maximum of 90 days from the date of the enrollment form or the
completion of a medical exam, should one be required. In no event will any
insurance proceeds be paid under the Conditional Insurance Agreement if death is
by suicide.
If the enrollment form is approved, the Certificate will be issued as of the
date the terms of the Conditional Insurance Agreement were met. If no
Conditional Insurance Agreement is in effect because the prospective Certificate
Owner does not wish to make any payment until the Certificate is issued or has
paid an initial premium that is not sufficient to place the Certificate in
force, upon delivery of the Certificate the Company will require payment of
sufficient premium to place the insurance in force.
27
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Pending completion of insurance underwriting and Certificate issuance
procedures, the initial premium will be held in the Company's General Account.
If the enrollment form is approved and the Certificate is issued and accepted,
the initial premium held in the General Account will be credited with interest
not later than the date of receipt of the premium at the Company's Principal
Office. IF A CERTIFICATE IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED TO YOU
WITHOUT INTEREST.
If your Certificate provides for a full refund of the initial payment under
its "Right to Examine Certificate" provision as required in your state, all
Certificate Value in the General Account that you initially designated to go to
the Sub-Accounts will be transferred to the Money Market Fund of the Trust upon
Issuance and Acceptance of the Certificate. All Certificate Value will be
allocated as you have chosen not later than the expiration of the period during
which you may exercise the "Right to Examine Certificate" provision. If the
"Payor Provision" is in effect, (see "CERTIFICATE TERMINATION AND REINSTATEMENT
- -- Payor Provisions") Payor premiums which are not "excess premiums" will be
transferred to the Monthly Deduction Sub-Account not later than 3 days after
underwriting approval of the Certificate.
FREE LOOK PERIOD -- The Certificate provides for an initial Free Look
Period. You may cancel the Certificate by mailing or delivering it to the
Principal Office or to an agent of the Company on or before the latest of (a) 45
days after the enrollment form for the Certificate is signed, (b) 10 days (20 or
30 days if required in your state) after you receive the Certificate, or (c) 10
days after the Company mails or personally delivers a Notice of Withdrawal
Rights to you.
When you return the Certificate, the Company will mail within seven days a
refund. (The refund of any premium paid by check may be delayed until the check
has cleared your bank.) If your Certificate provides for a full refund of the
initial premium under its "Right to Examine Certificate" provision as required
in your state, your refund will be the greater of (a) your entire premium or (b)
the Certificate Value plus deductions under the Certificate or by the Underlying
Funds for taxes, charges or fees. If your Certificate does not provide for a
full refund of the initial premium, you will receive the Certificate Value in
the Group VEL Account, plus premiums paid, including fees and charges, minus the
amounts allocated to the Group VEL Account, plus the fees and charges imposed on
amounts in the Group VEL Account.
After an increase in Face Amount, a right to cancel the increase also
applies. The Company will mail or personally deliver a notice of a "Free Look"
with respect to the increase. You will have the right to cancel the increase
before the latest of (a) 45 days after the enrollment form for the increase is
signed, (b) 10 days after you receive the new specification pages issued for the
increase, or (c) 10 days (20 or 30 days if required in your state) after the
Company mails or delivers a notice of withdrawal rights to you. Upon canceling
the increase, you will receive a credit to your Certificate Value of charges
which would not have been deducted but for the increase. The amount to be
credited will be refunded if you so request. The Company will also waive any
surrender charge calculated for the increase.
CONVERSION PRIVILEGES -- Once during the first 24 months after the Date of
Issue or after the effective date of an increase in Face Amount, while the
Certificate is in force, you may convert your Certificate without Evidence of
Insurability to a flexible premium adjustable life insurance Certificate with
fixed and guaranteed minimum benefits. Assuming that there have been no
increases in the initial Face Amount, you can accomplish this within 24 months
after the Date of Issue by transferring, without charge, the Certificate Value
in the Group VEL Account to the General Account and by simultaneously changing
your premium allocation instructions to allocate future premium payments to the
General Account. Within 24 months after the effective date of each increase, you
can transfer, without charge, all or part of the Certificate Value in the Group
VEL Account to the General Account and simultaneously change your premium
allocation instructions to allocate all or part of future premium payments to
the General Account.
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Where required by state law, and at your request, the Company will issue a
flexible premium adjustable life insurance Certificate to you. The new
Certificate will have the same face amount, issue ages, dates of issue, and risk
classifications as the original Certificate.
PREMIUM PAYMENTS -- Premium Payments are payable to the Company, and may be
mailed to the Principal Office or paid through an authorized agent of the
Company. All premium payments after the initial premium payment are credited to
the Group VEL Account or General Account as of date of receipt at the Principal
Office.
You may establish a schedule of planned premiums which will be billed by the
Company at regular intervals. Failure to pay planned premiums, however, will not
itself cause the Certificate to lapse. You may also make unscheduled premium
payments at any time prior to the Final Premium Payment Date or skip planned
premium payments, subject to the maximum and minimum premium limitations
described below. Therefore, unlike conventional insurance policies, a
Certificate does not obligate you to pay premiums in accordance with a rigid and
inflexible premium schedule.
You may also elect to pay premiums by means of a monthly automatic payment
("MAP") procedure. Under a MAP procedure, amounts will be deducted each month,
generally on the Monthly Processing Date, from your checking account and applied
as a premium under a Certificate. The minimum payment permitted under MAP is
$50.
Premiums are not limited as to frequency and number. However, no premium
payment may be less than $100 without the Company's consent. Moreover, premium
payments must be sufficient to cover the next Monthly Deduction plus loan
interest accrued, or the Certificate may lapse. See "CERTIFICATE TERMINATION AND
REINSTATEMENT."
In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the Certificate, if required by federal tax
laws. These maximum premium limitations will change whenever there is any change
in the Face Amount, the addition or deletion of a rider, or a change in the
Death Benefit Option. If a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company will only accept
that portion of the premiums which shall make total premiums equal the maximum.
Any part of the premiums in excess of that amount will be returned and no
further premiums will be accepted until allowed by the current maximum premium
limitation prescribed by Internal Revenue Service rules. However,
notwithstanding the current maximum premium limitations, the Company will accept
a premium which is needed in order to prevent a lapse of the Certificate during
a Certificate year. See "CERTIFICATE TERMINATION AND REINSTATEMENT."
ALLOCATION OF NET PREMIUMS -- The Net Premium equals the premium paid less
any premium expense charge. In the enrollment form for a Certificate, you
indicate the initial allocation of Net Premiums among the General Account and
the Sub-Accounts of the Group VEL Account. You may allocate premiums to one or
more Sub-Accounts, but may not have Certificate Value in more than seven
Sub-Accounts at any one time. The minimum amount which may be allocated to a
Sub-Account is 1% of Net Premium paid. Allocation percentages must be in whole
numbers (for example, 33 1/3% may not be chosen) and must total 100%. You may
change the allocation of future Net Premiums at any time pursuant to written or
telephone request. If allocation changes by telephone are elected by the
Certificate Owner, a properly completed authorization form must be on file
before telephone requests will be honored. The policy of the Company and its
agents and affiliates is that they will not be responsible for losses resulting
from acting upon telephone requests reasonably believed to be genuine. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; otherwise, the Company may be liable for
any losses due to unauthorized or fraudulent instructions. The procedures the
Company follows for transactions initiated by telephone include requirements
that callers on behalf of a Certificate Owner identify themselves by name and
identify the Certificate Owner by name, date of birth and social security
number. All transfer instructions by telephone are tape recorded. An allocation
change will be effective as of the date of receipt of
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the notice at the Principal Office. No charge is currently imposed for changing
premium allocation instructions. The Company reserves the right to impose such a
charge in the future, but guarantees that the charge will not exceed $25.
The Certificate Value in the Sub-Accounts will vary with their investment
experience; you bear this investment risk. The investment performance may affect
the Death Proceeds as well. Certificate Owners should periodically review their
allocations of premiums and Certificate Value in light of market conditions and
overall financial planning requirements.
TRANSFER PRIVILEGE -- Subject to the Company's then current rules, you may
at any time transfer the Certificate Value among the Sub-Accounts or between a
Sub-Account and the General Account. However, the Certificate Value held in the
General Account to secure a Certificate loan may not be transferred.
All requests for transfers must be made to the Principal Office. The amount
transferred will be based on the Certificate Value in the Account(s) next
computed after receipt of the transfer order. The Company will make transfers
pursuant to written or telephone requests. As discussed in "THE CERTIFICATE --
Allocation of Net Premiums," a properly completed authorization form must be on
file at the Principal Office before telephone requests will by honored.
Transfers involving the General Account are currently permitted only if:
(a) There has been at least a ninety (90) day period since the last transfer
from the General Account; and
(b) The amount transferred from the General Account in each transfer does
not exceed 25% of the Accumulated Value under the Certificate.
These rules are subject to change by the Company.
You may have automatic transfers of at least $100 each made on a periodic
basis (a) from Sub-Account 3 or Sub-Account 5 (which invests in the Money Market
Fund and Government Bond Fund of the Trust, respectively) to one or more of the
other Sub-Accounts or (b) to automatically reallocate Certificate value among
the Sub-Accounts. Automatic transfers may be made on a monthly, bimonthly,
quarterly, semiannual or annual schedule. Generally, all transfers will be
processed on the 15th of each scheduled month. However, if the 15th is not a
business day or is the Monthly Processing Date, the automatic transfer will be
processed on the next business day.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Sub-Account following a transfer from that Sub-Account, (3) the
minimum period of time between transfers involving the General Account, and (4)
the maximum amount that may be transferred each time from the General Account.
The first six transfers in a Certificate year will be free of any charge.
Thereafter, a $10 transfer charge will be deducted from the amount transferred
for each transfer in that Certificate year. The Company may increase or decrease
this charge, but it is guaranteed never to exceed $25. The first automatic
transfer counts as one transfer towards the twelve free transfers allowed in
each Certificate year; each subsequent automatic transfer is without charge and
does not reduce the remaining number of transfers which may be made free of
charge. Any transfers made with respect to a conversion privilege, Certificate
loan or material change in investment policy will not count towards the twelve
free transfers.
ELECTION OF DEATH BENEFIT OPTIONS -- Federal tax law requires a minimum
death benefit in relation to cash value for a Certificate to qualify as life
insurance. Under current Federal tax law, either the Guideline Premium test or
the Cash Value Accumulation test can be used to determine if a Certificate
complies with the definition of "life insurance" in Section 7702 of the Internal
Revenue Code ("Code"). At the time of application, the Employer may elect either
of the tests.
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The Guideline Premium Test Limits the amount of premiums payable under a
Certificate to a certain amount for an insured of a particular age and sex.
Under the Guideline Premium test, the Certificate Owner may choose between Death
Benefit Option 1 and Option 2, as described below. After issuance of the
Certificate, the Certificate Owner may change the selection from Option 1 to
Option 2 or vice versa. The Cash Value Accumulation Test requires that the Death
Benefit must be sufficient so that the cash surrender value, as defined in
Section 7702, does not at any time exceed the net single premium required to
fund the future benefits under the Certificate. If the Cash Value Accumulation
test is chosen by the employer, ONLY Death Benefit Option 3 will apply. Death
Benefits Option 1 and Option 2 are NOT available under the Cash Value
Accumulation test.
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST
There are two main differences between the Guideline Premium test and the
Cash Value Accumulation test. First, the Guideline Premium test limits the
amount of premium that may be paid into a Certificate, while no such limits
apply under the Cash Value Accumulation test. Second, the factors that determine
the minimum Death Benefit relative to the Certificate Value are different.
Required increases in the minimum Death Benefit due to growth in Certificate
Value will generally be greater under the Cash Value Accumulation test than
under the Guideline Premium test. APPLICANTS FOR A POLICY SHOULD CONSULT A
QUALIFIED TAX ADVISER IN CHOOSING A DEATH BENEFIT ELECTION.
OPTION 1 -- LEVEL DEATH BENEFIT. Under Option 1, the Death Benefit is equal
to the greater of Face Amount or the Minimum Death Benefit, as set forth in the
table below. Under Option 1, the Death Benefit will remain level unless the
Minimum Death Benefit is greater than the Face Amount, in which case the Death
Benefit will vary as the Certificate Value varies. Option 1 will offer the best
opportunity for the Certificate Value under a Certificate to increase without
increasing the death benefit as quickly as it might under the other options. The
Death Benefit will never go below the Face Amount.
OPTION 2 -- ADJUSTABLE DEATH BENEFIT. Under Option 2, the Death Benefit is
equal to the greater of the Face Amount plus the Certificate Value or the
Minimum Death Benefit, as set forth in the Table below. The Death Benefit will
therefore vary as the Certificate Value changes, but will never be less than the
Face Amount. Option 2 will offer the best opportunity for the Certificate owner
who would like to have an increasing death benefit as early as possible. The
death benefit will increase whenever there is an increase in the Certificate
Value and will decrease whenever there is a decrease in the Certificate Value,
but will never go below the Face Amount.
OPTION 3 -- LEVEL DEATH BENEFIT WITH CASH VALUE ACCUMULATION TEST. Under
Option 3, the Death Benefit will equal the Face Amount, unless the Certificate
Value, multiplied by the applicable Option 3 Death Benefit Factor, gives a
higher Death Benefit. A complete list of Option 3 Death Benefit Factors is set
forth in the Certificate. The applicable Death Benefit Factor depends upon the
sex, risk classification, and then-attained age of the insured. The Death
Benefit Factor decreases slightly from year to year as the attained age of the
insured increases. Option 3 will offer the best opportunity for the Certificate
Owner who is looking for an increasing death benefit in later Certificate years
and/or would like to fund the Certificate at the "7-pay" limit for the full
seven years. When the Certificate Value multiplied by the applicable Death
Benefit Factor exceeds the Face Amount, the death benefit will increase whenever
there is an increase in the Certificate Value and will decrease whenever there
is a decrease in the Certificate Level, but will never go below the Face Amount.
OPTION 3 MAY NOT BE AVAILABLE IN ALL STATES.
DEATH PROCEEDS -- As long as the Certificate remains in force (see
"CERTIFICATE TERMINATION AND REINSTATEMENT"), the Company will, upon due proof
of the Insured's death, pay the Death Proceeds of the Certificate to the named
Beneficiary. The Company will normally pay the Death Proceeds within seven days
of receiving due proof of the Insured's death, but the Company may delay
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payments under certain circumstances. See "OTHER CERTIFICATE PROVISIONS --
Postponement of Payments." The Death Proceeds may be received by the Beneficiary
in a lump sum or under one or more of the payment options the Company offers.
See "APPENDIX B -- PAYMENT OPTIONS." The Death Proceeds payable depends on the
current Face Amount and the Death Benefit Option that is in effect on the date
of death. Prior to the Final Premium Payment Date, the Death Proceeds are: (a)
The Death Benefit provided under Option 1, Option 2, or Option 3, whichever is
in effect on the date of death; plus (b) any additional insurance on the
Insured's life that is provided by rider; minus (c) any outstanding Debt, any
partial withdrawals and partial withdrawal charges, and any Monthly Deductions
due and unpaid through the Certificate month in which the Insured dies. After
the Final Premium Payment Date, the Death Proceeds equal the surrender Value of
the Certificate. The amount of Death Proceeds payable will be determined as of
the date of the Company's receipt of due proof of the Insured's death.
MORE INFORMATION ABOUT DEATH BENEFIT OPTIONS 1 AND 2 -- If the Guideline
Premium Test is chosen by the Employer, the Certificate owner may choose between
Death Benefit Option 1 or Option 2. The Certificate Owner may designate the
desired Death Benefit Option in the enrollment form, and may change the option
once per Certificate year by written request. There is no charge for a change in
option.
MINIMUM DEATH BENEFIT UNDER OPTION 1 AND OPTION 2 -- The Minimum Death
Benefit under Option 1 or Option 2 is equal to a percentage of the Certificate
Value as set forth below. The Minimum Death Benefit is determined in accordance
with Internal Revenue Code regulations to ensure that the Certificate qualifies
as a life insurance contract and that the insurance proceeds may be excluded
from the gross income of the Beneficiary.
MINIMUM DEATH BENEFIT TABLE
<TABLE>
<CAPTION>
AGE OF INSURED ON PERCENTAGE OF
DATE OF DEATH CERTIFICATE VALUE
- --------------------------------------------- -----------------
<S> <C>
40 and under................................. 250%
45........................................... 215%
50........................................... 185%
55........................................... 150%
60........................................... 130%
65........................................... 120%
70........................................... 115%
75........................................... 105%
80........................................... 105%
85........................................... 105%
90........................................... 105%
95 and above................................. 100%
</TABLE>
For the Ages not listed, the progression between the listed Ages is linear.
For any Face Amount, the amount of the Death Benefit and thus the Death
Proceeds will be greater under Option 2 than under Option 1, since the
Certificate Value is added to the specified Face Amount and included in the
Death Proceeds only under Option 2. However, the cost of insurance included in
the Monthly Deduction will be greater, and thus the rate at which Certificate
Value will accumulate will be slower, under Option 2 than under Option 1. See
"CHARGES AND DEDUCTIONS -- Monthly Deduction From Certificate Value."
If you desire to have premium payments and investment performance reflected
in the amount of the Death Benefit, you should choose Option 2. If you desire
premium payments and investment performance reflected to the maximum extent in
the Certificate Value, you should select Option 1.
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ILLUSTRATION OF OPTION 1 -- For purposes of this illustration, assume that
the Insured is under the Age of 40, and that there is no outstanding Debt. Under
Option 1, a Certificate with a $50,000 Face Amount will generally have a Death
Benefit equal to $50,000. However, because the Death Benefit must be equal to or
greater than 250% of Certificate Value, if at any time the Certificate Value
exceeds $20,000, the Death Benefit will exceed the $50,000 Face Amount. In this
example, each additional dollar of Certificate Value above $20,000 will increase
the Death Benefit by $2.50. For example, a Certificate with a Certificate Value
of $35,000 will have a Minimum Death Benefit of $87,500 ($35,000 X 2.50);
Certificate Value of $40,000 will produce a Minimum Death Benefit of $100,000
($40,000 X 2.50); and Certificate Value of $50,000 will produce a Minimum Death
Benefit of $125,000 ($50,000 X 2.50).
Similarly, so long as Certificate Value exceeds $20,000, each dollar taken
out of Certificate Value will reduce the Death Benefit by $2.50. If, for
example, the Certificate Value is reduced from $25,000 to $20,000 because of
partial withdrawals, charges or negative investment performance, the Death
Benefit will be reduced from $62,500 to $50,000. If at any time, however, the
Certificate Value multiplied by the applicable percentage is less than the Face
Amount, the Death Benefit will equal the Face Amount of the Certificate.
The applicable percentage becomes lower as the Insured's Age increases. If
the Insured's Age in the above example were, for example, 50 (rather than
between 0 and 40), the applicable percentage would be 185%. The Death Benefit
would not exceed the $50,000 Face Amount unless the Certificate Value exceeded
$27,027 (rather than $20,000), and each dollar then added to or taken from
Certificate Value would change the Death Benefit by $1.85.
ILLUSTRATION OF OPTION 2 -- For purposes of this illustration, assume that
the Insured is under the Age of 40 and that there is no outstanding Debt.
Under Option 2, a Certificate with a Face Amount of $50,000 will generally
produce a Death Benefit of $50,000 plus Certificate Value. For example, a
Certificate with Certificate Value of $5,000 will produce a Death Benefit of
$55,000 ($50,000 + $5,000); Certificate Value of $10,000 will produce a Death
Benefit of $60,000 ($50,000 + $10,000); Certificate Value of $25,000 will
produce a Death Benefit of $75,000 ($50,000 + $25,000). However, the Death
Benefit must be at least 250% of the Certificate Value. Therefore, if the
Certificate Value is greater than $33,333, 250% of that amount will be the Death
Benefit, which will be greater than the Face Amount plus Certificate Value. In
this example, each additional dollar of Certificate Value above $33,333 will
increase the Death Benefit by $2.50. For example, if the Certificate Value is
$35,000, the Minimum Death Benefit will be $87,500 ($35,000 x 2.50); Certificate
Value of $40,000 will produce a Minimum Death Benefit of $100,000 ($40,000 x
2.50); and Certificate Value of $50,000 will produce a Minimum Death Benefit of
$125,000 ($50,000 x 2.50).
Similarly, if Certificate Value exceeds $33,333, each dollar taken out of
Certificate Value will reduce the Death Benefit by $2.50. If, for example, the
Certificate Value is reduced from $45,000 to $40,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $112,500 to $100,000. If at any time, however, Certificate Value
multiplied by the applicable percentage is less than the Face Amount plus
Certificate Value, then the Death Benefit will be the current Face Amount plus
Certificate Value.
The applicable percentage becomes lower as the Insured's Age increases. If
the Insured's Age in the above example were 50, the Death Benefit must be at
least 1.85 times the Certificate Value. The amount of the Death Benefit would be
the sum of the Certificate Value plus $50,000 unless the Certificate Value
exceeded $58,824 (rather than $33,333). Each dollar added to or subtracted from
the Certificate would change the Death Benefit by $1.85.
The Death Benefit under Option 2 will always be the greater of the Face
Amount plus Certificate Value or the Certificate Value multiplied by the
applicable percentage.
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CHANGE IN DEATH BENEFIT OPTION -- Generally, if Death Benefit Option 1 or
Option 2 is in effect, the Death Benefit Option in effect may be changed once
each Certificate year by sending a written request for change to the Principal
Office. Changing Death Benefit Options will not require Evidence of
Insurability. The effective date of any such change will be the Monthly
Processing Date on or following the date of receipt of the request. No charges
will be imposed on changes in Death Benefit Options. IF OPTION 3 IS IN EFFECT,
YOU MAY NOT CHANGE TO EITHER OPTION 1 OR OPTION 2.
If the Death Benefit Option is changed from Option 2 to Option 1, the Face
Amount will be increased to equal the Death Benefit which would have been
payable under Option 2 on the effective date of the change (i.e. the Face Amount
immediately prior to the change plus the Certificate Value on the date of the
change). The amount of the Death Benefit will not be altered at the time of the
change. However, the change in option will affect the determination of the Death
Benefit from that point on, since the Certificate Value will no longer be added
to the Face Amount in determining the Death Benefit; the Death Benefit will
equal the new Face Amount (or, if higher, the Minimum Death Benefit). The cost
of insurance may be higher or lower than it otherwise would have been since any
increases or decreases in Certificate Value will, respectively, reduce or
increase the Insurance Amount at Risk under Option 1. Assuming a positive net
investment return with respect to any amounts in the Group VEL Account, changing
the Death Benefit Option from Option 2 to Option 1 will reduce the Insurance
Amount at Risk and therefore the cost of insurance charge for all subsequent
Monthly Deductions, compared to what such charge would have been if no such
change were made.
If the Death Benefit Option is changed from Option 1 to Option 2, the Face
Amount will be decreased to equal the Death Benefit less the Certificate Value
on the effective date of the change. This change may not be made if it would
result in a Face Amount less than $40,000. A change from Option 1 to Option 2
will not alter the amount of the Death Benefit at the time of the change, but
will affect the determination of the Death Benefit from that point on. Because
the Certificate Value will be added to the new specified Face Amount, the Death
Benefit will vary with the Certificate Value. Thus, under Option 2, the
Insurance Amount at Risk will always equal the Face Amount unless the Minimum
Death Benefit is in effect. The cost of insurance may also be higher or lower
than it otherwise would have been without the change in Death Benefit Option.
See "CHARGES AND DEDUCTIONS -- Monthly Deduction From Certificate Value."
A change in Death Benefit Option may result in total premiums paid exceeding
the then current maximum premium limitation determined by Internal Revenue
Service Rules. In such event, the Company will pay the excess to the Certificate
Owner. See "THE CERTIFICATE -- Premium Payments."
CHANGE IN FACE AMOUNT -- Subject to certain limitations, you may increase or
decrease the specified Face Amount of a Certificate at any time by submitting a
written request to the Company. Any increase or decrease in the specified Face
Amount requested by you will become effective on the Monthly Processing Date on
or next following the date of receipt of the request at the Principal Office,
or, if Evidence of Insurability is required, the date of approval of the
request.
INCREASES -- Along with the written request for an increase, you must submit
satisfactory Evidence of Insurability. The consent of the Insured is also
required whenever the Face Amount is increased. A request for an increase in
Face Amount may not be less than an amount determined by the Company. This
amount varies by group but in no event will this amount exceed $10,000. You may
not increase the Face Amount after the Insured reaches Age 80. An increase must
be accompanied by an additional premium if the Certificate Value is less than
$50 plus an amount equal to the sum of two Monthly Deductions. On the effective
date of each increase in Face Amount, a transaction charge of $2.50 per $1,000
of increase up to $40, will be deducted from Certificate Value for
administrative costs. The effective date of the increase will be the first
Monthly Processing Date on or following the date all of the conditions for the
increase are met.
An increase in the Face Amount will generally affect the Insurance Amount at
Risk and may affect the portion of the Insurance Amount at Risk included in
various Underwriting Classes (if more
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<PAGE>
than one Underwriting Class applies), both of which may affect the monthly cost
of insurance charges. A surrender charge will also be calculated for the
increase. See "CHARGES AND DEDUCTIONS -- Monthly Deduction From Certificate
Value, -- Surrender Charge."
After increasing the Face Amount, you will have the right (1) during a Free
Look Period, to have the increase canceled and the charges which would not have
been deducted but for the increase will be credited to the Certificate and (2)
during the first 24 months following the increase, to transfer any or all
Certificate Value to the General Account free of charge. See "THE CERTIFICATE --
Free Look Period, -- Conversion Privileges." A refund of charges which would not
have been deducted but for the increase will be made at your request.
DECREASES -- The minimum amount for a decrease in Face Amount is $10,000. By
current Company practice, the Face Amount in force after any decrease may not be
less than $50,000. If, following a decrease in Face Amount, the Certificate
would not comply with the maximum premium limitation applicable under the
Internal Revenue Service Rules, the decrease may be limited or Certificate Value
may be returned to the Certificate Owner (at your election) to the extent
necessary to meet the requirements. A return of Certificate Value may result in
tax liability to you.
A decrease in the Face Amount will affect the total Insurance Amount at Risk
and the portion of the Insurance Amount at Risk covered by various Underwriting
Classes, both of which may affect a Certificate Owner's monthly cost of
insurance charges. See "CHARGES AND DEDUCTIONS - Monthly Deduction From
Certificate Value."
For purposes of determining the cost of insurance charge, any decrease in
the Face Amount will reduce the Face Amount in the following order: (a) the Face
Amount provided by the most recent increase; (b) the next most recent increases
successively; and (c) the initial Face Amount. This order will also be used to
determine whether a surrender charge will be deducted and in what amount. If the
Face Amount is decreased while the "Payor Provisions" apply (see "CERTIFICATE
TERMINATION AND REINSTATEMENT -- Termination"), the above order may be modified
to determine the cost of insurance charge. In such case, you may reduce or
eliminate any Face Amount for which you are paying the insurance charges on a
last-in, first-out basis before you reduce or eliminate amounts of insurance
which are paid by the Payor.
If you request a decrease in the Face Amount, the amount of any surrender
charge deducted will reduce the current Certificate Value. On the effective date
of each decrease in Face Amount, a transaction charge of $2.50 per $1,000 of
decrease up to $40, will be deducted from Certificate Value for administrative
costs. You may specify one Sub-Account from which the transaction charge and, if
applicable, any surrender charge will be deducted. If no specification is
provided, the Company will make a Pro-Rata Allocation. The current surrender
charge will be reduced by the amount of any surrender charge deducted. See
"CHARGES AND DEDUCTIONS -- Surrender Charge."
CERTIFICATE VALUE AND SURRENDER VALUE -- The Certificate Value is the total
amount available for investment and is equal to the sum of the accumulation in
the General Account and the value of the Units in the Sub-Accounts. The
Certificate Value is used in determining the Surrender Value (the Certificate
Value less any Debt and any surrender charge). See "THE CERTIFICATE --
Surrender." There is no guaranteed minimum Certificate Value. Because
Certificate Value on any date depends upon a number of variables, it cannot be
predetermined.
Certificate Value and Surrender Value will reflect frequency and amount of
Net Premiums paid, interest credited to accumulations in the General Account,
the investment performance of the chosen Sub-Accounts, any partial withdrawals,
any loans, any loan repayments, any loan interest paid or credited, and any
charges assessed in connection with the Certificate.
CALCULATION OF CERTIFICATE VALUE -- The Certificate Value is determined
first on the Date of Issue and thereafter on each Valuation Date. On the Date of
Issue, the Certificate Value will be the Net Premiums received, plus any
interest earned during the period when premiums are held in the
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General Account (before being transferred to the Group VEL Account; see THE
CERTIFICATE -- Enrollment Form For A Certificate") less any Monthly Deductions
due. On each Valuation Date after the Date of Issue the Certificate Value will
be:
(1) the aggregate of the values in each of the Sub-Accounts on the Valuation
Date, determined for each Sub-Account by multiplying the value of a Unit
in that Sub-Account on that date by the number of such Units allocated to
the Certificate; plus
(2) the value in the General Account (including any amounts transferred to
the General Account with respect to a loan).
Thus, the Certificate Value is determined by multiplying the number of Units
in each Sub-Account by the value of the applicable Units on the particular
Valuation Date, adding the products, and adding the amount of the accumulations
in the General Account, if any.
THE UNIT -- Each Net Premium is allocated to the Sub-Account(s) selected by
you. Allocations to the Sub-Accounts are credited to the Certificate in the form
of Units. Units are credited separately for each Sub-Account.
The number of Units of each Sub-Account credited to the Certificate is equal
to the portion of the Net Premium allocated to the Sub-Account, divided by the
dollar value of the applicable Unit as of the Valuation Date the payment is
received at the Company's Principal Office. The number of Units will remain
fixed unless changed by a subsequent split of Unit value, transfer, partial
withdrawal or surrender. In addition, if the Company is deducting the Monthly
Deduction or other charges from a Sub-Account, each such deduction will result
in cancellation of a number of Units equal in value to the amount deducted.
The dollar value of a Unit of each Sub-Account varies from Valuation Date to
Valuation Date based on the investment experience of that Sub-Account. That
experience, in turn, will reflect the investment performance, expenses and
charges of the respective Underlying Fund. The value of a Unit was set at $1.00
on the first Valuation Date for each Sub-Account. The dollar value of a Unit on
a given Valuation Date is determined by multiplying the dollar value of the
corresponding Unit as of the immediately preceding Valuation Date by the
appropriate net investment factor.
NET INVESTMENT FACTOR -- The net investment factor measures the investment
performance of a Sub-Account of the Group VEL Account during the Valuation
Period just ended. The net investment factor for each Sub-Account is equal to
1.0000 plus the number arrived at by dividing (a) by (b), where
(a) is the investment income of that Sub-Account for the Valuation Period,
plus capital gains, realized or unrealized, credited during the Valuation
Period; minus capital losses, realized or unrealized, charged during the
Valuation Period; adjusted for provisions made for taxes, if any; and
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period.
The net investment factor may be greater or less than one. Therefore, the
value of a Unit may increase or decrease. You bear the investment risk. Subject
to applicable state and federal laws, the Company reserves the right to change
the methodology used to determine the net investment factor.
Allocations to the General Account are not converted into Units, but are
credited interest at a rate periodically set by the Company. See "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."
PAYMENT OPTIONS -- During the Insured's lifetime, you may arrange for the
Death Proceeds to be paid in a single sum or under one or more of the payment
options then offered by the Company. These payment options are also available at
the Final Premium Payment Date and if the Certificate is surrendered. If no
election is made, the Company will pay the Death Proceeds in a single sum. See
"APPENDIX B -- PAYMENT OPTIONS."
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OPTIONAL INSURANCE BENEFITS -- Subject to certain requirements, one or more
of the optional insurance benefits described in "APPENDIX A -- OPTIONAL
BENEFITS" may be added to a Certificate by rider. The cost of any optional
insurance benefits will be deducted as part of the Monthly Deduction. See
"CHARGES AND DEDUCTIONS -- Monthly Deduction From Certificate Value."
SURRENDER -- You may at any time surrender the Certificate and receive its
Surrender Value. The Surrender Value is the Certificate Value, less Debt and
applicable surrender charges. The Surrender Value will be calculated as of the
Valuation Date on which a written request for surrender and the Certificate are
received at the Principal Office. A surrender charge will be deducted when a
Certificate is surrendered if less than 15 full Certificate years have elapsed
from the Date of Issue of the Certificate or from the effective date of any
increase in Face Amount. See "CHARGES AND DEDUCTIONS -- Surrender Charge."
The proceeds on surrender may be paid in a single lump sum or under one of
the payment options the Company offers. See "APPENDIX B -- PAYMENT OPTIONS." The
Company will normally pay the Surrender Value within seven days following the
Company's receipt of the surrender request, but the Company may delay payment
under the circumstances described in "OTHER CERTIFICATE PROVISIONS --
Postponement of Payments."
For important tax consequences which may result from surrender see "FEDERAL
TAX CONSIDERATIONS."
PAID-UP INSURANCE -- On written request, you may elect life insurance
coverage, usually for a reduced amount, for the life of the Insured with no
further premiums due. The Paid-Up Insurance will be the amount that the
Surrender Value can purchase for a net single premium at the Insured's age and
underwriting class on the date this option is elected. If the surrender value
exceeds the net single premium, we will pay the excess to you. The net single
premium is based on the Commissioners 1980 Standard Ordinary Mortality Tables,
Smoker or Non-Smoker (Table B for unisex 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 CERTIFICATE OWNER
RIGHTS AND BENEFITS WILL BE AFFECTED:
- As described above, the paid-up insurance benefit will be
computed differently from the net death benefit and the death
benefit options will not apply
- We will not allow transfers of Certificate Value from the fixed
account back to the Group VEL Account
- You may not make further payments
- You may not increase or decrease the Face Amount or make
partial withdrawals
- Riders will continue only with our consent
You may, after electing Paid-Up Insurance, surrender the Certificate for its
net cash value. The guaranteed cash value is the net single premium for the
Paid-Up Insurance at the Insured's attained age. The net cash value is the cash
valueless any outstanding loan. We will transfer the Certificate Value in the
Group VEL Account to the fixed account on the date we receive written request to
elect the option.
On election of Paid-Up Insurance, the Certificate often will become a
modified endowment contract. If a Certificate becomes a modified endowment
contract, Certificate loans, partial withdrawals or surrender will receive
unfavorable federal tax treatment. See "FEDERAL TAX CONSIDERATIONS -- Modified
Endowment Contracts."
PARTIAL WITHDRAWAL -- Any time after the first Certificate year, you may
withdraw a portion of the Surrender Value of your Certificate, subject to the
limits stated below, upon written request filed at the Principal Office. The
written request must indicate the dollar amount you wish to receive and the
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Accounts from which such amount is to be withdrawn. You may allocate the amount
withdrawn among the Sub-Accounts and the General Account. If you do not provide
allocation instructions the Company will make a Pro-Rata Allocation. Each
partial withdrawal must be in a minimum amount of $500. Under Option 1, the Face
Amount is reduced by the amount of the partial withdrawal, and a partial
withdrawal will not be allowed if it would reduce the Face Amount below $40,000.
A partial withdrawal from a Sub-Account will result in the cancellation of
the number of Units equivalent in value to the amount withdrawn. The amount
withdrawn equals the amount requested by you plus the transaction charge and any
applicable partial withdrawal charge as described under "CHARGES AND DEDUCTIONS
- -- Charges On Partial Withdrawal." The Company will normally pay the amount of
the partial withdrawal within seven days following the Company's receipt of the
partial withdrawal request, but the Company may delay payment under certain
circumstances described in "OTHER CERTIFICATE PROVISIONS -- Postponement of
Payments." For important tax consequences which may result from partial
withdrawals, see "FEDERAL TAX CONSIDERATIONS."
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Certificate to compensate
the Company for providing the insurance benefits set forth in the Certificate
and any additional benefits added by rider, administering the Certificate,
incurring distribution expenses, and assuming certain risks in connection with
the Certificates. Each of the charges identified as an administrative charge is
intended to reimburse the Company for actual administrative costs incurred, and
is not intended to result in a profit to the Company.
Certain of the charges and deductions described below may be reduced for
Certificates issued in connection with a specific group in accordance with the
Company's rules in effect as of the date an enrollment form for a Certificate is
approved. To qualify for such a reduction, a group must satisfy certain criteria
as to, for example, size of the group, expected number of participants and
anticipated premium payments from the group. Generally, the sales contacts and
effort, administrative costs and mortality cost per Certificate vary based on
such factors as the size of the group, the purposes for which Certificates are
purchased and certain characteristics of the group's members. The amount of
reduction and the criteria for qualification will reflect in the reduced sales
effort and administrative costs resulting from, and the different mortality
experience expected as a result of, sales to qualifying groups. The Company may
modify from time to time on a uniform basis both the amounts of reductions and
the criteria for qualification. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Certificate Owners and
all other Certificate Owners funded by the Group VEL Account.
PREMIUM EXPENSE CHARGE -- A charge may be deducted from each premium payment
for state and local premium taxes paid by the Company. State premium taxes
generally range from 0.75% to 5%, while local premium taxes (if any) vary by
jurisdiction within a state. The Company guarantees that the charge for premium
taxes will not exceed 10%. The premium tax charge may change when either the
applicable jurisdiction changes or the tax rate within the applicable
jurisdiction changes. The Company should be notified of any change in address of
the Insured as soon as possible.
Additional charges are made to compensate the Company for federal taxes
imposed for deferred acquisition costs ("DAC taxes") and for sales expenses
related to the Certificates. The DAC tax deduction may range from zero to 1% of
premiums, depending on the group to which the Certificate is issued. The DAC tax
deduction is a factor that the Company must use when calculating the maximum
sales load it can charge under SEC rules. The charge for sales expenses may
range from zero to 5%. The sales charge may vary depending on the group to which
the Certificates are issued, including average number of participants, average
Face Amount of the Certificates, anticipated average annual premiums and the
actual sales expense incurred by the Company.
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MONTHLY DEDUCTION FROM CERTIFICATE VALUE -- On the Date of Issue and each
Monthly Processing Date thereafter prior to the Final Premium Payment Date,
certain charges ("Monthly Deduction") will be deducted from the Certificate
Value. The Monthly Deduction includes a charge for cost of insurance, a charge
for the cost of any additional benefits provided by rider and a charge for
Certificate administrative expenses that may be up to $10, depending on the
group to which the Certificate is issued. The Monthly Deduction may also include
a charge for Group VEL administrative expenses and a charge for mortality and
expense risks. The Group VEL administrative charge may continue for up to 10
Certificate years and may be up to 0.25% of Certificate Value in each
Sub-Account, depending on the group to which the Certificate was issued. The
mortality and expense risk charge may be up to 0.90% of Certificate Value in
each Sub-Account. The Monthly Deduction on or following the effective date of a
requested change in the Face Amount will also include a charge of $2.50 per
$1,000 of increase or decrease, to a maximum of $40, for administrative costs
associated with the change. See "THE CERTIFICATE -- Change In Face Amount."
You may specify from which Sub-Account the cost of insurance charge, the
charge for Certificate administrative expenses and the charge for the cost of
additional benefits provided by rider will be deducted. If the Payor Provision
is in force, all cost of insurance charges and administrative charges will be
deducted from the Monthly Deduction Sub-Account. If no allocation is specified,
the Company will make a Pro-Rata Allocation.
The Group VEL administrative charge and the mortality and expense risk
charge are assessed against each Sub-Account that generates a charge. In the
event that a charge is greater than the value of the Sub-Account to which it
relates on a Monthly Processing Date, the unpaid balance will be totaled and the
Company will make a Pro-Rata Allocation.
Monthly Deductions are made on the Date of Issue and on each Monthly
Processing Date until the Final Premium Payment Date. No Monthly Deductions will
be made on or after the Final Premium Payment Date.
COST OF INSURANCE -- This charge is designed to compensate the Company for
the anticipated cost of providing Death Proceeds to Beneficiaries of those
Insureds who die prior to the Final Premium Payment Date. The cost of insurance
is determined on a monthly basis, and is determined separately for the initial
Face Amount and for each subsequent increase in Face Amount. Because the cost of
insurance depends upon a number of variables, it can vary from month to month
and from group to group.
CALCULATION OF THE CHARGE -- If Death Benefit Option 2 is in effect, the
monthly cost of insurance charge for the initial Face Amount will equal the
applicable cost of insurance rate multiplied by the initial Face Amount. If
Death Benefit Option 1 or Option 3 is in effect, however, the applicable cost of
insurance rate will be multiplied by the initial Face Amount less the
Certificate Value (minus charges for rider benefits) at the beginning of the
Certificate month. Thus, the cost of insurance charge may be greater if Death
Benefit Option 2 is in effect than if Death Benefit Option 1 or Option 3 is in
effect, assuming the same Face Amount in each case and assuming that the Minimum
Death Benefit is not in effect.
In other words, since the Death Benefit under Option 1 remains constant
while the Death Benefit under Option 2 varies with the Certificate Value, any
Certificate Value increases will reduce the insurance charge under Option 1 but
not under Option 2.
If Death Benefit Option 2 is in effect, the monthly insurance charge for
each increase in Face Amount (other than an increase caused by a change in Death
Benefit Option) will be equal to the cost of insurance rate applicable to that
increase multiplied by the increase in Face Amount. If Death Benefit Option 1 or
Option 3 is in effect, the applicable cost of insurance rate will be multiplied
by the increase in the Face Amount reduced by any Certificate Value (minus rider
charges) in excess of the initial Face Amount at the beginning of the policy
month.
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If the Minimum Death Benefit is in effect under any Option, a monthly cost
of insurance charge will also be calculated for that portion of the Death
Benefit which exceeds the current Face Amount. This charge will be calculated by
multiplying the cost of insurance rate applicable to the initial Face Amount
times the Minimum Death Benefit (Certificate Value times the applicable
percentage) less the greater of the Face Amount or the Certificate Value under
Death Benefit Option 1 or Option 3, or less the Face Amount plus the Certificate
Value under Death Benefit Option 2. When the Minimum Death Benefit is in effect,
the cost under insurance charge for the initial Face Amount and for any
increases will be calculated as set forth in the preceding two paragraphs.
The monthly cost of insurance charge will also be adjusted for any decreases
in Face Amount. See "THE CERTIFICATE -- Change In Face Amount: Decreases."
COST OF INSURANCE RATES -- This Certificate is sold to eligible individuals
who are members of a non-qualified benefit plan having a minimum, depending on
the group, of ten or more members. A portion of the initial face amount may be
issued on a guaranteed or simplified underwriting basis. The amount of this
portion will be determined for each group, and may vary based on characteristics
within the group.
The determination of the underwriting class for the guaranteed or simplified
issue portion will, in part, be based on the type of group; the number of
persons eligible to participate in the plan; expected percentage of eligible
persons participating in the plan; and the amount of guaranteed or simplified
underwriting insurance to be issued. Larger groups, higher participation rates
and occupations with historically favorable mortality rates will generally
result in the individuals within that group being placed in a more favorable
underwriting class.
Cost of insurance rates are based on a blended unisex rate table, Age and
Underwriting Class of the Insured at the Date of Issue, the effective date of an
increase or date of rider, as applicable, the amount of premiums paid less any
debt and any partial withdrawals and withdrawal charges. For those Certificates
issued on a unisex basis, sex-distinct rates do not apply. The cost of insurance
rates are determined at the beginning of each Certificate year for the initial
Face Amount. The cost of insurance rates for an increase in Face Amount or rider
are determined annually on the anniversary of the effective date of each
increase or rider. The cost of insurance rates generally increase as the
Insured's Age increases. The actual monthly cost of insurance rates will be
based on the Company's expectations as to future mortality experience. They will
not, however, be greater than the guaranteed cost of insurance rates set forth
in the Certificate. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Tables (Mortality Table B, Smoker or Non-smoker, for
unisex Certificates) and the Insured's Age. The Tables used for this purpose may
set forth different mortality estimates for smokers and non-smokers. Any change
in the cost of insurance rates will apply to all persons of the same insuring
Age and Underwriting Class whose Certificates have been in force for the same
length of time.
The Underwriting Class of an Insured will affect the cost of insurance
rates. The Company currently places Insureds into preferred Underwriting
Classes, standard Underwriting Classes and substandard Underwriting Classes. In
an otherwise identical Contract, an Insured in the preferred Underwriting Class
will have a lower cost of insurance than an Insured in a standard Underwriting
Class who, in turn, will have a lower cost of insurance than an Insured in a
substandard Underwriting Class with a higher mortality risk. The Underwriting
Classes may be divided into two categories or aggregated: smokers and
nonsmokers. Nonsmoking Insureds will incur lower cost of insurance rates than
Insureds who are classified as smokers but who are otherwise in the same
Underwriting Class. Any Insured with an Age at issuance under 18 will be
classified initially as regular, unless substandard. The Insured then will be
classified as a smoker at Age 18 unless the Insured provides satisfactory
evidence that the Insured is a nonsmoker. The Company will provide notice to you
of the opportunity for the Insured to be classified as a nonsmoker when the
Insured reaches Age 18.
The cost of insurance rate is determined separately for the initial Face
Amount and for the amount of any increase in Face Amount. For each increase in
Face Amount you request, at a time when
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the Insured is in a less favorable Underwriting Class than previously, a
correspondingly higher cost of insurance rate will apply only to that portion of
the Insurance Amount at Risk for the increase. For the initial Face Amount and
any prior increases, the Company will use the Underwriting Class previously
applicable. On the other hand, if the Insured's Underwriting Class improves on
an increase, the lower cost of insurance rate generally will apply to the entire
Insurance Amount at Risk.
MONTHLY CERTIFICATE ADMINISTRATIVE CHARGE -- Prior to the Final Premium
Payment Date a monthly Certificate administrative charge of up to $10 per month,
depending on the group to which the Certificate was issued, will be deducted
from the Certificate Value. This charge will be used to compensate the Company
for expenses incurred in the administration of the Certificate and will
compensate the Company for first year underwriting and other start-up expenses
incurred in connection with the Certificate. These expenses include the cost of
processing enrollment forms, conducting medical examinations, determining
insurability and the Insured's Underwriting Class, and establishing Certificate
records. The Company does not expect to derive a profit from these charges.
MONTHLY GROUP VEL ACCOUNT ADMINISTRATIVE CHARGE -- The Company can make an
administrative charge on an annual basis of up to 0.25% of the Certificate Value
in each Sub-Account. The duration of this charge can be for up to 10 years. This
charge is designed to reimburse the Company for the costs of administering the
Group VEL Account and Sub-Accounts. The charge is not expected to be a source of
profit. The administrative expenses assumed by the Company in connection with
the Group VEL Account and Sub-Accounts include, but are not limited to,
clerical, accounting, actuarial and legal services, rent, postage, telephone,
office equipment and supplies, expenses of preparing and printing registration
statements, expenses of preparing and typesetting prospectuses and the cost of
printing prospectuses not allocable to sales expense, filing and other fees.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE -- The Company can make a
mortality and expense risk charge on an annual basis of up to 0.90% of the
Certificate Value in each Sub-Account. This charge is for the mortality risk and
expense risk which the Company assumes in relation to the variable portion of
the Certificates. The total charges may be different between groups and
increased or decreased within a group, subject to compliance with applicable
state and federal requirements, but may not exceed 0.90% on an annual basis.
The mortality risk assumed by the Company is that Insureds may live for a
shorter time than anticipated, and that the Company will therefore pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the
Certificates will exceed the amounts realized from the administrative charges
provided in the Certificates. If the charge for mortality and expense risks is
not sufficient to cover actual mortality experience and expenses, the Company
will absorb the losses. If costs are less than the amounts provided, the
difference will be a profit to the Company. To the extent this charge results in
a current profit to the Company, such profit will be available for use by the
Company for, among other things, the payment of distribution, sales and other
expenses. Since mortality and expense risks involve future contingencies which
are not subject to precise determination in advance, it is not feasible to
identify specifically the portion of the charge which is applicable to each.
CHARGES REFLECTED IN THE ASSETS OF THE GROUP VEL ACCOUNT -- Because the
Sub-Accounts purchase shares of the Underlying Investment Companies, the value
of the Units of the Sub-Accounts will reflect the investment advisory fee and
other expenses incurred by the Underlying Investment Companies. The prospectuses
and statements of additional information of the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price, DGPF and INVESCO VIF contain additional information
concerning such fees and expenses.
No charges are currently made against the Sub-Accounts for federal or state
income taxes. Should the Company determine that taxes will be imposed, the
Company may make deductions from the Sub-Account to pay such taxes. See "FEDERAL
TAX CONSIDERATIONS." The imposition of such taxes would result in a reduction of
the Certificate Value in the Sub-Accounts.
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SURRENDER CHARGE -- The Certificate may provide for a contingent surrender
charge. A separate surrender charge, described in more detail below, may be
calculated upon the issuance of the Certificate and for each increase in the
Face Amount. The surrender charge is comprised of a contingent deferred
administrative charge and a contingent deferred sales charge. The contingent
deferred administrative charge compensates the Company for expenses incurred in
administering the Certificate. The contingent deferred sales charge compensates
the Company for expenses relating to the distribution of the Certificate,
including agents' commissions, advertising and the printing of the prospectus
and sales literature.
A surrender charge may be deducted if you request a full surrender of the
Certificate or a decrease in Face Amount. The duration of the surrender charge
may be up to 15 years from the Date of Issue or from the effective date of any
increase in the Face Amount. The maximum surrender charge calculated upon
issuance of the Certificate is equal to the sum of (a) plus (b) where (a) is a
deferred administrative charge equal to $8.50 per thousand dollars of the
initial Face Amount and (b) is a deferred sales charge of 50% (less any premium
expense charge not associated with state and local premium taxes) of premiums
received up to the Guideline Annual Premium. In accordance with limitations
under state insurance regulations, the amount of the maximum surrender charge
will not exceed a specified amount per thousand dollars of initial Face Amount,
as indicated in "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER CHARGES." The
maximum surrender charge remains level for 24 Certificate months, reduces
uniformly each month for the balance of the surrender charge period, and is zero
thereafter. This reduction in the maximum surrender charge will reduce the
deferred sales charge and the deferred administrative charge proportionately.
If you surrender the Certificate during the first two years following the
Date of Issue before making premium payments associated with the initial Face
Amount which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of initial Face Amount,
as described above, but the deferred sales charge will not exceed 30% (less any
premium expense charge not associated with state and local premium taxes) of
premiums received, up to one Guideline Annual Premium, plus 9% of premiums
received in excess of one Guideline Annual Premium. See "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES."
A separate surrender charge will apply to and is calculated for each
increase in Face Amount. The surrender charge for the increase is in addition to
that for the initial Face Amount. The maximum surrender charge for the increase
is equal to the sum of (a) plus (b), where (a) is equal to $8.50 per thousand
dollars of increase, and (b) is a deferred sales charge of 50% (less any premium
expense charge not associated with state and local premium taxes) of premiums
associated with the increase, up to the Guideline Annual Premium for the
increase. In accordance with limitations under state insurance regulations, the
amount of the surrender charge will not exceed a specified amount per thousand
dollars of increase, as indicated in "APPENDIX C -- CALCULATION OF MAXIMUM
SURRENDER CHARGES." As is true for the initial Face Amount, (a) is a deferred
administrative charge and (b) is a deferred sales charge. The maximum surrender
charge for the increase remains level for 24 Certificate months, reduces
uniformly each month for the balance of the surrender charge period, and is zero
thereafter. During the first two Certificate years following an increase in Face
Amount before making premium payments associated with the increase in Face
Amount which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of increase in Face
Amount, as described above, but the deferred sales charge imposed will be less
than the maximum described above. Upon such a surrender, the deferred sales
charge will not exceed 30% (less any premium expense charge not associated with
state and local premium taxes) of premiums associated with the increase, up to
one Guideline Annual Premium (for the increase), plus 9% of premiums associated
with the increase in excess of one Guideline Annual Premium. See "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES." The premiums associated with the
increase are determined as described below. Additional premium payments may not
be required to fund a requested increase in Face Amount.
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Therefore, a special rule, which is based on relative Guideline Annual
Premium payments, applies to allocate a portion of existing Certificate Value to
the increase and to allocate subsequent premium payments between the initial
Certificate and the increase. For example, suppose the Guideline Annual Premium
is equal to $1,500 before an increase and is equal to $2,000 as a result of the
increase. The Certificate Value on the effective date of the increase would be
allocated 75% ($1,500/$2,000) to the initial Face Amount and 25% to the
increase. All future premiums would also be allocated 75% to the initial Face
Amount and 25% to the increase. Thus, existing Certificate Value associated with
the increase will equal the portion of Certificate Value allocated to the
increase on the effective date of the increase, before any deductions are made.
Premiums associated with the increase will equal the portion of the premium
payments actually made on or after the effective date of the increase which are
allocated to the increase.
See "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER CHARGES," for examples
illustrating the calculation of the maximum surrender charge for the initial
Face Amount and for any increases, as well as for the surrender charge based on
actual premiums paid or associated with any increases.
A surrender charge may be deducted on a decrease in the Face Amount. In the
event of a decrease, the surrender charge deducted is a fraction of the charge
that would apply to a full surrender of the Certificate. The fraction will be
determined by dividing the amount of the decrease by the current Face Amount and
multiplying the result by the surrender charge. If more than one surrender
charge is in effect (i.e., pursuant to one or more increases in the Face Amount
of a Certificate), the surrender charge will be applied in the following order:
(1) the most recent increase; (2) the next most recent increases successively;
and (3) the initial Face Amount. Where a decrease causes a partial reduction in
an increase or in the initial Face Amount, a proportionate share of the
surrender charge for that increase or for the initial Face Amount will be
deducted.
CHARGES ON PARTIAL WITHDRAWAL -- After the first Certificate year, partial
withdrawals of Surrender Value may be made. The minimum withdrawal is $500.
Under Option 1, the Face Amount is reduced by the amount of the partial
withdrawal, and a partial withdrawal will not be allowed if it would reduce the
Face Amount below $40,000. A transaction charge which is the smaller of 2% of
the amount withdrawn or $25 will be assessed on each partial withdrawal to
reimburse the Company for the cost of processing the withdrawal. The Company
does not expect to make a profit on this charge.
A partial withdrawal charge may also be deducted from Certificate Value. For
each partial withdrawal you may withdraw an amount equal to 10% of the
Certificate Value on the date the written withdrawal request is received by the
Company less the total of any prior withdrawals in that Certificate year which
were not subject to the Partial Withdrawal charge, without incurring a partial
withdrawal charge. Any partial withdrawal in excess of this amount ("excess
withdrawal") will be subject to the partial withdrawal charge. The partial
withdrawal charge is equal to 5% of the excess withdrawal up to the amount of
the surrender charge(s) on the date of withdrawal. There will be no partial
withdrawal charge if there is no surrender charge on the date of withdrawal
(i.e., 15 years have passed from the Date of Issue and from the effective date
of any increase in the Face Amount).
This right is not cumulative from Certificate year to Certificate year. For
example, if only 8% of Certificate Value were withdrawn in Certificate year two,
the amount you could withdraw in subsequent Certificate years would not be
increased by the amount you did not withdraw in the second Certificate year.
The Certificate's outstanding surrender charge will be reduced by the amount
of the partial withdrawal charge deducted, by proportionately reducing the
deferred sales charge component and the deferred administrative charge
component. The partial withdrawal charge deducted will decrease existing
surrender charges in the following order:
- first, the surrender charge for the most recent increase in
Face Amount;
- second, the surrender charge for the next most recent increase
successively;
- last, the surrender charge for the initial Face Amount.
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See "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER CHARGES" for an example
illustrating the calculation of the charges on partial withdrawal and their
impact on the surrender charge(s).
TRANSFER CHARGES -- The first six transfers in a Certificate year will be
free of charge. Thereafter, a transfer charge of $10 will be imposed for each
transfer request to reimburse the Company for the administrative costs incurred
in processing the transfer request. The Company reserves the right to increase
the charge, but it will never exceed $25. The Company also reserves the right to
change the number of free transfers allowed in a Certificate Year. See "THE
CERTIFICATE -- Transfer Privilege."
You may have automatic transfers of at least $100 made on a periodic basis,
every 1, 2 or 3 months (a) from Sub-Account 3 or Sub-Account 5 (which invest in
the Money Market Fund and Government Bond Fund of the Trust, respectively) to
one or more of the other Sub-Accounts or (b) to reallocate Certificate Value
among the Sub-Accounts. The first automatic transfer counts as one transfer
towards the twelve free transfers allowed in each Certificate year. Each
subsequent automatic transfer is without charge and does not reduce the
remaining number of transfers which may be made without charge.
If you utilize the Conversion Privilege, Loan Privilege, or reallocate
Certificate Value within 20 days of the Date of Issue of the Certificate, any
resulting transfer of Certificate Value from the Sub-Accounts to the General
Account will be free of charge, and in addition to the twelve free transfers in
a Certificate year. See "THE CERTIFICATE -- Conversion Privileges" and
"CERTIFICATE LOANS."
CHARGE FOR CHANGE IN FACE AMOUNT -- For each increase or decrease in Face
Amount you request, a transaction charge of $2.50 per $1,000 of increase or
decrease, to a maximum of $40, will be deducted from Certificate Value to
reimburse the Company for administrative costs associated with the change. This
charge is guaranteed not to increase and the Company does not expect to make a
profit on this charge.
OTHER ADMINISTRATIVE CHARGES -- The Company reserves the right to impose a
charge for the administrative costs incurred for changing the Net Premium
allocation instructions, for changing the allocation of any Monthly Deductions
among the various Sub-Accounts, or for a projection of values. No such charges
are currently imposed and any such charge is guaranteed not to exceed $25.
CERTIFICATE LOANS
Loans may be obtained by request to the Company on the sole security of this
Certificate. The total amount which may be borrowed is the Loan Value. In the
first Certificate year, the Loan Value is 75% of Certificate Value reduced by
applicable surrender charges as well as Monthly Deductions and interest on Debt
to the end of the Certificate year. The Loan Value in the second Certificate
year and thereafter is 90% of an amount equal to Certificate Value reduced by
applicable surrender charges. There is no minimum limit on the amount of the
loan. The loan amount will normally be paid within seven days after the Company
receives the loan request at its Principal Office, but the Company may delay
payments under certain circumstances. See "OTHER CERTIFICATE PROVISIONS --
Postponement of Payments."
A Certificate loan may be allocated among the General Account and one or
more Sub-Accounts. If you do not make an allocation, the Company will make a
Pro-Rata Allocation based on the amounts in the Accounts on the date the Company
receives the loan request. Certificate Value in each Sub-Account equal to the
Certificate loan allocated to such Sub-Account will be transferred to the
General Account, and the number of Units equal to the Certificate Value so
transferred will be cancelled. This will reduce the Certificate Value in these
Sub-Accounts. These transactions are not treated as transfers for purposes of
the transfer charge.
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As long as the Certificate is in force, Certificate Value in the General
Account equal to the loan amount will be credited with interest at an effective
annual yield of at least 6.00% per year (8% for preferred loans). NO ADDITIONAL
INTEREST WILL BE CREDITED TO SUCH CERTIFICATE VALUE.
PREFERRED LOAN OPTION -- This option is available to you upon written
request after the first Certificate year. It may be revoked by you at any time.
THE PREFERRED LOAN OPTION IS NOT AVAILABLE IN ALL STATES.
The preferred loan option is available during Certificate years 2-10 only if
your Certificate value, minus the surrender charge, is $50,000 or more. The
option applies to up to 10% of this amount. After the 10th Certificate year, the
preferred loan option is available on all loans or on all or part of the loan
value, as you request. The guaranteed annual interest rate credited to the
Certificate 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 and is payable in arrears at
the annual rate of 8%. Interest is due and payable at the end of each
Certificate year or on a pro-rata basis for such shorter period as the loan may
exist. Interest not paid when due will be added to the loan amount and bear
interest at the same rate. After the due and unpaid interest is added to loan
amount, if the new loan amount exceeds the Certificate Value in the General
Account, the Company will transfer Certificate Value equal to that excess loan
amount from the Certificate Value in each Sub-Account to the General Account as
security for the excess loan amount. The Company will allocate the amount
transferred among the Sub-Accounts in the same proportion that the Certificate
Value in each Sub-Account bears to the total Certificate Value in all
Sub-Accounts.
REPAYMENT OF DEBT -- Loans may be repaid at any time prior to the lapse of
the Certificate. Upon repayment of Debt, the portion of the Certificate Value
that is in the General Account securing the Debt repaid will be allocated to the
various Accounts and increase the Certificate Value in such accounts in
accordance with your instructions. If you do not make a repayment allocation,
the Company will allocate Certificate Value in accordance with your most recent
premium allocation instructions; provided, however, that loan repayments
allocated to the Group VEL Account cannot exceed Certificate Value previously
transferred from the Group VEL Account to secure the Debt.
If Debt exceeds the Certificate Value less the surrender charge, the
Certificate will terminate. A notice of such pending termination will be mailed
to the last known address of you and any assignee. If you do not make sufficient
payment within 62 days after this notice is mailed, the Certificate will
terminate with no value. See "CERTIFICATE TERMINATION AND REINSTATEMENT."
EFFECT OF CERTIFICATE LOANS -- Although Certificate loans may be repaid at
any time prior to the lapse of the Certificate, Certificate loans will
permanently affect the Certificate Value and Surrender Value, and may
permanently affect the Death Proceeds. The effect could be favorable or
unfavorable, depending upon whether the investment performance of the
Sub-Account(s) is less than or greater than the interest credited to the
Certificate Value in the General Account attributable to the loan.
Moreover, outstanding Certificate loans and the accrued interest will be
deducted from the proceeds payable upon the death of the Insured or surrender.
CERTIFICATE TERMINATION AND REINSTATEMENT
TERMINATION -- The failure to make premium payments will not cause the
Certificate to lapse unless: (a) the Surrender Value is insufficient to cover
the next Monthly Deduction plus loan interest accrued; or (b) if Debt exceeds
the Certificate Value. If one of these situations occurs, the Certificate will
be in default. You will then have a grace period of 62 days, measured from the
date of default, to
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make sufficient payments to prevent termination. On the date of default, the
Company will send a notice to you and to any assignee of record. The notice will
state the amount of premium due and the date on which it is due.
Failure to make a sufficient payment within the grace period will result in
termination of the Certificate. If the Insured dies during the grace period, the
Death Proceeds will still be payable, but any Monthly Deductions due and unpaid
through the Certificate month in which the Insured dies and any other overdue
charges will be deducted from the Death Proceeds.
PAYOR PROVISIONS -- Subject to approval in the state in which your
Certificate was issued, if you name a "Payor" in your enrollment form
supplement, then the following "Payor Provisions" will apply:
The Payor may designate what portion, if any, of each payment of a premium
is "excess premium" to be allocated to the General Account and Sub-Accounts
according to your allocation instructions then in effect. Except for excess
premium, the Payor's premium will automatically be allocated to the Monthly
Deduction Sub-Account, from which the Monthly Deductions will be made. Payor
premiums which are initially held in the General Account (which are not "excess
premiums") will be transferred to the Monthly Deduction Sub-Account not later
than 3 days after underwriting approval of the Certificate. No Certificate
loans, partial withdrawals or transfers may be made from the amount in the
Monthly Deduction Sub-Account attributable to premiums allocated thereto by
Payor.
If the amount in the Monthly Deduction Sub-Account attributable to premiums
allocated thereto by Payor is insufficient to cover the next Monthly Deduction,
the Company will send to the Payor a notice of the due date and amount of
premium which is due. The premium may be paid during a grace period of 62 days
beginning on the premium due date. If the premium payable is not received by the
Company within 31 days of the end of the grace period, a second notice will be
sent to the Payor. A 31-day grace period notice at this time will also be sent
to you if your Certificate Value is insufficient to cover the Monthly Deductions
then due.
If the amount in Monthly Deduction Sub-Account attributable to premiums
allocated thereto by Payor is insufficient to cover the Monthly Deductions due
at the end of the grace period, the balance of such Monthly Deductions will be
withdrawn on a Pro-Rata Allocation from the Certificate Value, if any, in the
General Account and the Sub-Accounts.
A lapse occurs if the Certificate Value is insufficient, at the grace
period, to pay the Monthly Deductions which are due. The Certificate terminates
on the date of lapse. Any death benefit payable during the grace period will be
reduced by any overdue charges.
The above Payor Provisions, if applicable, are in lieu of the grace-period
notice and default provisions applicable when "(a) the Surrender Value is
insufficient to cover the next Monthly Deduction plus loan interest accrued,"
but do not apply to "(b) if Debt exceeds the Certificate Value." See the first
paragraph of this section captioned "TERMINATION." You or the Payor may upon
written request discontinue the above Payor Provisions. If the Payor makes
written request to discontinue the Payor Provisions, we will send you a notice
of the discontinuance to your last known address.
REINSTATEMENT -- If the Certificate has not been surrendered and the Insured
is alive, the terminated Certificate may be reinstated anytime within 3 years
after the date of default and before the Final Premium Payment Date. The
reinstatement will be effective on the Monthly Processing Date following the
date you submit the following to the Company: (1) a written enrollment form for
reinstatement; (2) Evidence of Insurability showing that the Insured is
insurable according to the Company's underwriting rules; and (3) a premium that,
after the deduction of the premium expense charge, is large enough to cover the
Monthly Deductions for the three-month period beginning on the date of
reinstatement.
SURRENDER CHARGE -- The surrender charge on the date of reinstatement is the
surrender charge which should have been in effect had the Certificate remained
in force from the Date of Issue.
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CERTIFICATE VALUE ON REINSTATEMENT -- The Certificate Value on the date of
reinstatement is:
- the Net Premium paid to reinstate the Certificate increased by
interest from the date the payment was received at the
Company's Principal Office; plus
- an amount equal to the Certificate Value less Debt on the date
of default; minus
- the Monthly Deduction due on the date of reinstatement. You may
reinstate any Debt outstanding on the date of default or
foreclosure.
OTHER CERTIFICATE PROVISIONS
CERTIFICATE OWNER -- The Certificate Owner is the Insured unless another
Certificate Owner has been named in the enrollment form for the Certificate. The
Certificate Owner is generally entitled to exercise all rights under a
Certificate while the Insured is alive, subject to the consent of any
irrevocable Beneficiary (the consent of a revocable Beneficiary is not
required). The consent of the Insured is required whenever the Face Amount of
insurance is increased.
BENEFICIARY -- The Beneficiary is the person or persons to whom the
insurance proceeds are payable upon the Insured's death. Unless otherwise stated
in the Certificate, the Beneficiary has no rights in the Certificate before the
death of the Insured. While the Insured is alive, you may change any Beneficiary
unless you have declared a Beneficiary to be irrevocable. If no Beneficiary is
alive when the Insured dies, the owner (or the owner's estate) will be the
Beneficiary. If more than one Beneficiary is alive when the Insured dies, they
will be paid in equal shares, unless you have chosen otherwise. Where there is
more than one Beneficiary, the interest of a Beneficiary who dies before the
Insured will pass to surviving Beneficiaries proportionally.
ASSIGNMENT -- The owner may assign a Certificate as collateral or make an
absolute assignment of the Certificate. All rights under the Certificate will be
transferred to the extent of the assignee's interest. The Consent of the
assignee may be required in order to make changes in premium allocations, to
make transfers, or to exercise other rights under the Certificate. The Company
is not bound by an assignment or release thereof, unless it is in writing and is
recorded at the Company's Principal Office. When recorded, the assignment will
take effect as of the date the written request was signed. Any rights created by
the assignment will be subject to any payments made or actions taken by the
Company before the assignment is recorded. The Company is not responsible for
determining the validity of any assignment or release.
THE FOLLOWING CERTIFICATE PROVISIONS MAY VARY BY STATE:
INCONTESTABILITY -- The Company will not contest the validity of a
Certificate after it has been in force during the Insured's lifetime for two
years from the Date of Issue. The Company will not contest the validity of any
rider or any increase in the Face Amount after such rider or increase has been
in force during the Insured's lifetime for two years from its effective date.
SUICIDE -- The Death Proceeds will not be paid if the Insured commits
suicide, while sane or insane, within two years from the Date of Issue. Instead,
the Company will pay the Beneficiary an amount equal to all premiums paid for
the Certificate, without interest, less any outstanding Debt and less any
partial withdrawals. If the Insured commits suicide, while sane or insane,
within two years from the effective date of any increase in the Death Benefit,
the Company's liability with respect to such increase will be limited to a
refund of the cost thereof. The Beneficiary will receive the administrative
charges and insurance charges paid for such increase.
AGE -- If the Insured's Age as stated in the enrollment form for a
Certificate is not correct, benefits under a Certificate will be adjusted to
reflect the correct Age, if death occurs prior to the Final Premium Payment
Date. The adjusted benefit will be that which the most recent cost of insurance
charge would have purchased for the correct Age. In no event will the Death
Benefit be reduced to less than the Minimum Death Benefit.
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POSTPONEMENT OF PAYMENTS -- Payments of any amount due from the Group VEL
Account upon surrender, partial withdrawals, or death of the Insured, as well as
payments of a Certificate loan and transfers may be postponed whenever: (i) the
New York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the New York Stock Exchange is restricted as determined
by the SEC or (ii) an emergency exists, as determined by the SEC, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Group VEL Account's net
assets. Payments under the Certificate of any amounts derived from the premiums
paid by check may be delayed until such time as the check has cleared your bank.
The Company also reserves the right to defer payment of any amount due from
the General Account upon surrender, partial withdrawal, or death of the Insured,
as well as payments of Certificate loans and transfers from the General Account,
for a period not to exceed six months.
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DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice President, First
Director and Vice President Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel, First Allmerica
Secretary and Counsel
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller
Kruno Huitzingh Director of First Allmerica since 1996; Vice President & Chief
Director, Vice President and Chief Information Officer, First Allmerica since 1993; Executive Vice
Information Officer President, Chicago Board Options Exchange, 1985 to 1993
John F. Kelly Director of First Allmerica since 1996; Senior Vice President,
Director General Counsel and Assistant Secretary, First Allmerica
James R. McAuliffe Director of First Allmerica since 1996; President and CEO, Citizens
Director Insurance Company of America since 1995; Vice President and Chief
Investment Officer, First Allmerica, 1986 to 1994
John F. O'Brien Director, Chairman of the Board, President and Chief Executive
Director and Chairman of the Board Officer of First Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica since 1993; Assistant
Vice President and Treasurer Vice President to 1992 to 1993; Manager, Price Waterhouse, 1987 to
1992
Richard M. Reilly Director of First Allmerica since 1996; Vice President, First
Director, President and Chief Executive Allmerica; Director and President, Allmerica Investments, Inc.;
Officer Director and President, Allmerica Investment Management Company, Inc.
since 1992, Director and Executive Vice President, 1990 to 1992.
Larry C. Renfro Director of First Allmerica since 1996; Vice President of First
Director Allmerica
Theodore J. Rupley Director of First Allmerica since 1996; President, The Hanover
Director Insurance Company since 1992; President, Fountain Powerboats, 1992;
President; Metropolitan Property & Casualty Company, 1986-1992.
Phillip E. Soule Director of First Allmerica since 1996; Vice President of First
Director Allmerica
Eric A. Simonsen Director of First Allmerica since 1996; Vice President and Chief
Director, Vice President and Chief Financial Officer, First Allmerica
Financial Officer
Diane E. Wood Director of First Allmerica since 1996; Vice President and Chief
Director, Vice President and Chief Financial Officer, First Allmerica
Investment Officer
</TABLE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect subsidiary of First Allmerica, acts
as the principal underwriter of the Certificates pursuant to a Sales and
Administrative Services Agreement with the Company and the Group VEL Account.
Allmerica Investments, Inc. is registered with the Securities
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and Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. The Certificates are sold by agents of the
Company who are registered representatives of Allmerica Investments, Inc. or of
independent broker-dealers.
The Company pays to commissions to broker-dealers which sell the
Certificates based on a commission schedule. After issue of the Certificate or
an increase in Face Amount, commissions may be up to 25% of the first year
premiums up to a basic premium amount established by the Company. Thereafter,
commissions may be up to 10% of any additional premiums. Certain registered
representatives, including registered representatives enrolled in the Company's
training program for new agents, may receive additional first year and renewal
commissions and training reimbursements. General Agents of the Company and
certain registered representatives may also be eligible to receive expense
reimbursements based on the amount of earned commissions. General Agents may
also receive overriding commissions, which will not exceed 2.5% of first year or
4% of renewal premiums. To the extent permitted by NASD rules, promotional
incentives or payments may also be provided to broker-dealers based on sales
volumes, the assumption of wholesaling functions or other sales-related
criteria. Other payments may be made for other services that do not directly
involve the sale of the Certificates. These services may include the recruitment
and training of personnel, production of promotional literature, and similar
services.
The Company intends to recoup the commission and other sales expense through
a combination of the deferred sales charge component of the anticipated
surrender and partial withdrawal charges, and the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
fixed accumulations by the Company. There is no additional charge to the
Certificate Owners or to the Group VEL Account. Any surrender charge assessed on
a Certificate will be retained by the Company except for amounts it may pay to
Allmerica Investments, Inc. for services it performs and expenses it may incur
as principal underwriter and general distributor.
REPORTS
The Company will maintain the records relating to the Group VEL Account. You
will be promptly sent statements of significant transactions such as premium
payments (other than payments made pursuant to the MAP procedure), changes in
specified Face Amount, changes in Death Benefit Option, transfers among
Sub-Accounts and the General Account, partial withdrawals, increases in loan
amount by you, loan repayments, lapse, termination for any reason, and
reinstatement. An annual statement will also be sent to you. The annual
statement will summarize all of the above transactions and deductions of charges
during the Certificate year. It will also set forth the status of the Death
Proceeds, Certificate Value, Surrender Value, amounts in the Sub-Accounts and
General Account, and any Certificate loan(s).
In addition, you will be sent periodic reports containing financial
statements and other information for the Group VEL Account and the Underlying
Investment Companies as required by the Investment Company Act of 1940.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Group VEL Account is a
party, or to which the assets of the Group VEL Account are subject. The Company
is not involved in any litigation that is of material importance in relation to
its total assets or that relates to the Group VEL Account.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this prospectus pursuant to the rules and regulations of the
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Securities and Exchange Commission. Statements contained in this prospectus
concerning the Certificate and other legal documents are summaries. The complete
documents and omitted information may be obtained from the Securities and
Exchange Commission's principal office in Washington, D.C., upon payment of the
Securities and Exchange Commission's prescribed fees.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus constituting part of the Registration Statement, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Certificates.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Certificate, on loans,
withdrawals, or surrenders, on death benefit payments, and on the economic
benefit to you or the Beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of the present
federal income tax laws as they are currently interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely and
possibly retroactively affect the taxation of the Certificates. No
representation is made regarding the likelihood of continuation of current
federal income tax laws or of current interpretations by the Internal Revenue
Service (IRS). Moreover, no attempt has been made to consider any applicable
state or other tax laws.
It should be recognized that the following summary of federal income tax
aspects of amounts received under the Certificates is not exhaustive, does not
purport to cover all situations and is not intended as tax advice. Specifically,
the discussion below does not address certain tax provisions that may be
applicable if the Certificate Owner is a corporation or the Trustee of an
employee benefit plan. A qualified tax adviser should always be consulted with
regard to the enrollment form of law to individual circumstances.
THE COMPANY AND THE GROUP VEL ACCOUNT -- The Company is taxed as a life
insurance company under Subchapter L of the Internal Revenue Code of 1986 (the
"Code") and files a consolidated tax return with its parent and affiliates. The
Company does not expect to incur any income tax upon the earnings or realized
capital gains attributable to the Group VEL Account. Based on these
expectations, no charge is made for federal income taxes which may be
attributable to the Group VEL Account.
The Company will review periodically the question of a charge to the Group
VEL Account for federal income taxes. Such a charge may be made in future years
for any federal income taxes incurred by the Company. This might become
necessary if the tax treatment of the Company is ultimately determined to be
other than what the Company believes it to be, if there are changes made in the
federal income tax treatment of variable life insurance at the Company level, or
if there is a change in the Company's tax status. Any such charge would be
designed to cover the federal income taxes attributable to the investment
results of the Group VEL Account.
Under current laws the Company may also incur state and local taxes (in
addition to premium taxes) in several states. At present these taxes are not
significant. If there is a material change in applicable state or local tax
laws, charges may be made for such taxes paid, or reserves for such taxes,
attributable to the Group VEL Account.
TAXATION OF THE CERTIFICATES -- The Company believes that the Certificates
described in this prospectus will be considered life insurance contracts under
Section 7702 of the Code, which generally provides for the taxation of life
insurance policies and places limitations on the relationship of the Certificate
Value to the Insurance Amount at Risk. As a result, the Death Proceeds payable
are
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excludable from the gross income of the Beneficiary. Moreover, any increase in
Certificate Value is not taxable until received by the Certificate Owner or the
Certificate Owner's designee. But see "MODIFIED ENDOWMENT CONTRACTS."
The Code also requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury regulations in order to be treated as a
life insurance policy for tax purposes. Although the Company does not have
control over the investments of the Underlying Funds, the Company believes that
the Underlying Funds currently meet the Treasury's diversification requirements,
and the Company will monitor continued compliance with these requirements. In
connection with the issuance of previous regulations relating to diversification
requirements, the Treasury Department announced that such regulations do not
provide guidance concerning the extent to which Certificate Owners may direct
their investments to particular divisions of a separate account. Regulations in
this regard may be issued in the future. It is possible that if and when
regulations are issued, the Certificates may need to be modified to comply with
such regulations. For these reasons, the Certificates or the Company's
administrative rules may be modified as necessary to prevent a Certificate Owner
from being considered the owner of the assets of the Group VEL Account.
The Company believes that loans received under a Certificate will be treated
as indebtedness of the Certificate Owner for federal tax purposes, and under
current law will not constitute income to the Certificate Owner so long as the
Certificate remains in force. But see "MODIFIED ENDOWMENT CONTRACTS." Deducting
interest on Certificate loans is, however, subject to the restrictions of
Section 264 of the Code. Consumer interest paid on Certificate loans under a
Certificate owned by an individual is not tax deductible. In addition, no tax
deduction is allowed for any interest on any loan under one or more life
insurance policies (purchased after June 20, 1986) owned by a taxpayer covering
the life of any individual who is an officer or employee of or is financially
interested in, any business carried on by that taxpayer, to the extent the
aggregate amount of such loans exceeds $50,000.
The Company believes that non-preferred loans received under a Certificate
will be treated as indebtedness of the Certificate Owner for federal income tax
purposes. Under current law, these loans will not constitute income for the
Certificate Owner while the Certificate is in force (but see "MODIFIED ENDOWMENT
POLICIES"). However, there is a risk that a preferred loan may be characterized
by the IRS as a withdrawal and taxed accordingly. At the present time, the IRS
has not issued any guidance on whether loans with the attributes of a preferred
loan should be treated differently than a non-preferred loan. This lack of
specific guidance makes the tax treatment of preferred loans uncertain. In the
event IRS guidelines are issued in the future, you may revoke your request for a
preferred loan.
Depending upon the circumstances, a surrender, partial withdrawal, change in
the Death Benefit Option, change in the Face Amount, lapse with Certificate loan
outstanding, or assignment of the Certificate may have tax consequences. In
particular, under specified conditions, a distribution under the Certificate
during the first fifteen years from Date of Issue that reduces future benefits
under the Certificate will be taxed to the Certificate Owner as ordinary income
to the extent of any investment earnings in the Certificate. Federal, state and
local income, estate, inheritance, and other tax consequences of ownership or
receipt of Certificate proceeds depend on the circumstances of each Insured,
Certificate Owner, or Beneficiary.
MODIFIED ENDOWMENT CONTRACTS -- The Technical and Miscellaneous Revenue Act
of 1988 ("Act") adversely affects the tax treatment of distributions under
so-called "modified endowment contracts." Under the Act, any life insurance
policy, including a Certificate offered by this prospectus, that fails to
satisfy a "seven-pay" test is considered a modified endowment contract. A
Certificate fails to satisfy the seven-pay test if the cumulative premiums paid
under the Certificate at any time during the first seven Certificate years
exceed the sum of the net level premiums that would have been paid, had the
Certificate provided for paid-up future benefits after the payment of seven
level premiums.
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If a Certificate is considered a modified endowment contract, all
distributions under the Certificate will be taxed on an "income first" basis.
Most distributions received by a Certificate Owner directly or indirectly
(including loans, withdrawals, partial surrenders, or the assignment or pledge
of any portion of the value of the Certificate) will be includible in gross
income to the extent that the cash Surrender Value of the Certificate exceeds
the Certificate Owner's investment in the contract. Any additional amounts will
be treated as a return of capital to the extent of the Certificate Owner's basis
in the Certificate. With certain exceptions, an additional 10% tax will be
imposed on the portion of any distribution that is includible in income. All
modified endowment contracts issued by the same insurance company to the same
Certificate Owner during any 12-month period will be treated as a single
modified endowment contract in determining taxable distributions.
Currently, each Certificate is reviewed when premiums are received to
determine if it satisfies the seven-pay test. If the Certificate does not
satisfy the seven-pay test, the Company will notify the Certificate Owner of the
option of requesting a refund of the excess premium. The refund process must be
completed within 60 days after the Certificate anniversary, or the Certificate
will be permanently classified as a modified endowment contract.
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
As discussed earlier, you may allocate Net Premiums and transfer Certificate
Value to the General Account. Because of exemption and exclusionary provisions
in the securities law, any amount in the General Account is not generally
subject to regulation under the provisions of the Securities Act of 1933 or the
Investment Company Act of 1940. Accordingly, the disclosures in this Section
have not been reviewed by the Securities and Exchange Commission. Disclosures
regarding the fixed portion of the Certificate and the General Account may,
however, be subject to certain generally applicable provisions of the Federal
securities laws concerning the accuracy and completeness of statements made in
prospectuses.
GENERAL DESCRIPTION -- The General Account of the Company is made up of all
of the general assets of the Company other than those allocated to any separate
account. Allocations to the General Account become part of the assets of the
Company and are used to support insurance and annuity obligations. Subject to
applicable law, the Company has sole discretion over the investment of assets of
the General Account.
A portion or all of Net Premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the General Account. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
The allocation or transfer of funds to the General Account does not entitle you
to share in the investment experience of the General Account.
GENERAL ACCOUNT VALUE -- The Company bears the full investment risk for
amounts allocated to the General Account and guarantees that interest credited
to each Certificate Owner's Certificate Value in the General Account will not be
less than an annual rate of 4% ("Guaranteed Minimum Rate"). (Under a
Certificate, the Guaranteed Minimum Rate may be higher than 4%.)
The Company may, AT ITS SOLE DISCRETION, credit a higher rate of interest
("excess interest"), although it is not obligated to credit interest in excess
of the Guaranteed Minimum Rate, and might not do so. However, the excess
interest rate, if any, in effect on the date a premium is received at the
Principal Office is guaranteed on that premium for one year, unless the
Certificate Value associated with the premium becomes security for a Certificate
loan. AFTER SUCH INITIAL ONE YEAR GUARANTEE OF INTEREST ON NET PREMIUM, ANY
INTEREST CREDITED ON THE CERTIFICATE VALUE IN THE GENERAL ACCOUNT IN EXCESS OF
THE GUARANTEED MINIMUM RATE PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION
OF THE COMPANY. THE CERTIFICATE OWNER ASSUMES THE RISK THAT INTEREST CREDITED
MAY NOT EXCEED THE GUARANTEED MINIMUM RATE.
53
<PAGE>
Even if excess interest is credited to accumulated value in the General
Account, no excess interest will be credited to that portion of the Certificate
Value which is equal to Debt. However, such Certificate Value will be credited
interest at an effective annual yield of at least 6% (8% for preferred loans).
The Company guarantees that, on each Monthly Processing Date, the
Certificate Value in the General Account will be the amount of the Net Premiums
allocated or Certificate Value transferred to the General Account, plus interest
at the Guaranteed Minimum Rate, plus any excess interest which the Company
credits, less the sum of all Certificate charges allocable to the General
Account and any amounts deducted from the General Account in connection with
loans, partial withdrawals, surrenders or transfers.
THE CERTIFICATE -- This prospectus describes certificates issued under a
flexible premium variable life insurance policy and is generally intended to
serve as a disclosure document only for the aspects of the Certificate relating
to the Group VEL Account. For complete details regarding the General Account,
see the Certificate itself.
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CERTIFICATE LOANS -- If a
Certificate is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, is imposed if such event
occurs before the Certificate, or an increase in Face Amount, has been in force
for 15 Certificate years. In the event of a decrease in Face Amount, the
surrender charge deducted is a fraction of the charge that would apply to a full
surrender of the Certificate. Partial withdrawals are made on a
last-in/first-out basis from Certificate Value allocated to the General Account.
The first twelve transfers in a Certificate year are free of charge.
Thereafter, a $10 transfer charge will be deducted for each transfer in that
Certificate year. The transfer privilege is subject to the consent of the
Company and to the Company's then current rules.
Certificate loans may also be made from the Certificate Value in the General
Account.
Transfers, surrenders, partial withdrawals, Death Proceeds and Certificate
loans payable from the General Account may be delayed up to six months. However,
if payment is delayed for 30 days or more, the Company will pay interest at
least equal to an effective annual yield of 3% per year for the period of
deferment. Amounts from the General Account used to pay premiums on policies
with the Company will not be delayed.
FINANCIAL STATEMENTS
The most current financial statements of the Company are those as of the end
of the most recent fiscal year. The Company does not prepare financial
statements more often than annually and believes that any incremental benefit to
prospective policy holders that may result from preparing and delivering more
current financial statements, though unaudited, does not justify the additional
cost that would be incurred. In additional, the Company represents that there
have been no adverse changes in the financial condition or operations of the
company between the end of the most current fiscal year and the date of this
prospectus.
54
<PAGE>
APPENDIX A
OPTIONAL BENEFITS
This Appendix is intended to provide only a very brief overview of
additional insurance benefits available by rider. The following supplemental
benefits are available for issue under the Certificates for an additional
charge.
WAIVER OF PREMIUM RIDER
This rider provides that, during periods of total disability continuing for
more than the period of time specified in the rider, the Company will add to the
Certificate Value each month an amount selected by you or the amount necessary
to maintain Certificate in force, whichever is greater. This benefit is subject
to the Company's maximum issue benefits. Its cost may change yearly.
OTHER INSURED RIDER
This rider provides a term insurance benefit for up to five Insureds. At
present this benefit is only available for the spouse and children of the
primary Insured. The rider includes a feature that allows the "Other Insured" to
convert the coverage to a flexible premium adjustable life insurance
Certificate.
CHILDREN'S INSURANCE RIDER
This rider provides coverage for eligible minor children. It also covers
future children, including adopted children and step children.
ACCIDENTAL DEATH BENEFIT RIDER
This rider pays an additional benefit for death resulting from a covered
accident prior to the Certificate anniversary nearest the Insured's Age 70.
OPTION TO ACCELERATE BENEFITS RIDER
This rider permits part of the proceeds of the Certificate to be available
before death if the Insured becomes terminally ill and, depending on the group
to which the Certificate is issued, may also pay part of the proceeds if the
Insured is permanently confined to a nursing home.
EXCHANGE OPTION RIDER
This rider allows you to use the Certificate to insure a different person,
subject to Company guidelines.
A-1
<PAGE>
APPENDIX B
PAYMENT OPTIONS
PAYMENT OPTIONS -- Upon written request, the Surrender Value or all or part
of the Death Proceeds may be placed under one or more of the payment options
then offered by the Company. If you do not make an election, the Company will
pay the benefits in a single sum. A certificate will be provided to the payee
describing the payment option selected.
If a payment option is selected, the Beneficiary may pay to the Company any
amount that would otherwise be deducted from the Death Benefit.
The amounts payable under a payment option are paid from the General
Account. These amounts are not based on the investment experience of the Group
VEL Account.
SELECTION OF PAYMENT OPTIONS -- The amount applied under any one option for
any one payee must be at least $5,000. The periodic payment for any one payee
must be at least $50. Subject to your and/or the Beneficiary's provision any
option selection may be changed before the Death Proceeds becomes payable. If
you make no selection, the Beneficiary may select an option when the Death
Proceeds becomes payable.
A-2
<PAGE>
APPENDIX C
ILLUSTRATIONS OF SUM INSURED, CERTIFICATE VALUES
AND ACCUMULATED PREMIUMS
The tables illustrate the way in which a Certificate's Sum Insured and
Certificate Value could vary over an extended period of time. They assume that
all premiums are allocated to and remain in the Group VEL Account for the entire
period shown and are based on hypothetical gross investment rates of return for
the Underlying Fund (i.e., investment income and capital gains and losses,
realized or unrealized) equivalent to constant gross (after tax) annual rates of
0%, 6%, and 12%.
The tables illustrate a Certificate issued to a person, Age 30, under a
standard Premium Class and qualifying for the non-smoker discount and a
Certificate issued to a person, Age 45, under a standard Premium Class and
qualifying for the non-smoker discount. The tables illustrate the guaranteed
cost of insurance rates the current cost of insurance rates as presently in
effect.
The Certificate Values and Death Proceeds would be different from those
shown if the gross annual investment rates of return averaged 0%, 6%, and 12%
over a period of years, but fluctuated above or below such averages for
individual Certificate years. The values would also be different depending on
the allocation of a Certificate's total Certificate Value among the Sub-Accounts
of the Group VEL Account, if the actual rates of return averaged 0%, 6% or 12,
but the rates of each Underlying Fund varied above and below such averages.
The amounts shown for the Death Proceeds and Certificate Values take into
account the deduction from premium for the premium tax charge, the Monthly
Deduction from Certificate Value, and the daily charge against the Group VEL
Account for mortality and expense risks equivalent to an effective annual rate
of 0.90% of the average daily value of the assets in the Group VEL Account
attributable to the Certificates. The amounts shown in the tables also take into
account the Underlying Investment Company advisory fees and operating expenses,
which are assumed to be at an annual rate of 0.85% of the average daily net
assets of the Underlying Investment Company. The actual fees and expenses of
each Underlying Investment Company vary, and in 1995 ranged from an annual rate
of 0.35% to an annual rate of 1.36% of average daily net assets. The fees and
expenses associated with your Certificate may be more or less than 0.85% in the
aggregate, depending upon how you make allocations of Certificate Value among
the Sub-Accounts.
Under its Management Agreement with the Trust, Allmerica Investments has
declared a voluntary expense limitation of 1.50% of average net average assets
for the Select International Equity Fund, 1.20% for the Growth Fund, 1.00% for
the Investment Grade Income Fund, 0.60% for the Money Market Fund, 0.60% for the
Equity Index Fund, 1.00% for the Government Bond Fund, 1.35% for the Select
Aggressive Growth Fund and the Select Capital Appreciation Fund, 1.20% for the
Select Growth Fund, 1.10% for the Select Growth and Income Fund, and 1.25% for
the Small Cap Value Fund. Without the effect of the expense limitation, in 1995
the total operation expenses of the Select Capital Appreciation Fund would have
been 1.42% of average net assets. Fidelity Management has voluntarily agreed to
temporarily limit the total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) of the Fidelity VIP
Equity-Income, Fidelity VIP Growth and Fidelity VIP Overseas Portfolios to an
annual rate of 1.50%, and of the Fidelity VIP High Income Portfolio to an annual
rate of 1.00%, and of the Fidelity VIP II Asset Manager Portfolio to an annual
rate of 1.25%, of each Portfolio's average net assets. Delaware International
has agreed voluntarily to waive its management fees and reimburse the
International Equity Series to limit certain expenses to 8/10 of 1% of the
average daily net assets. Without the effect of the expense limitations, in 1995
the total operating expenses of the International Equity Series would have been
0.89% of its average net assets. For the Industrial Income Fund and Total Return
Fund of INVESCO VIF, the ratio of total expenses, less expenses voluntarily
absorbed by the investment adviser, were 1.03% and 1.01%, respectively. If such
expenses had not been voluntarily absorbed, the total operation expenses of the
Industrial Income Fund and the Total Return Fund would have been 2.31% and
2.51%, respectively.
A-3
<PAGE>
Taking into account the 0.90% charge to the Group VEL Account and the
assumed 0.85% charge for Underlying Investment Company advisory fees and
operating expenses, the gross annual rates of investment return of 0%, 6% and
12% correspond to net annual rates of -1.75%, 4.25% and 10.25%, respectively.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Group VEL Account since no charges are currently made.
However, if in the future such charges are made, in order to produce illustrated
death benefits and cash values, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.
The second column of the tables show the amount which would accumulate if an
amount equal to the Guideline Annual Premium were invested to earn interest,
(after taxes) at 5% compounded annually.
The tables illustrate the Certificate Values that would result based upon
the assumptions that no Certificate loans have been made, that you have not
requested an increase or decrease in the initial Face Amount, that no partial
withdrawals have been made, and that no transfers above 6 have been made in any
Certificate year (so that no transaction or transfer charges have been
incurred).
Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's Age, sex, and underwriting classification, and the
requested Face Amount, Sum Insured Option, and riders.
A-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY
NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 393 1,221 76,221 471 1,299 76,299 549 1,377 76,377
2 3,014 1,592 2,420 77,420 1,824 2,652 77,652 2,066 2,894 77,894
3 4,634 2,768 3,596 78,596 3,234 4,062 79,062 3,728 4,566 79,566
4 6,336 3,955 4,750 79,750 4,734 5,529 80,529 5,611 6,406 81,406
5 8,123 5,185 5,881 80,881 6,360 7,055 82,055 7,736 8,432 83,432
6 9,999 6,392 6,989 81,989 8,048 8,644 83,644 10,066 10,663 85,663
7 11,969 7,576 8,073 83,073 9,799 10,296 95,296 12,621 13,118 88,118
8 14,037 8,737 9,135 84,135 11,616 12,013 87,013 15,422 15,820 90,820
9 16,209 9,874 10,172 85,172 13,500 13,798 88,798 18,495 18,793 93,793
10 18,490 10,986 11,185 86,185 15,454 15,653 90,653 22,865 22,064 97,064
11 20,884 12,174 12,174 87,174 17,579 17,579 92,579 25,644 25,644 100,664
12 23,398 13,137 13,137 88,137 19,580 19,580 94,580 29,625 29,625 104,625
13 26,038 14,077 14,077 89,077 21,657 21,657 96,657 33,983 33,983 108,983
14 28,810 14,991 14,991 89,991 23,814 23,814 98,814 38,779 38,779 113,779
15 31,720 15,880 15,880 90,880 26,054 26,054 101,054 44,057 44,057 119,057
16 34,777 16,743 16,743 91,743 28,377 28,377 103,377 49,865 49,865 124,865
17 37,985 17,580 17,580 92,580 30,788 30,788 105,788 56,256 56,256 131,256
18 41,355 18,391 18,391 93,391 33,290 33,290 108,290 63,290 63,290 138,290
19 44,892 19,174 19,174 94,174 35,884 35,884 110,884 71,031 71,031 146,031
20 48,607 19,930 19,930 94,930 38,574 38,574 113,574 79,550 79,550 154,550
Age 60 97,665 25,579 25,579 100,579 71,166 71,166 146,166 229,234 229,234 307,173
Age 65 132,771 26,546 26,546 101,546 91,516 91,516 166,516 378,082 378,082 461,260
Age 70 177,576 25,537 25,537 100,537 114,403 114,403 189,403 617,137 617,137 715,879
Age 75 234,759 21,566 21,566 96,566 139,062 139,062 214,062 1,001,969 1,001,969 1,076,969
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY
NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 349 1,178 76,178 426 1,254 76,254 503 1,331 76,331
2 3,014 1,504 2,332 77,332 1,731 2,559 77,559 1,968 2,796 77,796
3 4,634 2,637 3,465 78,465 3,090 3,918 78,918 3,580 4,408 79,408
4 6,336 3,779 4,574 79,574 4,536 5,331 80,331 5,388 6,183 81,183
5 8,123 4,963 5,658 80,658 6,102 6,798 81,798 7,438 8,133 83,133
6 9,999 6,123 6,719 81,719 7,726 8,322 83,322 9,683 10,279 85,279
7 11,969 7,258 7,755 82,755 9,408 9,905 84,905 12,140 12,637 87,637
8 14,037 8,367 8,765 83,765 11,149 11,547 86,547 14,832 15,229 90,229
9 16,209 9,449 9,747 84,747 12,951 13,249 88,249 17,779 18,077 93,077
10 18,490 10,503 10,702 85,702 14,813 15,012 90,012 21,006 21,205 96,205
11 20,884 11,629 11,629 86,629 16,839 16,839 91,839 24,642 24,642 99,642
12 23,398 12,526 12,526 87,526 18,730 18,730 93,730 28,417 28,417 103,417
13 26,038 13,396 13,396 88,396 20,688 20,688 95,688 32,565 32,565 107,565
14 28,810 14,234 14,234 89,234 22,712 22,712 97,712 37,122 37,122 112,122
15 31,720 15,042 15,042 90,042 24,808 24,808 99,808 42,131 42,131 117,131
16 34,777 15,818 15,818 90,818 26,974 26,974 101,974 47,632 47,632 122,632
17 37,985 16,562 16,562 91,562 29,212 29,212 104,212 53,678 53,678 128,678
18 41,355 17,272 17,272 92,272 31,524 31,524 106,524 60,322 60,322 135,322
19 44,892 17,947 17,947 92,947 33,911 33,911 108,911 67,623 67,623 142,623
20 48,607 18,586 18,586 93,586 36,375 36,375 111,375 75,646 75,646 150,646
Age 60 97,665 22,267 22,267 97,267 64,992 64,992 139,992 215,170 215,170 290,170
Age 65 132,771 21,310 21,310 96,310 81,383 81,383 156,383 352,366 352,366 429,887
Age 70 177,576 16,934 16,934 91,934 97,538 97,538 172,538 570,328 570,328 661,581
Age 75 234,759 7,121 7,121 82,121 110,763 110,763 185,763 917,144 917,144 992,144
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 153 3,502 250,000 382 3,731 250,000 611 3,960 250,000
2 9,040 3,565 6,914 250,000 4,242 7,591 250,000 4,948 8,297 250,000
3 13,903 6,887 10,236 250,000 8,236 11,585 250,000 9,699 13,048 250,000
4 19,008 10,249 13,464 250,000 12,500 15,715 250,000 15,039 18,254 250,000
5 24,368 13,787 16,601 250,000 17,174 19,987 250,000 21,150 23,963 250,000
6 29,996 17,232 19,644 250,000 21,993 24,405 250,000 27,814 30,225 250,000
7 35,906 20,577 22,587 250,000 26,958 28,967 250,000 35,083 37,093 250,000
8 42,112 23,823 25,431 250,000 32,074 33,682 250,000 43,024 44,632 250,000
9 48,627 26,969 28,174 250,000 37,348 38,554 250,000 51,708 52,913 250,000
10 55,469 30,010 30,814 250,000 42,783 43,587 250,000 61,212 62,015 250,000
11 62,652 33,346 33,346 250,000 48,784 48,784 250,000 72,025 72,025 250,000
12 70,195 35,735 35,735 250,000 54,122 54,122 250,000 83,014 83,014 250,000
13 78,114 37,977 37,977 250,000 59,604 59,604 250,000 95,092 95,092 250,000
14 86,430 40,076 40,076 250,000 65,244 65,244 250,000 108,393 108,393 250,000
15 95,161 42,023 42,023 250,000 71,043 71,043 250,000 123,055 123,055 250,000
16 104,330 43,806 43,806 250,000 77,002 77,002 250,000 139,237 139,237 250,000
17 113,956 45,448 45,448 250,000 83,155 83,155 250,000 157,141 157,141 250,000
18 124,064 46,935 46,935 250,000 89,504 89,504 250,000 176,973 176,973 250,000
19 134,677 48,253 48,253 250,000 96,054 96,054 250,000 198,972 198,972 250,000
20 145,820 49,388 48,388 250,000 102,813 102,813 250,000 223,320 223,320 272,451
Age 60 95,161 42,023 42,023 250,000 71,043 71,043 250,000 123,055 123,055 250,000
Age 65 142,820 49,388 49,388 250,000 102,813 102,813 250,000 223,320 223,320 272,451
Age 70 210,477 51,357 51,357 250,000 139,910 139,910 250,000 386,432 386,432 448,262
Age 75 292,995 44,916 44,916 250,000 184,624 184,624 250,000 649,170 649,170 694,611
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- --------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 3,167 250,000 36 3,385 250,000 255 3,604 250,000
2 9,040 2,879 6,228 250,000 3,514 6,863 250,000 4,177 7,526 250,000
3 13,903 5,833 9,182 250,000 7,087 10,436 250,000 8,447 11,796 250,000
4 19,008 8,807 12,022 250,000 10,884 14,099 250,000 13,231 16,446 250,000
5 24,368 11,935 14,748 250,000 15,043 17,857 250,000 18,702 21,515 250,000
6 29,996 14,947 17,358 250,000 19,298 21,709 250,000 24,635 27,046 250,000
7 35,906 17,829 19,839 250,000 23,639 25,648 250,000 31,066 33,075 250,000
8 42,112 20,574 22,182 250,000 28,061 29,669 250,000 38,044 39,651 250,000
9 48,627 23,170 24,376 250,000 32,558 33,764 250,000 45,619 46,825 250,000
10 55,469 25,603 26,407 250,000 37,119 37,923 250,000 53,849 54,652 250,000
11 62,652 28,268 28,268 250,000 42,145 42,145 250,000 63,206 63,206 250,000
12 70,195 29,950 29,950 250,000 46,426 46,426 250,000 72,568 72,568 250,000
13 78,114 31,445 31,445 250,000 50,762 50,762 250,000 82,830 82,830 250,000
14 86,430 32,744 32,744 250,000 55,154 55,154 250,000 94,103 94,103 250,000
15 95,161 33,837 33,837 250,000 59,598 59,598 250,000 106,511 106,511 250,000
16 104,330 34,697 34,697 250,000 64,077 64,077 250,000 120,186 120,186 250,000
17 113,956 35,302 35,302 250,000 68,583 68,583 250,000 135,293 135,293 250,000
18 124,064 35,617 35,617 250,000 73,094 73,094 250,000 152,015 152,015 250,000
19 134,677 35,596 35,596 250,000 77,583 77,583 250,000 170,572 170,572 250,000
20 145,820 35,194 35,194 250,000 82,028 82,028 250,000 191,230 191,230 250,000
Age 60 95,161 33,837 33,837 250,000 59,598 59,598 250,000 106,511 106,511 250,000
Age 65 142,820 35,194 35,194 250,000 82,028 82,028 250,000 191,230 191,230 250,000
Age 70 210,477 26,069 26,069 250,000 103,101 103,101 250,000 331,550 331,550 384,598
Age 75 292,995 0 0 0 119,588 119,588 250,000 555,584 555,584 594,475
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY *
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,429 11,778 250,000 9,173 12,522 250,000 9,918 13,267 250,000
2 28,327 19,983 23,332 250,000 22,213 25,562 250,000 24,533 27,882 250,000
3 43,561 31,317 34,666 250,000 35,795 39,144 250,000 40,643 43,992 250,000
4 59,557 42,566 45,781 250,000 50,080 53,295 250,000 58,544 61,759 250,000
5 76,353 53,872 56,685 250,000 65,235 68,048 250,000 78,555 81,368 250,000
6 93,989 64,971 67,382 250,000 81,024 83,435 250,000 100,551 102,962 275,938
7 112,506 75,862 77,871 250,000 97,456 99,465 258,608 124,533 126,542 329,009
8 131,950 86,546 88,154 250,000 114,395 116,003 292,327 150,669 152,277 383,738
9 152,365 97,028 98,234 250,000 131,846 133,052 324,646 179,141 180,347 440,048
10 173,801 108,044 108,044 256,065 150,604 150,604 356,931 210,931 210,931 499,905
11 196,309 117,547 117,547 270,357 168,663 168,663 387,926 244,236 244,236 561,744
12 219,943 126,743 126,743 282,638 187,237 187,237 417,538 280,493 280,493 625,498
13 244,758 135,641 135,641 292,984 206,332 206,332 445,676 319,950 319,950 691,092
14 270,814 144,235 144,235 302,894 225,942 225,942 474,479 362,856 362,856 761,997
15 298,173 152,532 152,532 311,165 246,075 246,075 501,993 409,498 409,498 835,375
16 326,899 160,510 160,510 319,414 266,692 266,692 530,717 460,110 460,110 915,618
17 357,062 168,192 168,192 324,611 287,824 287,824 555,501 515,061 515,061 994,067
18 388,733 175,554 175,554 330,041 309,420 309,420 581,710 574,599 574,599 1,080,247
19 421,988 182,586 182,586 334,133 331,452 331,452 606,557 639,032 639,032 1,169,429
20 456,905 189,291 189,291 336,938 353,905 353,905 629,951 708,707 708,707 1,261,499
Age 60 298,173 152,532 152,532 311,165 246,075 246,075 501,993 409,498 409,498 835,375
Age 65 456,905 189,291 189,291 336,938 353,905 353,905 629,951 708,707 708,707 1,261,499
Age 70 659,493 217,841 217,841 344,189 471,552 471,552 745,053 1,148,569 1,148,569 1,814,739
Age 75 918,052 238,343 238,343 338,447 595,761 595,761 845,980 1,780,948 1,780,948 2,528,946
</TABLE>
(1) Assumes a $13,160 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-9
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY *
NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---------- -------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,752 12,101 250,000 9,506 12,855 250,000 10,261 13,610 250,000
2 28,327 20,632 23,981 250,000 22,900 26,249 250,000 25,259 28,608 250,000
3 43,561 32,294 35,643 250,000 36,857 40,206 250,000 41,795 45,144 250,000
4 59,557 43,875 47,090 250,000 51,537 54,753 250,000 60,163 63,378 250,000
5 76,353 55,515 58,328 250,000 67,105 69,918 250,000 80,683 83,496 250,000
6 93,989 66,950 69,361 250,000 83,324 85,735 250,000 103,233 105,644 283,127
7 112,506 78,181 80,190 250,000 100,190 102,199 265,718 127,918 129,927 337,811
8 131,950 89,215 90,823 250,000 117,656 119,264 300,544 154,940 156,548 394,501
9 152,365 100,055 101,260 250,000 135,742 136,947 334,151 184,522 185,728 453,176
10 173,801 111,447 111,447 264,129 155,262 155,262 367,972 217,699 217,699 515,946
11 196,309 121,382 121,382 279,179 174,227 174,227 400,722 252,719 252,719 581,254
12 219,943 131,047 131,047 292,234 193,825 193,825 432,229 291,022 291,022 648,979
13 244,758 140,442 140,442 303,355 214,070 214,070 462,390 332,901 332,901 719,067
14 270,814 149,574 149,574 314,106 234,978 234,978 493,454 378,683 378,683 795,234
15 298,173 158,441 158,441 323,220 256,560 256,560 523,382 428,707 428,707 874,562
16 326,899 167,033 167,033 332,396 278,805 278,805 554,822 483,312 483,312 961,790
17 357,062 175,391 175,391 338,505 301,791 301,791 582,457 543,016 543,016 1,048,020
18 388,733 183,504 183,504 344,987 325,511 325,511 611,960 608,234 608,234 1,143,480
19 421,988 191,372 191,372 350,211 349,977 349,977 640,458 679,453 679,453 1,243,398
20 456,905 199,000 199,000 354,221 375,207 375,207 667,868 757,208 757,208 1,347,831
Age 60 298,173 158,441 158,441 323,220 256,560 256,560 523,382 428,707 428,707 874,562
Age 65 456,905 199,000 199,000 354,221 375,207 375,207 667,868 757,208 757,208 1,347,831
Age 70 659,493 233,168 233,168 368,406 512,262 512,262 809,374 1,263,390 1,263,390 1,996,156
Age 75 918,052 261,169 261,169 370,860 668,451 668,451 949,200 2,035,582 2,035,582 2,890,526
</TABLE>
(1) Assumes a $13,160 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Certificate loan has been made. Excessive loans or
withdrawals may cause this Certificate to lapse because of insufficient
Certificate Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A CERTIFICATE
OWNER, AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE FUNDS. THE VALUE OF
UNITS, CASH VALUE, AND DEATH BENEFIT FOR A CERTIFICATE WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CERTIFICATE YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIVES CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A-10
<PAGE>
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES
A separate surrender charge may be calculated upon issuance of the
Certificate and upon each increase in Face Amount. The maximum surrender charge
calculated upon issuance of the Certificate is equal to $8.50 per thousand
dollars of the initial Face Amount plus up to 50% (less any premium expense
charge not associated with state and local premium taxes) of the Guideline
Annual Premium, depending on the group to which the Certificate is issued. The
maximum surrender charge for an increase in Face Amount is $8.50 per thousand
dollars of increase, plus up to 50% (less any premium expense charge not
associated with state and local premium taxes) of the Guideline Annual Premium
for the increase. The calculation may be summarized in the following formula:
Maximum Surrender Charge = (8.5 X Face Amount) + (up to 50% X Guideline Annual
Premium)
1000
A further limitation is imposed based on the Standard Non-Forfeiture Law of
each state. The maximum surrender charges upon issuance of the Certificate and
upon each increase in Face Amount are shown in the table below. During the first
two Certificate years following issue or an increase in Face Amount, the actual
surrender charge may be less than the maximum. See "CHARGES AND DEDUCTIONS --
Surrender Charge."
The maximum surrender charge remains level for the first 24 Certificate
months, reduces uniformly for the balance of the surrender charge period, and is
zero thereafter. The actual surrender charge imposed may be less than the
maximum.
The Factors used in calculating the maximum surrender charges vary with the
issue Age and Underwriting Class as indicated in the table below.
A-11
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1000 FACE AMOUNT
<TABLE>
<CAPTION>
AGE AT AGE AT
ISSUE OR UNISEX UNISEX UNISEX ISSUE OR UNISEX UNSEX UNISEX
INCREASE NONSMOKER SMOKER UNISMOKE INCREASE NONSMOKER SMOKER UNISMOKE
- ------------- ------------- ----------- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
0 14.89 14.37 41 27.74 32.73 29.39
1 14.84 14.31 42 28.55 33.79 30.27
2 15.00 14.44 43 29.41 34.91 31.19
3 15.17 14.58 44 30.31 36.08 32.17
4 15.35 14.73 45 31.26 37.31 33.19
5 15.53 14.88 46 32.27 38.60 34.27
6 15.73 15.05 47 33.33 39.95 35.40
7 15.94 15.23 48 34.46 41.38 36.59
8 16.16 15.41 49 35.64 42.89 37.86
9 16.39 15.61 50 36.90 44.48 39.19
10 16.64 15.82 51 38.24 46.17 40.60
11 16.91 16.05 52 39.66 47.95 42.10
12 17.18 16.28 53 41.17 49.84 43.68
13 17.47 16.52 54 42.76 51.82 45.36
14 17.77 16.77 55 44.46 53.91 47.12
15 18.08 17.02 56 46.25 56.11 48.98
16 18.38 17.28 57 48.16 56.87 50.95
17 18.67 17.54 58 50.18 56.76 53.03
18 17.15 18.98 17.80 59 52.34 56.65 55.24
19 17.40 19.29 18.07 60 54.64 56.54 56.71
20 17.65 19.62 18.35 61 56.54 56.44 56.59
21 17.92 19.95 18.64 62 56.41 56.34 56.47
22 18.20 20.31 18.95 63 56.29 56.26 56.36
23 18.49 20.68 19.27 64 56.16 56.18 56.25
24 18.80 21.08 19.61 65 56.03 56.10 56.13
25 19.13 21.49 19.97 66 55.90 56.01 56.00
26 19.48 21.94 20.35 67 55.74 55.90 55.85
27 19.85 22.42 20.75 68 55.58 55.76 55.70
28 20.24 22.92 21.18 69 55.41 55.63 55.53
29 20.65 23.45 21.63 70 55.27 55.49 55.37
30 21.08 24.02 22.11 71 55.12 55.38 55.22
31 21.54 24.62 22.61 72 54.96 55.29 55.10
32 22.03 25.25 23.15 73 54.85 55.23 54.99
33 22.54 25.92 23.71 74 54.75 55.19 54.89
34 23.03 26.62 24.30 75 54.64 55.16 54.80
35 23.64 27.36 24.92 76 54.52 55.10 54.69
36 24.24 28.15 25.57 77 54.36 55.01 54.53
37 24.87 28.97 26.26 78 54.18 54.86 54.35
38 25.53 29.84 26.99 79 53.97 54.68 54.14
39 26.23 30.76 27.75 80 53.75 54.49 53.91
40 26.97 31.72 28.55
</TABLE>
EXAMPLES
For the purposes of these examples, assume that a unisex, Age 35, non-smoker
purchases a $100,000 Certificate. In this example the Guideline Annual Premium
("GAP") equals $944.21. The maximum surrender charge is calculated as follows:
<TABLE>
<S> <C>
(1) Deferred Administrative Charge ($8.50/$1,000 of Face Amount) $ 850.00
(2) Deferred Sales Charge (50% x GAP) $ 472.11
---------
$1,322.11
Maximum Surrender Charge per Table (23.64 x 100) $2,364.00
</TABLE>
A-12
<PAGE>
During the first two Certificate years after the Date of Issue, the actual
surrender charge is the smaller of the maximum surrender charge and the
following sum:
<TABLE>
<S> <C>
(1) Deferred Administrative Charge ($8.50/$1,000 of Face
Amount) $ 850.00
(2) Deferred Sales Charge (not to exceed 30% of premiums
received, up to one GAP, plus 9% of premiums
received in excess of one GAP) Varies
------------------
Sum of (1) and (2)
</TABLE>
The maximum surrender charge is $1,322.11. All premiums are associated with
the initial Face Amount unless the Face Amount is increased.
EXAMPLE 1: Assume the Certificate Owner surrenders the Certificate in the
10th Certificate month, having paid total premiums of $900. The actual surrender
charge would be $1,120.
EXAMPLE 2: Assume the Certificate Owner surrenders the Certificate in the
120th month. Also assume that after the 24th Certificate month, the maximum
surrender charge decreases by 1/156 per month thereby reaching zero at the end
of the 15th Certificate year. In this example, the maximum surrender charge
would be $508.50.
A-13
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
(formerly known as State Mutual Life Assurance Company of America)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of First
Allmerica Financial Life Insurance Company and its subsidiaries at December
31, 1995 and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the accompanying notes to the consolidated financial
statements, the Company changed its method of accounting for investments
(Notes 1 and 3) and postemployment benefits (Notes 11) in 1994 and for
postretirement benefits (Note 10) in 1993.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 5, 1996
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions, except per share data) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $ 2,222.8 $ 2,181.8 $ 2,079.3
Universal life and investment product policy fees 170.4 156.8 143.7
Net investment income 710.1 743.1 782.8
Net realized investment gains 19.1 1.1 61.0
Realized gain on sale of subsidiary -- -- 35.7
Realized gain on sale of mutual fund processing business 20.7 -- --
Realized gain on issuance of subsidiary common stock -- -- 62.9
Other income 95.4 112.3 73.8
----------------------------------------
Total revenues 3,238.5 3,195.1 3,239.2
----------------------------------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment expenses 2,008.3 2,047.0 1,987.2
Policy acquisition expenses 470.3 475.7 435.8
Other operating expenses 455.0 518.9 421.3
----------------------------------------
Total benefits, losses and expenses 2,933.6 3,041.6 2,844.3
----------------------------------------
Income before federal income taxes 304.9 153.5 394.9
----------------------------------------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current 119.7 45.4 95.1
Deferred (37.0) 8.0 (20.4)
----------------------------------------
Total federal income tax expense 82.7 53.4 74.7
----------------------------------------
Income before minority interest, extraordinary item, and
cumulative effect of accounting change 222.2 100.1 320.2
Minority interest (73.1) (51.0) (122.8)
----------------------------------------
Income before extraordinary item and cumulative effect of
accounting changes 149.1 49.1 197.4
Extraordinary item - demutualization expenses (12.1) (9.2) (4.6)
Cumulative effect of changes in accounting principles -- (1.9) (35.4)
----------------------------------------
Net income $ 137.0 $ 38.0 $ 157.4
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In millions, except per share data) 1995 1994
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-at amortized cost (fair value of $949.9 in 1994) $ -- $ 959.3
Fixed maturities-at fair value (amortized cost of $7,467.9 and $6,724.6) 7,739.3 6,512.0
Equity securities-at fair value (cost of $410.6 and $260.4) 517.2 286.4
Mortgage loans 799.5 1,106.7
Real estate 179.6 180.3
Policy loans 123.2 364.9
Other long-term investments 71.9 68.1
-------------------------------
Total investments 9,430.7 9,477.7
-------------------------------
Cash and cash equivalents 236.6 539.7
Accrued investment income 163.0 186.6
Deferred policy acquisition costs 735.7 802.8
-------------------------------
Reinsurance receivables:
Future policy benefits 97.1 59.7
Outstanding claims, losses and loss adjustment expenses 799.6 741.0
Unearned premiums 43.8 61.9
Other 58.9 62.1
-------------------------------
Total reinsurance receivables 999.4 924.7
-------------------------------
Deferred federal income taxes 81.2 189.1
Premiums, accounts and notes receivable 526.7 510.3
Other assets 361.4 324.9
Closed Block assets 818.9 --
Separate account assets 4,348.8 2,965.7
-------------------------------
Total assets $ 17,702.4 $ 15,921.5
-------------------------------
-------------------------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits $ 2,639.3 $ 3,416.4
Outstanding claims, losses and loss adjustment expenses 3,081.3 2,991.5
Unearned premiums 800.9 796.6
Contractholder deposit funds and other policy liabilities 2,737.4 3,435.7
-------------------------------
Total policy liabilities and accruals 9,258.9 10,640.2
-------------------------------
Expenses and taxes payable 600.3 589.2
Reinsurance premiums payable 42.0 65.8
Short-term debt 28.0 32.8
Deferred federal income taxes 47.8 13.8
Long-term debt 2.8 2.7
Closed Block liabilities 902.0 --
Separate account liabilities 4,337.8 2,954.9
-------------------------------
Total liabilities 15,219.6 14,299.4
-------------------------------
Minority interest 758.5 629.7
Commitments and contingencies (Notes 14 and 19)
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 1 million shares authorized, 500,000
shares issued and outstanding 5.0 --
Additional paid-in-capital 392.4 --
Unrealized appreciation (depreciation) on investments, net 153.0 (79.0)
Retained earnings 1,173.9 1,071.4
-------------------------------
Total shareholders' equity 1,724.3 992.4
-------------------------------
Total liabilities and shareholders' equity $ 17,702.4 $ 15,921.5
-------------------------------
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ -- $ -- $ --
Demutualization transaction 5.0 -- --
----------------------------------------
Balance at end of year 5.0 -- --
----------------------------------------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year -- -- --
Contributed from parent 392.4 -- --
----------------------------------------
Balance at end of year 392.4 -- --
----------------------------------------
RETAINED EARNINGS
Balance at beginning of year 1,071.4 1,033.4 876.0
Net income prior to demutualization 93.2 38.0 157.4
----------------------------------------
1,164.6 1,071.4 1,033.4
Demutualization transaction (34.5) -- --
Net income subsequent to demutualization 43.8 -- --
----------------------------------------
Balance at end of year 1,173.9 1,071.4 1,033.4
----------------------------------------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Balance at beginning of year (79.0) 17.5 20.6
----------------------------------------
Cumulative effect of accounting change:
Net appreciation on available-for-sale debt securities -- 296.1 --
Provision for deferred federal income taxes and minority interest -- (149.1) --
----------------------------------------
-- 147.0 --
----------------------------------------
Effect of transfer of securities from held-to-maturity to available-for-sale:
Net appreciation on available-for-sale debt securities 22.4 -- --
Provision for deferred federal income taxes and minority interest (9.6) -- --
----------------------------------------
12.8 -- --
----------------------------------------
Appreciation (depreciation) during the period:
Net appreciation (depreciation) on available-for-sale securities 466.0 (492.1) (9.6)
(Provision) benefit for deferred federal income taxes (163.1) 171.9 2.8
Minority interest (83.7) 76.7 3.7
----------------------------------------
219.2 (243.5) (3.1)
----------------------------------------
Balance at end of year 153.0 (79.0) 17.5
----------------------------------------
Total shareholders' equity $1,724.3 $ 992.4 $ 1,050.9
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 137.0 $ 38.0 $ 157.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 73.1 50.1 112.7
Net realized gains (39.8) (1.1) (159.6)
Deferred federal income taxes (benefits) (37.0) 8.0 (20.4)
Increase in deferred policy acquisition costs (38.4) (34.6) (51.8)
Increase in premiums and notes receivable, net of reinsurance payable (42.0) (25.6) (37.5)
(Increase) decrease in accrued investment income 7.0 4.6 (1.6)
Increase in policy liabilities and accruals, net 116.2 175.9 131.7
(Increase) decrease in reinsurance receivable (75.6) (31.9) 18.6
Increase in expenses and taxes payable 7.5 88.0 104.7
Separate account activity, net (0.1) 0.4 21.4
Other, net 23.9 59.9 2.7
-----------------------------------------
Net cash provided by operating activities 131.8 331.7 278.3
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of available-for-sale
fixed maturities 2,738.4 2,097.8 --
Proceeds from disposals of held-to-maturity fixed maturities 271.3 304.4 2,094.9
Proceeds from disposals of equity securities 120.0 143.9 585.8
Proceeds from disposals of other investments 40.5 25.9 74.0
Proceeds from mortgages matured or collected 230.3 256.4 291.2
Purchase of available-for-sale fixed maturities (3,273.3) (2,150.1) --
Purchase of held-to-maturity fixed maturities -- (111.6) (2,577.1)
Purchase of equity securities (254.0) (172.2) (673.3)
Purchase of other investments (24.8) (26.6) (46.5)
Proceeds from sale of businesses 32.9 -- 79.5
Capital expenditures (14.1) (43.1) (37.5)
Other investing activities, net 4.7 2.4 1.3
-----------------------------------------
Net cash (used in) provided by investing activities (128.1) 327.2 (207.7)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 445.8 786.3 738.7
Withdrawals from contractholder deposit funds (1,069.9) (1,187.0) (894.0)
Change in short-term debt (4.8) (6.0) 1.4
Change in long-term debt 0.2 0.3 --
Dividends paid to minority shareholders (4.1) (4.2) (3.9)
Capital contributed from parent 392.4 -- 156.2
Payments for policyholders' membership interests (27.9) -- --
Net proceeds from issuance of long-term debt -- -- --
Other, net (20.9) -- (1.3)
-----------------------------------------
Net cash used in financing activities (289.2) (410.6) (2.9)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (285.5) 248.3 67.7
Net change in cash held in the Closed Block (17.6) -- --
Cash and cash equivalents, beginning of year 539.7 291.4 223.7
-----------------------------------------
Cash and cash equivalents, end of year $ 236.6 $ 539.7 $ 291.4
-----------------------------------------
-----------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 4.1 $ 4.3 $ 1.7
Income taxes paid $ 90.6 $ 46.1 $ 57.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
First Allmerica Financial Life Insurance Company ("FAFLIC" or the "Company",
formerly State Mutual Life Assurance Company of America ["State Mutual"]) was
organized as a mutual life insurance company until October 16, 1995. FAFLIC
converted to a stock life insurance company pursuant to a plan of
reorganization effective October 16, 1995 and became a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). The consolidated
financial statements have been prepared as if FAFLIC were organized as a
stock life insurance company for all periods presented. Thus, generally
accepted accounting principles for stock life insurance companies have been
applied retroactively for all periods presented.
The consolidated financial statements of FAFLIC include the accounts of
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC", formerly
SMA Life Assurance Company) its wholly owned life insurance subsidiary,
non-insurance subsidiaries (principally brokerage and investment advisory
subsidiaries), and Allmerica Property and Casualty Companies, Inc.
("Allmerica P&C", a 58.3%-owned non-insurance holding company). The Closed
Block assets and liabilities at December 31, 1995 and its results of
operations subsequent to demutualization are presented in the consolidated
financial statements as single line items. Prior to demutualization such
amounts are presented line by line in the consolidated financial statements
(see Note 6). Unless specifically stated, all disclosures contained herein
supporting the consolidated financial statements as of December 31, 1995 and
the year then ended exclude the Closed Block related amounts. All significant
intercompany accounts and transactions have been eliminated.
Minority interest relates to the Company's investment in Allmerica P&C
and its only significant subsidiary, The Hanover Insurance Company
("Hanover"). Hanover's 81.1%-owned subsidiary is Citizens Corporation, the
holding company for Citizens Insurance Company of America ("Citizens").
Minority interest also includes an amount related to the minority interest in
Citizens Corporation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. CLOSED BLOCK
As of October 16, 1995, the Company established and began operating a closed
block (the "Closed Block") for the benefit of the participating policies
included therein, consisting of certain individual life insurance participating
policies, individual deferred annuity contracts and supplementary contracts not
involving life contingencies which were in force on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts after the demutualization. Unless the Commissioner
consents to an earlier termination, the Closed Block will continue to be in
effect until the date none of the Closed Block policies are in force. On
October 16, 1995, FAFLIC allocated to the Closed Block assets in an amount that
is expected to produce cash flows which, together with future revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payment of policy benefits, certain future
expenses and taxes and for continuation of policyholder dividend scales payable
in 1994 so long as the experience underlying such dividend scales continues. The
Company expects that the factors underlying such experience will fluctuate in
the future and policyholder dividend scales for Closed Block Business will be
set accordingly.
Although the assets and income allocated to the Closed Block inure solely
to the benefit of the holders of policies included in the Closed Block, the
excess of Closed Block liabilities over Closed Block assets at October 16, 1995
measured on a GAAP basis represent the expected future post-tax income from the
Closed Block which may be recognized in income over the period the policies and
contracts in the Closed Block remain in force.
If the actual income from the Closed Block in any given period equals or
exceeds the expected income for such period as determined at October 16, 1995,
the expected income would be recognized in income for that period. Further, any
excess of the actual income over the expected income would also be recognized in
income to the extent that the aggregate expected income for all prior periods
exceeded the aggregate actual income. Any remaining excess of actual income over
expected income would be accrued as a liability for policyholder dividends in
the Closed Block to be paid to the Closed Block policyholders. This accrual for
future dividends effectively limits the actual Closed Block income recognized in
income to the Closed Block income expected to emerge from operation of the
Closed Block as determined as of October 16, 1995.
If, over the period the policies and contracts in the Closed Block remain
in force, the actual income from the Closed Block is less than the expected
income from the Closed Block, only such actual income
5
<PAGE>
(which could reflect a loss) would be recognized in income. If the actual income
from the Closed Block in any given period is less than the expected income for
that period and changes in dividends scales are inadequate to offset the
negative performance in relation to the expected performance, the income inuring
to shareholders of the Company will be reduced. If a policyholder dividend
liability had been previously established in the Closed Block because the actual
income to the relevant date had exceeded the expected income to such date, such
liability would be reduced by this reduction in income (but not below zero) in
any periods in which the actual income for that period is less than the expected
income for such period.
C. VALUATION OF INVESTMENTS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires that an
enterprise classify debt and equity securities into one of three categories;
held-to-maturity, available-for-sale, or trading. Investments classified as
held-to-maturity shall be investments that the enterprise has the positive
intent and ability to hold until maturity. Trading securities are investments
which are bought and held principally for the purpose of selling them in the
near term. Investments classified as neither trading securities nor
held-to-maturity shall be classified as available-for-sale securities. SFAS No.
115 also requires that unrealized holding gains and losses for trading
securities be included in earnings, while unrealized gains and losses for
available-for-sale securities be excluded from earnings and reported as a
separate component of shareholder equity until realized. SFAS No. 115 also
requires that for a decline in the fair value which is judged to be other than
temporary, the cost basis of the security should be written down to fair value,
and the amount of the write-down recognized in earnings as a realized loss.
Previously, the Company classified all of its fixed maturities and equity
securities as available-for-sale or held-to-maturity investments. Fixed
maturities held-to-maturity consist of certain bonds, presented at amortized
cost, that management intends and has the ability to hold until maturity. Fixed
maturities available-for-sale consist of certain bonds and redeemable preferred
stocks, presented at fair value, that management may not hold until maturity.
Equity securities available-for-sale are comprised of common stocks which are
carried at fair value. Prior to January 1, 1994, all fixed maturity investments,
which included bonds and redeemable preferred stocks, were principally carried
at amortized cost. Equity securities, which included common and non-redeemable
preferred stock, were carried at fair value. Unrealized gains or losses on
investments classified as available-for-sale, net of deferred federal income
taxes, minority interest, deferred policy acquisition expenses and amounts
attributable to participating contractholders, are included as a separate
component of shareholders' equity. As discussed in Note 3, the Company
transferred all securities classified as held-to-maturity to available-for-sale
on November 30, 1995.
Realized gains and losses on sales of fixed maturities and equity
securities are determined on the specific-identification basis using amortized
cost for fixed maturities and cost for equity securities. Fixed maturities and
equity securities with other than temporary declines in fair value are written
down to estimated fair value resulting in the recognition of realized losses.
Mortgage loans on real estate are stated at unpaid principal balances, net
of unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
Real estate that has been acquired through the foreclosure of mortgage
loans is valued at the estimated fair value at the time of foreclosure. The
Company considers several methods in determining fair value at foreclosure,
using primarily third-party appraisals and discounted cash flow analyses. After
foreclosure, the Company makes a determination as to whether the asset should be
held for production of income or held for sale.
Real estate investments held for the production of income and held for sale
are carried at depreciated cost less valuation allowances, if necessary, to
reduce the carrying value to fair value. Depreciation is generally calculated
using the straight-line method.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans and real
estate are included in realized investment gains or losses.
6
<PAGE>
D. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, investment and loan
commitments, and interest rate futures contracts. These instruments involve
credit risk and also may be subject to risk of loss due to interest rate
fluctuation. The Company evaluates and monitors each financial instrument
individually and, when appropriate, obtains collateral or other security to
minimize losses.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
F. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits over the expected life of the contracts using a revised
interest rate applied to the remaining benefit period. Acquisition costs related
to annuity and other life insurance businesses are deferred and amortized,
generally in proportion to the ratio of annual revenue to the estimated total
revenues over the contract periods based upon the same assumptions used in
estimating the liability for future policy benefits. Deferred acquisition costs
for each product are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination.
Although realization of deferred policy acquisition costs is not assured,
management believes it is more likely than not that all of these costs will be
realized. The amount of deferred policy acquisition costs considered realizable,
however, could be reduced in the near term if the estimates of gross profits or
total revenues discussed above are reduced. The amount of amortization of
deferred policy acquisition costs could be revised in the near term if any of
the estimates discussed above are revised.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholders' equity or net investment income.
I. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made on property and casualty and health insurance
for reported losses and estimates of losses incurred but not reported. These
liabilities are determined using case basis evaluations and statistical analyses
and represent estimates of the ultimate cost of all losses incurred but not
paid. These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations. Estimated amounts of salvage
and subrogation on unpaid property and casualty losses are deducted from the
liability for unpaid claims.
Premiums for property and casualty, group life, and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
7
<PAGE>
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts, deposit
administration funds and immediate participation guarantee funds and consist of
deposits received from customers and investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates
discussed above. Although the adequacy of these amounts cannot be assured,
management believes that it is more likely than not that policy liabilities and
accruals will be sufficient to meet future obligations of policies in force. The
amount of liabilities and accruals, however, could be revised in the near term
if the estimates discussed above are revised.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values.
K. POLICYHOLDER DIVIDENDS
Prior to demutualization, certain life, health and annuity insurance policies
contained dividend payment provisions that enabled the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends was determined annually by the Board of Directors. The aggregate
amount of policyholders' dividends was related to the actual interest,
mortality, morbidity and expense experience for the year and the Company's
judgment as to the appropriate level of statutory surplus to be retained. The
participating life insurance in force was 16.2% of the face value of total life
insurance in force at December 31, 1994. The premiums on participating life,
health and annuity policies were 11.3%, 6.4% and 6.6% of total life, health and
annuity statutory premiums prior to demutualization in 1995, 1994 and 1993,
respectively. Total policyholders' dividends were $23.3 million, $32.8 million
and $24.2 million prior to demutualization in 1995, 1994 and 1993, respectively.
L. FEDERAL INCOME TAXES
AFC, FAFLIC, AFLIAC and FAFLIC's non-insurance domestic subsidiaries file a
consolidated United States federal income tax return. Entities included within
the consolidated group are segregated into either a life insurance or non-life
insurance company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions on the percentage of eligible non-life tax losses
that can be applied to offset life company taxable income. Allmerica P&C and its
subsidiaries file a separate United States federal income tax return.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes, and
for other temporary taxable and deductible differences as defined by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). These differences result primarily from loss reserves, policy
acquisition expenses, and unrealized appreciation/depreciation on investments.
M. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. This statement requires
companies to write down to fair value long-lived assets whose carrying value is
greater than the undiscounted cash flows of those assets. The statement also
requires that long-lived assets of which management is committed to dispose,
either by sale or abandonment, be valued at the lower of their carrying amount
or fair value less costs to sell. This statement is effective for fiscal years
beginning after December 15, 1995. Management expects that adoption of this
statement will not have a material effect on the financial statements.
N. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
<PAGE>
2. SIGNIFICANT TRANSACTIONS
Pursuant to the plan of reorganization effective October 16, 1995, AFC issued
37.5 million shares of its common stock to eligible policyholders. AFC also
issued 12.6 million shares of its common stock at a price of $21.00 per share in
a public offering, resulting in net proceeds of $248.0 million, and issued
Senior Debentures in the principal amount of $200.0 million which resulted in
net proceeds of $197.2 million. AFC contributed $392.4 million of these proceeds
to FAFLIC.
Effective March 31, 1995, the Company entered into an agreement with TSSG,
a division of First Data Corporation, pursuant to which the Company sold its
mutual fund processing business and agreed not to engage in this business for
four years after that date. In accordance with this agreement, the Company
received proceeds of $32.1 million. A gain of $13.5 million, net of taxes of
$7.2 million, was recorded in March 1995.
In March and April, 1993, Citizens Corporation, a newly formed holding
company for Citizens, issued approximately 19.35% of its common stock in an
initial public offering, generating net proceeds of $156.2 million (7.0 million
shares at $24.00 per share). Proceeds to Citizens Corporation were reduced by
underwriting and other stock issuance costs. A non-taxable gain of $62.9 million
was recorded in 1993 in connection with this initial public offering. This gain
is non-taxable because only newly-issued shares of Citizens Corporation were
issued to the public.
Effective December 31, 1992, Hanover entered into a definitive agreement to
sell its wholly owned subsidiary, Beacon Insurance Company of America, and its
wholly owned subsidiary, American Select Insurance Company, for $89.7 million. A
gain of $20.7 million, net of taxes of $15.0 million, was recorded in 1993.
3. INVESTMENTS
A. FIXED MATURITIES AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115, which requires that
investments be classified into one of three categories: held-to-maturity,
available-for-sale, or trading.
The effect of implementing SFAS No. 115 as of January 1, 1994 was an
increase in the carrying value of fixed maturity investments of $335.3 million,
a decrease in deferred policy acquisition costs of $20.8 million, an increase in
policyholder liabilities of $18.4 million, a net increase in deferred income tax
liabilities of $103.7 million, an increase in minority interest of $45.4
million, and an increase in shareholders' equity of $147.0 million, which
resulted from changing the carrying value of certain fixed maturities from
amortized cost to fair value and related adjustments. The implementation had no
effect on net income.
In November 1995, the Financial Accounting Standards Board issued a Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which permitted companies to
reclassify securities, where appropriate, based on the new guidance. As a
result, the Company transferred securities with amortized cost and fair value of
$696.4 million and $725.6 million, respectively, from the held-to-maturity
category to the available-for-sale category, which resulted in a net increase in
shareholders' equity of $12.8 million.
The amortized cost and fair value of available-for-sale and
held-to-maturity fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency securities $ 377.0 $ 21.0 $ -- $ 398.0
States and political subdivisions 2,110.6 60.7 4.0 2,167.3
Foreign governments 60.6 3.4 0.6 63.4
Corporate fixed maturities 4,582.1 200.8 16.4 4,766.5
U.S. government mortgage-backed securities 337.6 8.6 2.1 344.1
Total fixed maturities available-for-sale $ 7,467.9 $ 294.5 $ 23.1 $ 7,739.3
---------------------------------------------------------
Equity securities $ 410.6 $ 111.7 $ 5.1 $ 517.2
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1994
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency securities $ 280.2 $ 4.8 $ 9.1 $ 275.9
States and political subdivisions 2,011.3 14.9 76.2 1,950.0
Foreign governments 96.8 1.8 12.8 85.8
Corporate fixed maturities 4,201.4 24.7 157.4 4,068.7
U.S. government mortgage-backed securities 134.9 0.4 3.7 131.6
----------------------------------------------------------
Total fixed maturities available-for-sale $ 6,724.6 $ 46.6 $ 259.2 $ 6,512.0
----------------------------------------------------------
----------------------------------------------------------
Equity securities $ 260.4 $ 35.3 $ 9.3 $ 286.4
----------------------------------------------------------
----------------------------------------------------------
HELD-TO-MATURITY
State and political subdivisions $ 8.1 $ 0.1 $ 0.8 7.4
Foreign governments 20.7 0.2 0.2 20.7
Corporate fixed maturities 927.3 13.7 22.5 918.5
Corporate mortgage-backed securities 3.2 0.1 -- 3.3
----------------------------------------------------------
Total fixed maturities held-to-maturity $ 959.3 $ 14.1 $ 23.5 $ 949.9
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In March 1994, AFLIAC voluntarily withdrew its license in New York in order
to provide for certain commission arrangements prohibited by New York comparable
to AFLIAC's competitors. In connection with the withdrawal, FAFLIC, which is
licensed in New York, became qualified to sell the products previously sold by
AFLIAC in New York. AFLIAC agreed with the New York Department of Insurance to
maintain, through a custodial account in New York, a security deposit, the
market value of which will at all times equal 102% of all outstanding general
account liabilities of AFLIAC for New York policyholders, claimants and
creditors. At December 31, 1995, the amortized cost and market value of assets
on deposit were $295.0 million and $303.6 million, respectively. At December 31,
1994, the amortized cost and market value of assets on deposit were $327.9
million and $323.5 million, respectively. In addition, fixed maturities,
excluding those securities on deposit in New York, with an amortized cost of
$82.2 million and $67.0 million were on deposit with various state and
governmental authorities at December 31, 1995 and 1994, respectively.
There were approximately $21.8 million of contractual fixed maturity
investment commitments at December 31, 1994 and none at December 31, 1995.
The amortized cost and fair value by maturity periods for fixed maturities
are shown below. Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties, or the Company may have the right to put
or sell the obligations back to the issuers. Mortgage backed securities are
included in the category representing their ultimate maturity.
10
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Available-for-Sale
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 970.8 $ 975.6
Due after one year through five years 3,507.9 3,657.1
Due after five years through ten years 1,794.0 1,866.0
Due after ten years 1,195.2 1,240.6
-----------------------------
Total $ 7,467.9 $ 7,739.3
-----------------------------
-----------------------------
</TABLE>
The proceeds from sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Proceeds from Sales
of Available-for-Sale Gross Gross
1995 Securities Gains Losses
<S> <C> <C> <C>
Fixed maturities $ 1,612.3 $ 23.7 $ 33.0
---------------------------------------
Equity securities $ 122.2 $ 23.1 $ 6.9
---------------------------------------
1994
Fixed maturities $ 1,026.2 $ 12.6 $ 21.6
---------------------------------------
Equity securities $ 124.3 $ 17.4 $ 4.5
---------------------------------------
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
Equity
Fixed Securities
Maturities and Other (1) Total
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Net appreciation (depreciation),
beginning of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
Effect of transfer of securities
between classifications:
Net appreciation on available-
for-sale fixed maturities 29.2 -- 29.2
Effect of transfer on deferred
policy acquisition costs and
on policy liabilities (6.8) -- (6.8)
Provision for deferred federal
income taxes and minority
interest (9.6) -- (9.6)
---------------------------------------
12.8 -- 12.8
---------------------------------------
Net appreciation on available-
for-sale securities 465.4 87.5 552.9
Net depreciation from the effect
on deferred policy acquisition
costs and on policy liabilities (86.9) (86.9)
Provision for deferred federal
income taxes and minority interest (193.2) (53.6) (246.8)
---------------------------------------
185.3 33.9 219.2
---------------------------------------
Net appreciation, end of year $ 108.7 $ 44.3 $ 153.0
---------------------------------------
---------------------------------------
1994
Net appreciation, beginning of year $ -- $ 17.5 $ 17.5
---------------------------------------
Cumulative effect of accounting
change:
Net appreciation on available-
for-sale fixed maturities 335.3 -- 335.3
Net depreciation from the effect
of accounting change on
deferred policy acquisition
costs and on policy liabilities (39.2) -- (39.2)
Provision for deferred federal
income taxes and minority
interest (149.1) -- (149.1)
---------------------------------------
147.0 17.5 164.5
---------------------------------------
Net depreciation on available-
for-sale securities (547.9) (17.4) (565.3)
Net appreciation from the effect
on deferred policy acquisition
costs and on policy liabilities 73.2 -- 73.2
Benefit for deferred federal income
taxes and minority interest 238.3 10.3 248.6
---------------------------------------
Net appreciation (depreciation),
end of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
---------------------------------------
</TABLE>
(1) Includes net appreciation on other investments of $6.9 million and $0.6
million in 1995 and 1994, respectively.
11
<PAGE>
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 799.5 $ 1,106.7
-----------------------
Real estate:
Held for sale 168.9 134.5
Held for production of income 10.7 45.8
-----------------------
Total real estate 179.6 180.3
-----------------------
Total mortgage loans and real estate $ 979.1 $ 1,287.0
-----------------------
-----------------------
</TABLE>
Reserves for mortgage loans were $33.8 million and $47.2 million as of
December 31, 1995 and 1994, respectively.
During 1995, 1994 and 1993, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which had a fair value of
$26.1 million, $39.2 million and $26.7 million, respectively.
At December 31, 1995, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $8.2 million in
the Closed Block. These commitments generally expire within one year. There
are no contractual commitments to extend credit under commercial mortgage
loan agreements outside the Closed Block.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Office building $ 435.9 $ 553.6
Residential 145.3 207.3
Retail 205.6 246.5
Industrial / warehouse 93.8 144.1
Other 151.9 205.6
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
Geographic region:
South Atlantic $ 281.4 $ 374.2
Pacific 191.9 238.7
East North Central 118.2 138.5
Middle Atlantic 148.9 151.2
West South Central 79.7 102.3
New England 94.9 103.1
Other 117.5 249.1
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
</TABLE>
At December 31, 1995, scheduled mortgage loan maturities were as follows:
1996 - $206.1 million; 1997 - $143.7 million; 1998 - $167.4 million; 1999 -
$109.9 million; 2000 - $124.2 million; and $48.2 million thereafter. Actual
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties and loans
may be refinanced. During 1995, the Company refinanced $24.0 million of mortgage
loans based on terms which differed from those granted to new borrowers.
12
<PAGE>
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
1995 Balance at Balance at
January 1 Additions Deductions December 31
<S> <C> <C> <C> <C>
Mortgage loans $ 47.2 $ 1.5 $ 14.9 $ 33.8
Real estate 22.9 (0.6) 2.7 19.6
-----------------------------------------------------
Total $ 70.1 $ 0.9 $ 17.6 $ 53.4
-----------------------------------------------------
-----------------------------------------------------
1994
Mortgage loans $ 73.8 $ 14.6 $ 41.2 $ 47.2
Real estate 21.0 3.2 1.3 22.9
-----------------------------------------------------
Total $ 94.8 $ 17.8 $ 42.5 $ 70.1
-----------------------------------------------------
-----------------------------------------------------
1993
Mortgage loans $ 86.7 $ 4.6 $ 17.5 $ 73.8
Real estate 8.3 12.7 -- 21.0
-----------------------------------------------------
Total $ 95.0 $ 17.3 $ 17.5 $ 94.8
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
D. FUTURES CONTRACTS
FAFLIC purchases and sells futures contracts on margin to hedge against interest
rate fluctuations and their effect on the net cash flows from the sales of
guaranteed investment contracts. The notional amount of such futures contracts
outstanding were $74.7 million and $126.6 million at December 31, 1995 and 1994,
respectively. Because the Company purchases and sells futures contracts through
brokers who assume the risk of loss, the Company's exposure to credit risk under
futures contracts is limited to the margin deposited with the broker. The
maturity of all futures contracts outstanding are less than one year. The fair
value of futures contracts outstanding were $75.7 million and $126.5 million at
December 31, 1995 and 1994, respectively.
Gains and losses on hedge contracts related to interest rate fluctuations
are deferred and recognized in income over the period being hedged corresponding
to related guaranteed investment contracts. Deferred hedging gains and (losses)
were $5.6 million, $(7.7) million, and $6.9 million in 1995, 1994 and 1993,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
management are realized immediately.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding,
beginning of year $ 126.6 $ 141.7 $ 120.0
New contracts 343.5 816.0 493.3
Contracts terminated (395.4) (831.1) $ (471.6)
---------------------------------------
Contracts outstanding, end of year $ 74.7 $ 126.6 $ 141.7
---------------------------------------
---------------------------------------
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts to hedge exposure to
currency risk on foreign fixed maturity investments. Interest and principal
related to foreign fixed maturity investments payable in foreign currencies, at
current exchange rates, are exchanged for the equivalent payment translated at a
specific currency exchange rate. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed
13
<PAGE>
upon in the swap contract, and the foreign currency spot rate on the date of the
exchange. The fair values of the foreign currency swap contracts outstanding
were $104.2 million and $117.5 million at December 31, 1995 and 1994,
respectively.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1995, 1994, and 1993. The Company had no deferred
gains or losses on foreign currency swap contracts.
A reconciliation of the notional amount of swap contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding, beginning
of year $ 118.7 $ 128.8 $ 95.0
New Contracts -- 5.0 50.8
Contracts expired -- (10.1) (17.0)
Contracts terminated (14.1) (5.0) --
---------------------------------------
Contracts outstanding, end
of year $ 104.6 $ 118.7 $ 128.8
---------------------------------------
---------------------------------------
</TABLE>
Expected maturities of foreign currency swap contracts are $36.0 million in
1996, $28.8 million in 1997, and $39.8 million in 1998 and thereafter.
F. OTHER
At December 31, 1995, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholders' equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 554.0 $ 578.3 $ 601.5
Mortgage loans 97.0 119.9 155.7
Equity securities 16.8 12.1 7.1
Policy loans 20.3 23.3 23.5
Real estate 48.5 44.6 43.4
Other long-term investments 4.4 4.3 2.1
Short-term investments 21.4 9.5 7.4
---------------------------------------
Gross investment income 762.4 792.0 840.7
Less investment expenses (52.3) (48.9) (57.9)
---------------------------------------
Net investment income $ 710.1 $ 743.1 $ 782.8
---------------------------------------
---------------------------------------
</TABLE>
As of December 31, 1995, fixed maturities and mortgage loans on non-accrual
status were $1.4 million and $85.4 million, including restructured loans of
$46.8 million. The effect of non-accruals, compared with amounts that would have
been recognized in accordance with the original terms of the investments, was to
reduce net income by $0.6 million, $5.1 million and $14.0 million in 1995, 1994
and 1993, respectively.
The payment terms of mortgage loans may from time to time be restructured
or modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $98.9 million , $126.8 million and $167.0 million at
December 31, 1995, 1994 and 1993, respectively. Interest income on restructured
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $11.1 million, $14.4 million and $18.1 million
in 1995, 1994 and 1993, respectively. Actual interest income on these loans
included in net investment income aggregated $7.1 million, $8.2 million and
$10.6 million in 1995, 1994 and 1993, respectively.
At December 31, 1995, fixed maturities with a carrying value of $1.4
million were non-income producing for the twelve months ended December 31, 1995.
There were no mortgage loans which were non-income producing for the twelve
months ended December 31, 1995.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ (7.0) $ 2.4 $ 48.8
Mortgage loans 1.4 (12.1) (0.5)
Equity securities 16.2 12.4 29.8
Real estate 5.3 1.4 (14.5)
Other 3.2 (3.0) (2.6)
--------------------------------------
Net realized investment gains $ 19.1 $ 1.1 $ 61.0
--------------------------------------
--------------------------------------
</TABLE>
Proceeds from voluntary sales of investments in fixed maturities were
$1,612.3 million, $1,036.5 million and $817.5 million in 1995, 1994 and 1993,
respectively. Realized gains on such sales were $23.7 million, $12.9 million and
$38.8 million; and realized losses were $33.0 million, $21.6 million and $2.6
million for 1995, 1994 and 1993, respectively.
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates
14
<PAGE>
which, in many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow analyses
which utilize current interest rates for similar financial instruments which
have comparable terms and credit quality. Fair values of interest rate futures
were not material at December 31, 1995 and 1994.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
REINSURANCE RECEIVABLES
The carrying amount reported in the consolidated balance sheets approximates
fair value.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 236.6 $ 236.6 $ 539.7 $ 539.7
Fixed maturities 7,739.3 7,739.3 7,471.3 7,461.9
Equity securities 517.2 517.2 286.4 286.4
Mortgage loans 799.5 845.4 1,106.7 1,105.8
Policy loans 123.2 123.2 364.9 364.9
------------------------------------------------------------
$ 9,415.8 $ 9,461.7 $ 9,769.0 $ 9,758.7
------------------------------------------------------------
------------------------------------------------------------
FINANCIAL LIABILITIES
Guaranteed investment contracts $ 1,632.8 $ 1,677.0 $ 2,170.6 $ 2,134.0
Supplemental contracts without life contingencies 24.4 24.4 25.3 25.3
Dividend accumulations 86.2 86.2 84.5 84.5
Other individual contract deposit funds 95.7 92.8 111.3 108.0
Other group contract deposit funds 894.0 902.8 980.3 969.6
Individual annuity contracts 966.3 810.0 988.9 870.6
Short-term debt 28.0 28.0 32.8 32.8
Long-term debt 2.8 2.9 2.7 2.7
------------------------------------------------------------
$ 3,730.2 $ 3,624.1 $ 4,396.4 $ 4,227.5
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
15
<PAGE>
6. CLOSED BLOCK
Included in other income in the Consolidated Statement of Income in 1995 is a
net pre-tax contribution from the Closed Block of $2.9 million. Summarized
financial information of the Closed Block as of September 30, 1995 (date used to
estimate financial information for the date of establishment of October 16,
1995) and December 31, 1995 and for the period October 1, 1995 through December
31, 1995 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
December 31 September 30
<S> <C> <C>
Assets
Fixed maturities, at fair value
(amortized cost of $447.4 and
$313.3, respectively) $ 458.0 $ 318.4
Mortgage loans 57.1 61.6
Policy loans 242.4 245.3
Cash and cash equivalents 17.6 12.3
Accrued investment income 16.6 15.3
Deferred policy acquisition costs 24.5 24.8
Other assets 2.7 6.4
-----------------------
Total assets $ 818.9 $ 684.1
-----------------------
-----------------------
Liabilities
Policy liabilities and accruals $ 899.2 $ 894.3
Other liabilities 2.8 4.2
-----------------------
Total liabilities $ 902.0 $ 898.5
-----------------------
-----------------------
</TABLE>
<TABLE>
<CAPTION>
Period from October 1 through December 31
(In millions) 1995
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C>
Revenues
Premiums $ 11.5
Net investment income 12.8
---------
Total revenues 24.3
---------
Benefits and expenses
Policy benefits 20.6
Policy acquisition expenses 0.8
---------
Total benefits and expenses 21.4
---------
Contribution from the Closed Block $ 2.9
---------
---------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block $ 2.9
Initial cash transferred to the Closed Block 139.7
Change in deferred policy acquisition costs, net 0.4
Change in premiums and other receivables (0.1)
Change in policy liabilities and accruals 2.0
Change in accrued investment income (1.3)
Other, net 0.8
---------
Net cash provided by operating activities 144.4
---------
---------
Cash flows from investing activities:
Sales, maturities and repayments of investments 29.0
Purchases of investments (158.8)
Other, net 3.0
---------
Net cash used by investing activities (126.8)
---------
Change in cash and cash equivalents and ending balance $ 17.6
---------
---------
</TABLE>
On October 16, 1995, there were no valuation allowances transferred to the
Closed Block on mortgage loans. There are no valuation allowances on mortgage
loans at December 31, 1995.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
16
<PAGE>
7. DEBT
Short- and long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term
Commercial paper $ 27.7 $ 32.8
Other 0.3 --
-----------------------
Total short-term debt $ 28.0 $ 32.8
-----------------------
-----------------------
Long-term debt $ 2.8 $ 2.7
-----------------------
-----------------------
</TABLE>
FAFLIC issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. As of December 31, 1995,
the weighted average interest rate for outstanding commercial paper was 5.8%.
As of December 31, 1995, FAFLIC had approximately $245.0 million in
committed lines of credit provided by U.S. banks, of which $217.3 million was
available for borrowing. These lines of credit generally have terms of less than
one year, and require the Company to pay annual commitment fees ranging from
0.10% to 0.125% of the available credit. Interest that would be charged for
usage of these lines of credit is based upon negotiated arrangements.
Interest expense was $4.1 million, $4.3 million and $1.6 million in 1995,
1994 and 1993, respectively.
In October, 1995, AFC issued $200.0 million face amount of Senior
Debentures for proceeds of $197.2 million net of discounts and issuance costs.
These securities have an effective interest rate of 7.65%, and mature on October
16, 2025. Interest is payable semiannually on October 15 and April 15 of each
year. The Senior Debentures are subject to certain restrictive covenants,
including limitations on issuance of or disposition of stock of restricted
subsidiaries and limitations on liens. AFC is in compliance with all covenants.
The primary source of cash for repayment of the debt by AFC is dividends from
FAFLIC.
8. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the consolidated statements of income is shown below:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current $ 119.7 $ 45.4 $ 95.1
Deferred (37.0) 8.0 (20.4)
---------------------------------------
Total $ 82.7 $ 53.4 $ 74.7
---------------------------------------
---------------------------------------
</TABLE>
The federal income taxes attributable to the consolidated results of
operations are different from the amounts determined by multiplying income
before federal income taxes by the expected federal income tax rate. The sources
of the difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax
expense $ 105.6 $ 53.7 $ 138.2
Tax-exempt interest (32.2) (35.9) (32.8)
Differential earnings amount (7.6) 35.0 (10.9)
Non-taxable gain -- -- (22.0)
Dividend received deduction (4.0) (2.5) (1.3)
Foreign tax credit (0.7) (0.8) (0.9)
Changes in tax reserve estimates 19.3 4.0 3.5
Other, net 2.3 (0.1) 0.9
---------------------------------------
Federal income tax expense $ 82.7 $ 53.4 $ 74.7
---------------------------------------
---------------------------------------
</TABLE>
Until conversion to a stock life insurance company, FAFLIC, as a mutual
company, reduced its deduction for policyholder dividends by the differential
earnings amount. This amount was computed, for each tax year, by multiplying the
average equity base of the FAFLIC/AFLIAC consolidated group, as determined for
tax purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). For its
1995 federal income tax return, FAFLIC has estimated that there will be no tax
effect from a differential earnings amount, including the expected effect of
future recomputations by the IRS. As a stock life company, FAFLIC is no longer
required to reduce its policyholder dividend deduction by the differential
earnings amount.
17
<PAGE>
The deferred income tax asset represents the tax effects of temporary
differences attributable to Allmerica P&C, a separate consolidated group for
federal tax return purposes. Its components were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards $ (9.8) $ (11.9)
Loss reserve discounting (178.3) (187.6)
Deferred acquisition costs 55.1 54.2
Employee benefit plans (25.5) (22.0)
Investments, net 77.4 (22.7)
Fixed assets 2.5 4.5
Bad debt reserve (1.8) (1.8)
Other, net (0.8) (1.8)
------------------------
Deferred tax asset, net $ (81.2) $ (189.1)
------------------------
------------------------
</TABLE>
The deferred income tax liability represents the tax effects of temporary
differences attributable to the FAFLIC/AFLIAC consolidated federal tax return
group. Its components were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets) liabilities
NOL carryforwards $ -- $ (3.3)
AMT carryforwards -- (1.5)
Loss reserve discounting (129.1) (118.2)
Deferred acquisition costs 169.7 199.0
Differential earnings amount -- 27.7
Employee benefit plans (14.6) (15.4)
Investments, net 67.0 (30.9)
Fixed assets (1.7) (0.9)
Bad debt reserve (26.3) (27.9)
Other, net (17.2) (14.8)
------------------------
Deferred tax liability, net $ 47.8 $ 13.8
------------------------
------------------------
</TABLE>
Gross deferred income tax assets totaled $405.1 million and $460.7 million
at December 31, 1995 and 1994, respectively. Gross deferred income tax
liabilities totaled $371.1 million and $285.4 million at December 31, 1995 and
1994, respectively.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1995, there are no available non-life
net operating loss carryforwards, and there are available alternative minimum
tax credit carryforwards of $9.8 million.
The Company's federal income tax returns are routinely audited by the IRS,
and provisions are routinely made in the financial statements in anticipation of
the results of these audits. The IRS has examined the FAFLIC/AFLIAC consolidated
group's federal income tax returns through 1988. The IRS has also examined the
Allmerica P&C consolidated group's federal income tax returns through 1988.
Deficiencies asserted with respect to tax years 1977 through 1981 have been paid
and recorded, and the Company has filed a recomputation of such years with
appeals claiming a refund with respect to certain agreed upon issues. The
Company is currently considering its response to certain adjustments proposed by
the IRS with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and
1983, and to possible adjustments under consideration by the IRS with respect to
Allmerica P&C's federal income tax returns for 1989, 1990, and 1991. If upheld,
these adjustments would result in additional payments; however, the Company will
vigorously defend its position with respect to these adjustments. In
management's opinion, adequate tax liabilities have been established for all
years. However, the amount of these tax liabilities could be revised in the near
term if estimates of the Company's ultimate liability are revised.
9. PENSION PLANS
FAFLIC provides retirement benefits to substantially all of its employees under
three separate defined benefit pension plans. Through December 31, 1994,
retirement benefits were based primarily on employees' years of service and
compensation during the highest five consecutive plan years of employment.
Benefits under this defined benefit formula were frozen for most employees (but
not for eligible agents) effective December 31, 1994. In their place, the
Company adopted a defined benefit cash balance formula, under which the Company
annually provides an allocation to each eligible employee as a percentage of
that employee's salary, similar to a defined contribution plan arrangement. The
1995 allocation was based on 7.0% of each eligible employee's salary.
Continuation of the defined benefit cash balance formula is subject to the
resolution of certain technical issues, and may be subject to receipt of a
favorable determination letter from the IRS that the Company's pension plans, as
amended to reflect the cash balance formula, will continue to satisfy the
requirements of Section 401(a) of the Internal Revenue Code. The Company's
policy for the plans is to fund at least the minimum amount required by the
Employee Retirement Income Security Act of 1974.
18
<PAGE>
Components of net pension expense were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 19.7 $ 13.0 $ 9.8
Interest accrued on projected
benefit obligations 21.1 20.0 16.9
Actual return on assets (89.3) (2.6) (15.1)
Net amortization and deferral 66.1 (16.3) (5.8)
--------------------------------------
Net pension expense $ 17.6 $ 14.1 $ 5.8
--------------------------------------
--------------------------------------
</TABLE>
The following table summarizes the combined status of the three pension
plans. At December 31, 1995 and 1994, each plan's projected benefit obligation
exceeded its assets.
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 325.6 $ 221.7
Unvested benefit obligation 5.0 3.5
-----------------------
Accumulated benefit obligation $ 330.6 $ 225.2
-----------------------
-----------------------
Pension liability included in
Consolidated Balance Sheets:
Projected benefit obligation $ 367.1 $ 254.6
Plan assets at fair value 321.2 239.7
-----------------------
Plan assets less than projected
benefit obligation (45.9) (14.9)
Unrecognized net loss from
past experience 48.8 42.3
Unrecognized prior service benefit (13.8) (17.3)
Unamortized transition asset (26.5) (28.3)
-----------------------
Net pension liability $ (37.4) $ (18.2)
-----------------------
-----------------------
</TABLE>
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.0% in 1995 and 8.5% in 1994, and the assumed
long-term rate of return on plan assets was 9%. The actuarial present value of
the projected benefit obligations was determined using assumed rates of increase
in future compensation levels ranging from 5.5% to 6.5%. The effect of changes
in actuarial assumptions, including the decrease in the weighted average
discount rate, was an increase in the Company's projected benefit obligation of
$76.7 million at December 31, 1995. Plan assets are invested primarily in
various separate accounts and the general account of FAFLIC. The plans also hold
stock of AFC.
The Company has a profit sharing and 401(k) plan for its employees.
Effective for plan years beginning after 1994, the profit sharing formula for
employees has been discontinued and a 401(k) match feature has been added to the
continuing 401(k) plan for the employees. Total plan expense in 1995, 1994 and
1993 was $5.2 million, $12.6 million and $22.6 million, respectively. In
addition to this Plan, the Company has a defined contribution plan for
substantially all of its agents. The Plan expense in 1995, 1994 and 1993 was
$3.5 million, $2.7 million and $2.4 million, respectively.
10. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC, Hanover and Citizens.
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits. Effective January 1,
1996, the Company revised these benefits so as to establish limits on future
benefit payments and to restrict eligibility to current employees. The medical
plans have varying copayments and deductibles, depending on the plan. These
plans are unfunded.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
SFAS No. 106 requires employers to recognize the costs and obligations of
postretirement benefits other than pensions over the period ending with the date
an employee is fully eligible to receive benefits. Previously, such costs were
generally recognized as expenses when paid. The adoption increased accrued
liabilities by $69.1 million. The effect on the consolidated income statement
was $35.4 million, net of tax of $23.5 million and minority interest of $10.2
million, reported as a cumulative effect of a change in accounting principle.
The ongoing effect of adopting the new standard increased 1993 net periodic
postretirement benefit expense by $6.6 million, and decreased net income by $4.3
million.
19
<PAGE>
The plans' funded status reconciled with amounts recognized in the
Company's consolidated balance sheet were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 44.9 $ 35.2
Fully eligible active plan participants 14.0 15.2
Other active plan participants 45.9 38.5
-----------------------
104.8 88.9
Plan assets at fair value -- --
-----------------------
Accumulated postretirement benefit
obligation in excess of plan assets 104.8 88.9
Unrecognized loss 13.4 4.7
-----------------------
Accrued postretirement benefit costs $ 91.4 $ 84.2
-----------------------
-----------------------
</TABLE>
The components of net periodic postretirement benefit expense were as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <S> <C> <C>
Service cost $ 4.2 $ 6.6 $ 3.8
Interest cost 6.9 6.9 5.7
Amortization of (gain) loss (0.5) 1.4 --
-------------------------------------
Net periodic postretirement
benefit expense $ 10.6 $ 14.9 $ 9.5
-------------------------------------
-------------------------------------
</TABLE>
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1995, health care costs were assumed to increase 10% in 1996,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1995
by $10.1 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1995 by $1.2 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at January 1, 1993 was 8.5%. The rate was 7.0%
and 8.5% at December 31, 1995 and 1994, respectively. The effect of changes in
actuarial assumptions, including the decrease in the weighted average discount
rate, was an increase in the Company's accumulated postretirement benefit
obligation of $15.1 million at December 31, 1995.
11. POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, (SFAS No. 112), "Employers' Accounting
for Postemployment Benefits", which requires employers to recognize the costs
and obligations of severance, disability and related life insurance and health
care benefits to be paid to inactive or former employees after employment but
before retirement. Prior to adoption, the Company had recognized the cost of
these benefits on an accrual or paid basis, depending on the plan.
Implementation of SFAS No. 112 resulted in a transition obligation of $1.9
million, net of federal income taxes and minority interest, and is reported as a
cumulative effect of a change in accounting principle in the consolidated
statement of income. The impact of this accounting change, after recognition of
the cumulative effect, was not significant.
12. DIVIDEND RESTRICTIONS
Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.
Massachusetts' statute limits the dividends an insurer may pay in any
twelve month period, without the prior permission of the Commonwealth of
Massachusetts Insurance Commissioner, to the greater of (i) 10% of its statutory
policyholder surplus as of the preceding December 31 or (ii) the individual
company's statutory net gain from operations for the preceding calendar year (if
such insurer is a life company), or its net income for the preceding calendar
year (if such insurer is not a life company). In addition, under Massachusetts
law, no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. At January 1, 1996, FAFLIC could pay
dividends of $144.9 million to AFC without prior approval of the Commissioner.
Dividends from FAFLIC to AFC will be the primary source of cash for
repayment of the debt by AFC and payment of dividends to AFC stockholders.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of
20
<PAGE>
Insurance, is limited to the greater of (i) 10% of its policyholders' surplus as
of the preceding December 31 or (ii) the individual company's statutory net gain
from operations for the preceding calendar year (if such insurer is a life
company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any dividends
to be paid by an insurer, whether or not in excess of the aforementioned
threshold, from a source other than statutory earned surplus would also require
the prior approval of the Delaware Commissioner of Insurance. At January 1,
1996, AFLIAC could pay dividends of $4.3 million to FAFLIC without prior
approval.
Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
At January 1, 1996, the maximum dividend and other distributions that could be
paid to Allmerica P&C by Hanover, without prior approval of the Insurance
Commissioner, was approximately $72.8 million.
Pursuant to Michigan's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without prior
approval of the Michigan Insurance Commissioner, is limited to the greater of
10% of policyholders' surplus as of December 31 of the immediately preceding
year or the statutory net income less realized gains, for the immediately
preceding calendar year. At January 1, 1996, Citizens Insurance could pay
dividends of $45.6 million to Citizens Corporation without prior approval.
13. SEGMENT INFORMATION
The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Management. Within these broad areas, the
Company conducts business principally in five operating segments.
The Risk Management group includes two segments: Regional Property and
Casualty and Corporate Risk Management Services. The Regional Property and
Casualty segment includes property and casualty insurance products, such as
automobile insurance, homeowners insurance, commercial multiple-peril insurance,
and workers' compensation insurance. These products are offered by Allmerica P&C
through its operating subsidiaries, Hanover and Citizens. Substantially all of
the Regional Property and Casualty segment's earnings are generated in Michigan
and the Northeast (Connecticut, Massachusetts, New York, New Jersey, New
Hampshire, Rhode Island, Vermont and Maine). The Corporate Risk Management
Services segment, formerly known as the Employee Benefit Services segment,
includes group life and health insurance products and services which assist
employers in administering employee benefit programs and in managing the related
risks.
The Retirement and Asset Management group includes three segments: Retail
Financial Services, Institutional Services and Allmerica Asset Management. The
Retail Financial Services segment, formerly known as the Individual Financial
Services segment, includes variable annuities, variable universal life-type,
traditional and health insurance products distributed via retail channels to
individuals across the country. The Institutional Services segment includes
primarily group retirement products such as 401(k) plans, tax-sheltered
annuities and GIC contracts which are distributed to institutions across the
country via work-site marketing and other arrangements. Allmerica Asset
Management, formerly included in the results of the Institutional Services
segment, is a Registered Investment Advisor which provides investment advisory
services to other institutions, such as insurance companies and pension plans.
21
<PAGE>
Summarized below is financial information with respect to business segments
for the year ended and as of December 31.
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Risk Management
Regional Property and Casualty $ 2,095.1 $ 2,004.8 $ 2,051.1
Corporate Risk Management 328.5 302.4 296.0
-----------------------------------------
Subtotal 2,423.6 2,307.2 2,347.1
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 486.7 507.9 524.0
Institutional Services 344.1 397.9 382.0
Allmerica Asset Management 4.4 4.0 -
-----------------------------------------
Subtotal 835.2 909.8 906.0
Eliminations (20.3) (21.9) (13.9)
-----------------------------------------
Total $ 3,238.5 $ 3,195.1 $ 3,239.2
-----------------------------------------
-----------------------------------------
Income (loss) from continuing
operations before income taxes:
Risk Management
Regional Property and Casualty $ 206.3 $ 113.1 $ 331.3
Corporate Risk Management 18.3 19.9 18.1
-----------------------------------------
Subtotal 224.6 133.0 349.4
-----------------------------------------
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 35.2 14.2 61.6
Institutional Services 42.8 4.4 (16.1)
Allmerica Asset Management 2.3 1.9 --
-----------------------------------------
Subtotal 80.3 20.5 45.5
-----------------------------------------
Total $ 304.9 $ 153.5 $ 394.9
-----------------------------------------
-----------------------------------------
Identifiable assets:
Risk Management
Regional Property and Casualty $ 5,741.8 $ 5,408.7 $ 5,198.1
Corporate Risk Management 458.9 386.3 367.6
-----------------------------------------
Subtotal 6,200.7 5,795.0 5,565.7
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 7,218.7 5,639.8 5,104.5
Institutional Services 4,280.9 4,484.5 4,708.2
Allmerica Asset Management 2.1 2.2 --
-----------------------------------------
Subtotal 11,501.7 10,126.5 9,812.7
-----------------------------------------
Total $ 17,702.4 $ 15,921.5 $ 15,378.4
-----------------------------------------
-----------------------------------------
</TABLE>
14. LEASE COMMITMENTS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $36.4 million, $35.2 million and $31.9 million in 1995, 1994 and
1993, respectively. At December 31, 1995, future minimum rental payments under
non-cancelable operating leases were approximately $84.6 million, payable as
follows: 1996 - $29.4 million; 1997 - $21.5 million; 1998 - $14.6 million; 1999
- - $8.7 million; 2000 - $5.5 million; and $4.9 million thereafter.
15. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy. Reinsurance
contracts do not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses to the
Company; consequently, allowances are established for amounts deemed
uncollectible. The Company determines the appropriate amount of reinsurance
based on evaluation of the risks accepted and analyses prepared by consultants
and reinsurers and on market conditions (including the availability and pricing
of reinsurance). The Company also believes that the terms of its reinsurance
contracts are consistent with industry practice in that they contain standard
terms with respect to lines of business covered, limit and retention,
arbitration and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company believes
that its reinsurers are financially sound.
The Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers. These market mechanisms and pooling arrangements include the
Massachusetts Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers'
Compensation Residual
22
<PAGE>
Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association ("MCCA").
As of December 31, 1995, the MCCA and CAR were the only two reinsurers which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1995, 1994 and 1993 were
$49.1 million and $37.9 million, $50.0 million and $34.6 million, and $45.0
million and $31.7 million, respectively.
From 1988 through 1992, the Company was a servicing carrier in Maine, and
ceded a significant portion of its workers' compensation premiums to the Maine
Workers' Compensation Residual Market Pool, which is administered by The
National Council on Compensation Insurance ("NCCI"). The Company is currently
involved in legal proceedings regarding the MWCRP's deficit which through a
legislated settlement issued on June 23, 1995 provided for an initial funding of
$220.0 million, of which the insurance carriers were responsible for $65.0
million. Hanover paid its allocation of $4.2 million in December 1995. Some of
the small carriers are currently appealing this decision. The Company's right to
recover reinsurance balances for claims properly paid is not at issue in any
such proceedings. The Company expects to collect its reinsurance balance;
however, funding of the cash flow needs of the MWCRP may in the future be
affected by issues related to certain litigation, the outcome of which the
Company cannot predict. The Company ceded to MCCA net premiums earned and losses
and loss adjustment expenses in 1995, 1994 and 1993 of $66.8 million and $62.9
million, $80.0 million and $24.2 million, and $76.4 million and $126.8 million,
respectively. Because the MCCA is supported by assessments permitted by statute,
and all amounts billed by the Company to CAR, MWCRP and MCCA have been paid when
due, the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life insurance premiums:
Direct $ 438.9 $ 447.2 $ 453.0
Assumed 71.0 54.3 31.3
Ceded (150.3) (111.0) (83.2)
----------------------------------------
Net premiums $ 359.6 $ 390.5 $ 401.1
----------------------------------------
----------------------------------------
Property and casualty
premiums written:
Direct $ 2,039.4 $ 1,992.4 $ 1,906.2
Assumed 125.0 128.6 106.3
Ceded (279.1) (298.1) (267.4)
----------------------------------------
Net premiums $ 1,885.3 $ 1,822.9 $ 1,745.1
----------------------------------------
----------------------------------------
Property and casualty
premiums earned:
Direct $ 2,021.7 $ 1,967.1 $ 1,870.1
Assumed 137.7 116.1 114.8
Ceded (296.2) (291.9) (306.7)
----------------------------------------
Net premiums $ 1,863.2 $ 1,791.3 $ 1,678.2
----------------------------------------
----------------------------------------
Life insurance and other individual
policy benefits, claims, losses and
loss adjustment expenses:
Direct $ 749.6 $ 773.0 $ 819.4
Assumed 38.5 28.9 6.8
Ceded (69.5) (61.6) (38.4)
----------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 718.6 $ 740.3 $ 787.8
----------------------------------------
----------------------------------------
Property and casualty benefits,
claims, losses and loss
adjustment expenses:
Direct $ 1,372.7 $ 1,364.4 $ 1,310.3
Assumed 146.1 102.7 98.8
Ceded (229.1) (160.4) (209.7)
----------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 1,289.7 $ 1,306.7 $ 1,199.4
----------------------------------------
----------------------------------------
</TABLE>
23
<PAGE>
16. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the amount of policy acquisition expenses deferred and
amortized:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 802.8 $ 746.9 $ 700.4
Acquisition expenses deferred 504.8 510.3 482.3
Amortized to expense
during the year (470.3) (475.7) (435.8)
Adjustment to equity
during the year (50.4) 21.3 --
Transferred to the Closed Block (24.8) -- --
Adjustment for cession of
term life insurance (26.4) -- --
---------------------------------------
Balance at end of year $ 735.7 $ 802.8 $ 746.9
---------------------------------------
---------------------------------------
</TABLE>
17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates at liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are reflected in results of operations in the year such
changes are determined to be needed and recorded.
The liability for outstanding claims, losses and loss adjustment expenses
related to the Company's accident and health business was $375.9 million, $305.0
million and $276.3 million at December 31, 1995, 1994 and 1993, respectively.
Accident and health claim liabilities have been re-estimated for all prior years
and were increased by $26.4 million, $6.5 million and $12.7 million in 1995,
1994 and 1993, respectively. Unfavorable development in the accident and health
business during 1995 is primarily due to reserve strengthening and adverse
experience in the Company's individual disability line of business.
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for losses and LAE,
beginning of year $ 2,821.7 $ 2,717.3 $ 2,598.9
Incurred losses and LAE, net
of reinsurance recoverable:
Provision for insured events of
the current year 1,427.3 1,434.8 1,268.2
Decrease in provision for insured
events of prior years (137.6) (128.1) (68.8)
----------------------------------------
Total incurred losses and LAE 1,289.7 1,306.7 1,199.4
----------------------------------------
Payments, net of reinsurance
recoverable:
Losses and LAE attributable to
insured events of current year 652.2 650.2 523.5
Losses and LAE attributable to
insured events of prior years 614.3 566.9 564.3
----------------------------------------
Total payments 1,266.5 1,217.1 1,087.8
----------------------------------------
Less reserves assumed by purchaser
of Beacon -- -- (28.8)
----------------------------------------
Change in reinsurance recoverable
on unpaid losses 51.1 14.8 35.6
----------------------------------------
Reserve for losses and LAE,
end of year $ 2,896.0 $ 2,821.7 $ 2,717.3
----------------------------------------
----------------------------------------
</TABLE>
As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $137.6 million,
$128.1 million and $68.8 million in 1995, 1994 and 1993, respectively. The
increase in favorable development on prior years' reserves of $9.5 million in
1995 results primarily from a $34.6 million increase in favorable development at
Citizens. Favorable development in Citizens' personal automobile and workers'
compensation lines increased $16.6 million and $15.5 million, to favorable
development of $4.4 million and $32.7 million, respectively. Hanover's favorable
development, not including the effect of voluntary and involuntary pools, was
relatively unchanged at $90.2 million in 1995 compared to $91.7 million in 1994.
Favorable development in Hanover's workers' compensation line increased $27.7
million to $31.0 million during 1995. This was offset by decreases of $14.6
million and
24
<PAGE>
$12.6 million, to $45.5 million and $0.1 million, in the personal automobile
and commercial multiple peril lines, respectively. Favorable development in
Hanover's voluntary and involuntary pools decreased $23.6 million to $0.4
million during 1995.
The increase in favorable development on prior years' reserves of $59.3
million in 1994 primarily results from an increase in favorable development in
the voluntary and involuntary pools of $47.0 million in 1994. The remainder of
the favorable reserve development in 1994 is the result of favorable severity
trends, primarily in the personal automobile and commercial multiple peril
lines.
This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Conditions and trends that have affected development of the loss and LAE
reserves in the past may not necessarily occur in the future.
Due to the nature of business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small.
Losses and LAE reserves related to environmental damage and toxic tort
liability, included in the total reserve for losses and LAE, were $28.6 million
and $19.4 million, net of reinsurance of $8.4 million and $8.1 million, at the
end of 1995 and 1994, respectively. During 1995, the Regional Property and
Casualty subsidiaries redefined their environmental liabilities in conformity
with new guidelines issued by the NAIC. The 1994 liability has been conformed to
the 1995 presentation. This had no impact on results of operations. Management
believes that, notwithstanding the evolution of case law expanding such
liability, recorded reserves for environmental liability are adequate, and is
not aware of any litigation or pending claims that may result in additional
material liabilities in excess of recorded reserves. During 1995, Hanover
performed an actuarial review of its environmental reserves. This resulted in
Hanover's providing additional reserves for "IBNR" (incurred but not reported)
claims, in addition to existing reserves for reported claims. At Citizens,
environmental reserves are primarily related to reported claims. Although these
claims are not material, their existence gives rise to uncertainty and is
discussed because of the possibility, however remote, that they may become
material. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
18. MINORITY INTEREST
The Company's interest in Allmerica P&C, is represented by ownership of 58.3%,
57.4% and 57.4% of the outstanding shares of common stock at December 31, 1995,
1994 and 1993, respectively. Earnings and shareholders' equity attributable to
minority shareholders are included in minority interest in the consolidated
financial statements.
19. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions have contributed to an increase in the number of
insurance companies that are under regulatory supervision. This is expected to
result in an increase in mandatory assessments by state guaranty funds, or
voluntary payments by, solvent insurance companies to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments,
which are subject to statutory limits, can be partially recovered through a
reduction in future premium taxes in some states. The Company is not able to
reasonably estimate the potential effect on it of any such future assessments or
voluntary payments.
LITIGATION
On June 23, 1995, the governor of Maine approved a legislative settlement for
the Maine Workers' Compensation Residual Market Pool deficit for the years 1988
through 1992. The settlement provides for an initial funding of $220.0 million
toward the deficit. The insurance carriers are liable for $65.0 million payable
on or before January 1, 1996, and employers will contribute $110.0 million
payable through surcharges on premiums over the course of the next ten years.
The major insurers are responsible for 90% of the $65.0 million. Hanover's
allocated share of the settlement is approximately $4.2 million, which was paid
in December 1995. The remainder of the deficit of $45.0 million will be paid by
the Maine Guaranty Fund Surplus payable in quarterly contributions over ten
years. The smaller carriers have recently filed litigation to appeal the
settlement. The Company believes that adequate reserves have been established
for any additional liability.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the opinion of management, based on
the advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's consolidated financial statements.
However, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.
RESIDUAL MARKETS
The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.
25
<PAGE>
20. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Statutory surplus differs from
shareholders' equity reported in accordance with generally accepted accounting
principles for stock life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, postretirement benefit costs are based on different
assumptions and reflect a different method of adoption, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income (Unconsolidated)
Property and Casualty Companies $ 139.8 $ 74.5 $ 166.8
Life and Health Companies 134.3 40.7 114.8
----------------------------------------
Statutory Shareholders'
Surplus (Unconsolidated)
Property and Casualty Companies $ 1,151.7 $ 989.8 $ 960.1
Life and Health Companies 965.6 465.3 526.4
----------------------------------------
</TABLE>
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
For the Three Months Ended
(In millions)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 March 31 June 30 Sept. 30 Dec. 31
Total revenues $ 841.4 $ 793.4 $ 819.2 $ 784.5
------------------------------------------------------
Income before extraordinary item $ 39.2 $ 29.9 $ 34.8 $ 45.2
Extraordinary item - demutualization expenses (2.5) (3.5) (4.7) (1.4)
------------------------------------------------------
Net income $ 36.7 $ 26.4 $ 30.1 $ 43.8
------------------------------------------------------
------------------------------------------------------
1994
Total revenues $ 815.4 $ 786.8 $ 799.3 $ 793.6
------------------------------------------------------
Income (loss) before extraordinary item $ (10.9) $ 15.7 $ 26.6 $ 17.7
Extraordinary item - demutualization expenses (1.6) (2.5) (2.8) (2.3)
Cumulative effect of changes in accounting principles (1.9) -- -- --
------------------------------------------------------
Net income $ (14.4) $ 13.2 $ 23.8 $ 15.4
------------------------------------------------------
------------------------------------------------------
</TABLE>
26
<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 such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
To the fullest extent permissible under Massachusetts General Laws, no director
shall be personally liable to the Company or any policy holder for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provisions of law to the contrary; provided, however, that this provision shall
not eliminate or limit the liability of a director;
1. for any breach of the director's duty of loyalty to the Company or its
policy holders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance companies
pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c. 156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Insofar as indemnification for liability arising under the Securities Act of
1933 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of
such issue.
RULE 6e-3(T) REPRESENTATIONS, DESCRIPTIONS AND UNDERTAKINGS
Registrant makes the following representations pursuant to the requirements of
Rule 6e-3(T) under the Investment Company Act of 1940:
A. Risk Charge
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(1), Registrant represents that Rule 6e-
3(T)(b)(13)(iii)(F) has been relied upon in deducting charges for mortality
expense and risks assumed by First Allmerica Financial Life Insurance Company
(the "Company").
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(2), Registrant represents that the
mortality and expense risk charge is within the range of industry practice
for comparable flexible premium variable life insurance contracts. The
methodology used to support this representation is based upon an analysis of
the mortality and expense risk charges adopted under other flexible premium
variable life
<PAGE>
insurance contracts. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the foregoing
representation.
B. Distribution Costs
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(4)(ii)(A), Registrant represents that
the Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the Registrant will benefit the Registrant
and contract holders and will keep and make available to the Commission on
request a memorandum setting forth the basis for this representation. Pursuant
to Section 6e-3(T)(b)(13)(iii)(F)(4)(ii)(B)(2), Registrant also represents that
it will invest only in management investment companies which have undertaken to
have a board of directors, a majority of whom are not interested persons of the
company, formulate and approve any plan under Rule 12b-1 under the Investment
Company Act of 1940 to finance distribution expenses.
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 Securities Act of 1933.
Representatives, descriptions and undertaking pursuant to Rule 6e-
3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940 (the "1940 Act").
The signatures.
Written consents of the following persons:
1. Price Waterhouse LLP
2. Actuarial Consent
3. Consent of Counsel
The following exhibits:
1. Exhibit 1
(Exhibits required by paragraph A of the instructions to Form N-8B-2)
(1) Certified copy of Resolutions of the Board of Directors of
the Company of November 22, 1993 authorizing the
establishment of the Group VEL Account were previously
filed with Registrant's initial Registration Statement and
are herein incorporated by reference.
(2) Not Applicable.
(3) (a) Form of Underwriting and Administrative Services
Agreement between the Company and Allmerica
Investments, Inc. Is filed herewith.
(b) Registered Representative Agreement and Resident
Sponsor Agreement of Allmerica Investment, Inc. were
previously filed on June 3, 1987 in Registration
Statement No. 33-14672 and are incorporated herein by
reference.
<PAGE>
(4) Not Applicable.
(5)(a) Policy and Policy riders are filed herewith.
(5)(b) Form of Certificate is filed herewith.
(6)(a)Company's Articles of Incorporation are filed herewith
(b)Company's restated By-Laws are filed herewith.
(7) Not Applicable.
(8) (a) Form of Participation Agreement with Allmerica
Investment Trust is filed herewith.
(b) Participation Agreement with Variable Insurance Products
Fund is filed herewith.
(c) Participation Agreement with Variable Insurance Products
Fund II is filed herewith.
(d) Participation Agreement with Delaware Group Premium Fund,
Inc. Is filed herewith.
(e) Participation Agreement with T. Rowe Price International
Series, Inc. Is filed herewith.
(f) Participation Agreement with INVESCO Funds Group, Inc. is
filed herewith.
(9) Not Applicable.
(10) Form of Application is filed herewith.
2. Form of Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel.
4. Not Applicable.
5. Not Applicable.
6. Actuarial consent.
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) under
the 1940 Act which includes conversion procedures pursuant to
Rule 6e-3(T)(b)(13)(v)(B) is filed herewith.
8. Consent of Independent Accountants is filed herewith.
9. AUV Calculation Services Agreement with the Shareholder Services Group
dated March 31,
<PAGE>
1995 was previously filed by the Company in registrations statement
No., 33-47858 and is hereby incorporated by reference.
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8b-2 AND THE PROSPECTUS
Item No. of
Form N-8B-82 Caption in Prospectus
- ------------ ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . Cover Page
3. . . . . . . . . . . . . . Not Applicable
4. . . . . . . . . . . . . . Distribution
5. . . . . . . . . . . . . . The Company, The Group VEL Account
6. . . . . . . . . . . . . . The Group VEL Account
7. . . . . . . . . . . . . . Not Applicable
8. . . . . . . . . . . . . . Not Applicable
9. . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . Summary;Description of the Company, The
Group VEL Account, the Trust, VIPF,
VIPF II, T.Rowe DGPF and INVESCOVIF; The
Certificate; Certificate Termination and
Reinstatement; Other Certificate Provisions
11 . . . . . . . . . . . . . Summary; The Trust, Investment Objectives
and Policies
12 . . . . . . . . . . . . . Summary; The Trust;
13 . . . . . . . . . . . . . Summary; The Trust; VIPF; VIPF II; T. Rowe;
DGPF; and INVESCOVIF Investment Advisory
Services to the Trust; Investment Advisory
Services to VIPF; Investment Advisory Services
to VIPF II; Investment Advisory Services to
T. Rowe; Investment Advisory Services to DGPF;
and Investment Advisory Services to
INVESCOVIF; Charges and Deductions
14 . . . . . . . . . . . . . Summary; Enrollment Form for a Certificate
15 . . . . . . . . . . . . . Summary; Enrollment Form for a Certificate;
Premium Payments; Allocation of Net Premiums
16 . . . . . . . . . . . . . The Group VEL Account; The Trust; VIPF;
VIPF II; T. Rowe; DGPF and INVESCOVIF; Premium
Payments; Allocation of Net Premiums
17 . . . . . . . . . . . . . Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Certificate
Termination and Reinstatement
18 . . . . . . . . . . . . . The Group VEL Account; The Trust; VIPF;
VIPF II; T. Rowe; DGPF and INVESCOVF; Premium
Payments
19 . . . . . . . . . . . . . Reports; Voting Rights
20 . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . Summary; Certificate Loans; Other Certificate
Provisions
22 . . . . . . . . . . . . . Other Certificate Provisions
23 . . . . . . . . . . . . . Not Required
24 . . . . . . . . . . . . . Other Certificate Provisions
25 . . . . . . . . . . . . . The Company
<PAGE>
Item No. of
Form N-8B-2 Caption in Prospectus
- ------------ ---------------------
26 . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . The Company
28 . . . . . . . . . . . . . Directors and Principal Officers of the
Company
29 . . . . . . . . . . . . . The Company
30 . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . Distribution
36 . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . Summary; Distribution
39 . . . . . . . . . . . . . Summary; Distribution
40 . . . . . . . . . . . . . Not Applicable
41 . . . . . . . . . . . . . The Company, Distribution
42 . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . Premium Payments; Certificate Value and
Surrender Value
45 . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . Certificate Value and Surrender Value;
Federal Tax Considerations
47 . . . . . . . . . . . . . The Company
48 . . . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . The Group VEL Account
51 . . . . . . . . . . . . . Cover Page; Summary; Charges and
Deductions; The Certificate; Certificate
Termination and Reinstatement; Other
Certificate Provisions
52 . . . . . . . . . . . . . Addition, Deletion or Substitution of
Investments
53 . . . . . . . . . . . . . Federal Tax Considerations
54 . . . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . . . Not Applicable
<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 Initial Registration
Statement to be signed by the undersigned, in the City of Worcester, and
Commonwealth of Massachusetts, on the 6th day of June, 1996.
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
SELECT VEL ACCOUNT
By: /s/ John F. O'Brien
------------------------------
John F. O'Brien, President
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ John F. O'Brien Director, President and Chief
John F. O'Brien Executive Officer
/s/ Bruce C. Anderson Director and Vice President
Bruce C. Anderson
/s/ Kruno Huitzingh Director, Vice President and June 6, 1996
Kruno Huitzingh Chief Information Officer
/s/ John F. Kelly Director, Senior Vice President
John F. Kelly and General Counsel
/s/ James R. McAuliffe Director
James R. McAuliffe
/s/ Richard M. Reilly Director and Vice President
Richard M. Reilly
/s/ Larry C. Renfro Director and Vice President
Larry C. Renfro
/s/ Theodore J. Rupley Director
Theodore J. Rupley
/s/ Eric A. Simonsen Director, Vice President and Chief
Eric A. Simonsen Financial Officer
/s/ Phillip E. Soule Director and Vice President
Phillip E. Soule
/s/ Diane E. Wood Director, Vice President
Diane E. Wood and Chief Investment Officer
<PAGE>
FORM S-6 EXHIBIT TABLE
Exhibit 1(3) (a) Form of Underwriting and Administrative Services Agreement
between the Company and Allmerica Investments, Inc.
Exhibit 1(5) (a) Policy and Policy Riders
Exhibit 1(5) (b) Form of Certificate
Exhibit 1(6) (a) Company's restated Articles of Incorporation
Exhibit 1(6) (b) Company's restated ByLaws
Exhibit 1(8) (a) Form of Participation Agreement with Allmerica Investment
Trust
Exhibit 1(8) (b) Participation Agreement with Variable Insurance Products
Fund
Exhibit 1(8) (c) Participation Agreement with Variable Insurance Products
Fund II
Exhibit 1(8) (d) Form of Participation Agreement with Delaware Group Premium
Fund, Inc.
Exhibit 1(8) (e) Participation Agreement with T. Rowe Price International
Series, Inc.
Exhibit 1(8) (f) Participation Agreement with INVESCO Funds Group, Inc.
Exhibit 1(8) (g) Participation Agreement with T. Rowe Price International
Series, Inc.
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
Exhibit 10 Application
<PAGE>
FORM OF
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this ____ day of ______________ between and among First
Allmerica Financial Life Insurance Company, a Massachusetts corporation (the
"Company"), its Separate Account Group VEL (the "Account"), a separate
investment account of the Company and registered investment company under the
Investment Company Act of 1940 (the "1940 Act"), and Allmerica Investments,
Inc., a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Company and the Account will issue certain variable
insurance policies (the "contracts") which may be deemed to be securities
under the Securities Act of 1933 (the "1933 Act"), and the laws of some
states;
WHEREAS, the Distributor, an affiliate of the Company, is registered as
a broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the parties desire to have the Distributor act a principal
underwriter for the Account and assume full responsibility for the securities
activities of all "persons associated" (as that term is defined in
Section 3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the variable insurance operation ("associated persons");
WHEREAS, the parties desire to have the Company perform certain
administrative services in connection with the sale of the contracts.
NOW, THEREFORE, in consideration of the covenants and mutual promises of
the parties made to each other, it is hereby covenanted and agreed as
follows:
1. The Distributor will act as the exclusive principal underwriter for the
Account and as such will assume full responsibility for the securities
activities of all its associated persons in connection with the sale of the
contracts. The Distributor will train the associated persons, use its best
efforts to prepare them to complete satisfactorily the applicable NASD and
state examinations so that they may be qualified, register the associated
persons as its registered representatives before they engage in the sale of
the contracts, and supervise and control them in the performance of such
activities. Notwithstanding anything in this Agreement to the contrary, the
Distributor and the Company may enter into sales agreements with independent
broker-dealers for the sale of the contracts. All such sales agreements
entered into by the Distributor
<PAGE>
and the Company with independent broker-dealers shall provide that each
independent broker-dealer will assume full responsibility for continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws.
2. The Distributor will assume full responsibility for the continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws, to the extent applicable in
connection with the sale of the contracts. The Distributor, directly or
through the Company as its agent, will make timely filings with the SEC,
NASD, and any other securities regulatory authorities of all reports and any
sales literature relating to the Account required by law to be filed by the
Distributor.
3. The Company will prepare and submit to the Account (a) all registration
statements and prospectuses (including amendments) and all reports required
by law to be filed by the Account with Federal and state securities
regulatory authorities, and (b) all notices, proxies, proxy statements, and
periodic reports that are to be transmitted to persons having voting rights
with respect to the Account.
4. The Company will, except as otherwise provided in this Agreement, bear the
cost of all services and expenses, including legal services and expenses,
filing fees, and other fees incurred in connection with (a) registering and
qualifying the Account and the contracts, and (b) preparing, printing, and
distributing all registration statements and prospectuses (including
amendments), contracts, notices, periodic reports, proxy solicitation
material, sales literature, and advertising filed or distributed in
connection with the sale of the contracts.
All cost associated with the variable insurance compliance function
including, but not limited to, fees and expenses associated with qualifying
and licensing associated persons with Federal and state regulatory
authorities and the NASD and with performing compliance-related
administrative services, shall be allocated to the Company. To the extent
that the Distributor incurs out-of-pocket expenses in connection with the
variable insurance compliance function, the Company shall reimburse the
Distributor for such expenses. To the extent that such costs are in
connection with services provided by employees of the Company, they shall
be charged to the Company. The determination and allocation of all such
costs shall be pursuant to the terms of the Company's Cost Policy, as
utilized in connection with the Company's respective Service Agreements
with the Company and the Distributor.
5. All purchase payments made under the contracts will be forwarded by or on
behalf of Contract Owners directly to the Company and shall become the
exclusive property of the Company. The Company agrees to pay all sales
<PAGE>
commissions and any other remuneration due in connection with the sale of
the contracts by associated persons of the Distributor and any independent
broker-dealers having a sales agreement with the Distributor and the
Company. The Distributor or the Company as agent for the Distributor shall
pay all other remuneration due any other person for activities relating to
the sale of the contracts. The Company shall reimburse the Distributor fully
and completely for all amounts paid by the Distributor to any person
pursuant to this Section.
6. The Company will, as the Distributor's agent, (a) maintain and preserve in
accordance with Rules 17a-3 and 17a-4 under the 1934 Act all books and
records required to be maintained by the Distributor in connection with the
offer and sale of the contracts being offered for sale pursuant to this
Agreement, which books and records shall remain the property of the
Distributor, and shall at all times be subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, and all other regulatory
bodies having jurisdiction, and (b) send a written confirmation for each
such transaction reflecting the facts of the transaction and showing that it
is being sent on behalf of the Distributor acting in the capacity of agent
for the Account, in conformance with the requirements of Rule 10b-10 of the
1934 Act.
7. Each party hereto shall advise the others promptly of (a) any action of
the SEC or any authorities of any state or territory of which it has
knowledge, affecting registration or qualification of the Account or the
contracts, or the right to offer the contracts for sale, and (b) the
happening of any event which makes untrue any statement, or which requires
the making of any change in the registration statement or prospectus in
order to make the statements therein not misleading.
8. The Company agrees to be responsible to the Account for all sales and
administrative expenses incurred in connection with the administration of
the contracts and the Account other than applicable taxes arising from
income and capital gains of the Account and any other taxes arising from
the existence and operation of the Account.
9. As compensation for services performed and expenses incurred under this
Agreement, the Company will receive the charges and deductions as provided
in each outstanding series of the Company's contracts. Distributor will
receive no compensation under this Agreement, except as provided in
Section 4.
10. Each party hereto agrees to furnish any other state insurance
commissioner or regulatory authority with jurisdiction over the contracts
with any information or reports in connection with services provided under
this Agreement which may be requested in order to ascertain whether the
variable
<PAGE>
insurance product operations of the Company are being conducted in a
manner consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. This Agreement may be amended at any time by mutual consent of the
parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
GROUP VEL ACCOUNT OF
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
Witness: /s/ Richard J. Baker By: /s/ Joseph W. MacDougall
---------------------------- ------------------------------------
V.P. & Secretary Title: Vice President and Asst. Secretary
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
Witness: /s/ Richard J. Baker By: /s/ Joseph W. MacDougall
---------------------------- ------------------------------------
V.P. & Secretary Title: Vice President and Asst. Secretary
ALLMERICA INVESTMENTS, INC.
Witness: /s/ Abigail M. Armstrong By: /s/ Thomas P. Cunningham
---------------------------- ------------------------------------
Secretary and Counsel Title: Vice President &
Chief Financial Officer
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 LINCOLN STREET
WORCESTER, MA 01653
1-800-533-7881
Group Policy No. [9999999]
Policyholder: [The ABC Employment Company]
Policy Delivered in: Massachusetts and Governed by the Laws of: New York
Certificate Delivered in and Governed by the Laws of: New York
Date of Issue: [August 15, 1994]
RIGHT TO EXAMINE: Any certificate issued under this policy may be returned by
mailing or delivering the certificate to the Principal Office or to an agent of
the Company within ten days after receiving it or 45 days after completion of
the enrollment form, whichever is later. If returned, the insurance shown in
the certificate will be considered void from the beginning and the Company shall
return any premiums paid for such insurance.
This is a legal contract between the policyholder and First Allmerica Financial
Life Insurance Company (the Company). The Company agrees, in accordance with
the provisions of this policy, to pay benefits to the extent required by this
policy, to those persons entitled to such benefits.
Executed at Worcester, Massachusetts.
/s/ Abigail M. Armstrong /s/ John F. O'Brien
Secretary President
GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Death benefits payable in the event of an insured's death prior to the final
premium payment date. Adjustable death benefits may be increased or decreased
depending upon the experience of the separate accounts. Please refer to the
"Benefit" Section for an explanation of how the death benefit is determined.
Flexible premiums payable to the final premium payment date. Coverage to final
premium payment date and amount of certificate value are not guaranteed.
Nonparticipating.
1029P-94 NY
<PAGE>
TABLE OF CONTENTS
Page
SCHEDULE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
[DEPENDENT COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . 7]
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CERTIFICATE OWNER AND BENEFICIARY . . . . . . . . . . . . . . . . . . 11
BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
[PAYOR OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18]
CERTIFICATE VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TRANSFERS OF VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DOLLAR COST AVERAGING OPTION . . . . . . . . . . . . . . . . . . . . . 26
AUTOMATIC REBALANCING OPTION . . . . . . . . . . . . . . . . . . . . . 27
SURRENDER AND PARTIAL WITHDRAWAL OF VALUE. . . . . . . . . . . . . . . 27
CERTIFICATE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PAID-UP INSURANCE OPTION . . . . . . . . . . . . . . . . . . . . . . 29
TERMINATION OF POLICY. . . . . . . . . . . . . . . . . . . . . . . . . 30
TERMINATION OF INSURANCE CERTIFICATE . . . . . . . . . . . . . . . . . 31
PAYMENT OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . 32
2
<PAGE>
SCHEDULE PAGE
[EMPLOYER: The ABC Employment Company]
ELIGIBLE CLASSES OF [EMPLOYEES]: [All full-time employees]
WAITING PERIOD: [30 days]
FACE AMOUNTS: [$50,000]
MINIMUM FACE AMOUNT: [$50,000]
MINIMUM INCREASE AMOUNT: [$1,000 - $10,000]
MINIMUM DECREASE AMOUNT: [$1,000 - $10,000]
MINIMUM PARTIAL WITHDRAWAL AMOUNT: [$500]
[MINIMUM MONTHLY FACTOR PERIOD: 48 months beginning on the later of: (a) the
Certificate Date; (b) the effective date of any increase in the face amount; or
(c) the date of a change which causes a change in the Minimum Monthly Factor
Period.]
MORTALITY TABLE: 1980 CSO Mortality Table B, [Smoker or Non-Smoker] (or
appropriate increases in such tables for non-standard risks). For insureds
under age 18, the mortality table used is the 1980 CSO Mortality Table B (or
appropriate increases in such table for non-standard risks).]
MINIMUM GUARANTEED INTEREST RATE: [4%] a year (General Account only)
MINIMUM GUARANTEED INTEREST RATE FOR LOANED AMOUNTS: [6%] a year
CERTIFICATE LOAN INTEREST RATE: [8%] a year in arrears
SCHEDULE OF CHARGES
PREMIUM EXPENSE CHARGE: [2%]
ADMINISTRATIVE CHARGE: [$5] per month per each certificate.
CHANGE IN FACE AMOUNT CHARGE: [$2.50] per $1,000 up to [$50.00] transaction
charge.
3
<PAGE>
SCHEDULE PAGE (CONTINUED)
SURRENDER CHARGE - [There is a separate surrender charge for the initial face
amount of each certificate and each increase in the face amounts. Surrender
charges begin on the date of issue of the certificate and on the effective date
of each increase in the face amount. The surrender charges are a percentage of
the maximum surrender charge. The maximum surrender charges per $1,000 of face
amount are shown in the Table of Maximum Surrender Charges. During the first
two policy years, the actual surrender charge for the initial face amount is the
lesser of the maximum surrender charge, or $8.50 per $1,000 plus 30% of a
portion of premiums paid and 9% of any excess.
<TABLE>
<CAPTION>
Maximum Maximum Maximum
Certificate Surrender Certificate Surrender Certificate Surrender
Year Charge Year Charge Year Charge
<S> <C> <C> <C> <C> <C>
1 $XX 6 $XX 11 $X
2 XX 7 XX 12 X
3 XX 8 XX 13 X
4 XX 9 XX 14 X
5 XX 10 XX 15 0
</TABLE>
Surrender charges decrease linearly each month.]
PARTIAL WITHDRAWAL TRANSACTION CHARGE: [2%] of amount withdrawn, not to exceed
[$25] per withdrawal.
WITHDRAWAL CHARGE: [A portion of the partial withdrawal will not be subject to
the withdrawal charge. This amount is (a) less (b) where:
(a) is 10% of the certificate value on the date the written request is received
at the Principal Office; and
(b) is the sum of the withdrawals (or portions thereof) made in the same
certificate year which were not subject to the withdrawal charge.]
[A charge will be made on the balance of the withdrawal (called "excess
withdrawal"). The charge is obtained by multiplying the excess withdrawal by
5%; however, in no event will the withdrawal charge exceed the surrender charge
in effect on the date of the withdrawal.]
[The certificate's surrender charge will be reduced by the withdrawal charge, if
any. There will be no withdrawal charge if there is no surrender charge
applicable to the policy on the date of the withdrawal.]
3A
<PAGE>
SCHEDULE PAGE (CONTINUED)
TRANSFER CHARGE: Will not exceed $25; no charge for the first twelve transfers
in any policy year.
VARIABLE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE: One-twelfth of the charge,
currently [.90%] on an annual basis, applied each month to the prior month's
sub-account value. This charge may not exceed .90% on an annual basis.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: [One-twelfth of the charge, currently
[.0%] on an annual basis applied each month to the prior month's sub-account
value. This charge may not exceed [.25%] on an annual basis, for up to [10]
policy years.]
[ADDITIONAL BENEFITS PROVIDED BY RIDER
FORM NO. RIDER COST OF PAYABLE
INSURANCE TO
1085P-94 WAIVER OF [INSURANCE [SEE TABLE]
CHARGES] [PREMIUM RIDER]
1080P-94 ACCIDENTAL DEATH BENEFIT RIDER [SEE TABLE]
1081P-94 OTHER INSURED RIDER [SEE TABLE]
1084P-94 LIFE INSURANCE EXCHANGE OPTION [$25]
RIDER]
3B
<PAGE>
SCHEDULE PAGE (CONTINUED)
TABLE OF MAXIMUM SURRENDER CHARGES
PER $1,000 FACE AMOUNT
<TABLE>
<CAPTION>
Issue Maximum Issue Maximum Issue Maximum
Age Surrender Age Surrender Age Surrender
Charge Charge Charge
<S> <C> <C> <C> <C> <C>
</TABLE>
SEE ATTACHED TABLE
3C
<PAGE>
SCHEDULE PAGE (CONTINUED)
MINIMUM DEATH BENEFIT TABLE
<TABLE>
<CAPTION>
Age Percentage Age Percentage
--- ---------- --- ----------
<S> <C> <C> <C>
[thru 40 250 60 130
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75 thru 90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95 100%]
</TABLE>
3D
<PAGE>
SCHEDULE PAGE (CONTINUED)
TABLE OF GUARANTEED NET SINGLE PREMIUMS
PER $1,000 OF PAID-UP INSURANCE
<TABLE>
<CAPTION>
Net Single Net Single Net Single
Age Premium Age Premium Age Premium
<C> <C> <C> <C> <C> <C>
[1 32 63
2 33 64
3 34 65
4 35 66
5 36 67
6 37 68
7 38 69
8 39 70
9 40 71
10 41 72
11 42 73
12 43 74
13 44 75
14 45 76
15 46 77
16 47 78
17 48 79
18 49 80
19 50 81
20 51 82
21 52 83
22 53 84
23 54 85
24 55 86
25 56 87
26 57 88
27 58 89
28 59 90
29 60 91
30 61 92
31 62 93
94]
</TABLE>
The rates shown above are based on 1980 CSO Table [B],
[Nonsmoker][Smoker],[Male][Female] with interest at [4.5]% a year.
3E
<PAGE>
SCHEDULE PAGE (CONTINUED)
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF INSURANCE
<TABLE>
<CAPTION>
AGE MONTHLY RATE AGE MONTHLY RATE AGE MONTHLY RATE
<S> <C> <C> <S> <C> <S>
[1 32 63
2 33 64
3 34 65
4 35 66
5 36 67
6 37 68
7 38 69
8 39 70
9 40 71
10 41 72
11 42 73
12 43 74
13 44 75
14 45 76
15 46 77
16 47 78
17 48 79
18 49 80
19 50 81
20 51 82
21 52 83
22 53 84
23 54 85
24 55 86
25 56 87
26 57 88
27 58 89
28 59 90
29 60 91
30 61 92
31 62 93
94]
</TABLE>
3F
<PAGE>
SCHEDULE PAGE (CONTINUED)
[TABLE OF ACCIDENTAL DEATH BENEFIT RIDER COST OF INSURANCE RATES]
Issue Age Monthly Charge per $1,000
[5-7 $0.07
8-46 0.08
47-54 0.09
55-59 0.10
60-63 0.11
64-65 0.12]
3G
<PAGE>
SCHEDULE PAGE (CONTINUED)
[TABLE OF MONTHLY WAIVER RIDER COST OF INSURANCE RATES]
MONTHLY MONTHLY
AGE RATE AGE RATE
[1 33
2 34
3 35
4 36
5 37
6 38
7 39
8 40
9 41
10 42
11 43
12 44
13 45
14 46
15 47
16 48
17 49
18 50
19 51
20 52
21 53
22 54
23 55
24 56
25 57
26 58
27 59
28 60
29 61
30 62
31 63
32 64]
THE MONTHLY CHARGE IS APPLIED TO THE GREATER OF THE CURRENT MONTH'S INSURANCE
AND RIDER CHARGES OR ONE-HALF OF THE MONTHLY WAIVER BENEFIT.
3H
<PAGE>
DEFINITIONS
[ACQUIRED - means born or legally adopted.]
[ACTIVELY AT WORK ON A FULL-TIME BASIS - means the employee is performing all of
the regular duties of the employee's occupation at the employee's usual place of
employment on a full-time work schedule which is in no way curtailed or altered
because of the employee's health.]
[FULL-TIME WORK SCHEDULE - means a normal week of a least [32] hours. If an
employee is on approved leave (and not disabled) or on vacation, the employee is
considered to be actively at work.]
AGE - means the insured's age as of the nearest birthday measured from a
certificate anniversary.
AMOUNT AT RISK - for each certificate is the death benefit provided by the
certificate less its certificate value.
BENEFIT CHANGE - means any change in a certificate's face amount, the addition
or deletion of a rider or a change in the death benefit option for an insured.
CERTIFICATE DATE - means, with respect to any insured, the effective date of
that person's coverage. The certificate date is stated in the specifications
page of each certificate. Certificate months, years and anniversaries are
measured from this date.
CERTIFICATE OWNER - means the [employee] (or the [employee's] assignee).
CERTIFICATE YEAR - means a period of 12 months commencing on the same day of the
year as the certificate date.
COMPANY - means First Allmerica Financial Life Insurance Company. To reach the
Company's service center, call 1-800-533-7881.
DEBT - means an unpaid certificate loan plus interest due and accrued on such
loan.
[DEPENDENT - means an eligible [employee's] spouse.]
[DEPENDENT COVERAGE - means the life insurance in effect on the life of a
dependent.]
DISABLED - means [either confined in a hospital or unable, because of sickness
or injury, to perform all the normal duties and tasks of the disabled person's
occupation. The term occupation includes homemaking and active participation at
school.]
4
<PAGE>
[EMPLOYEE - means a person who is actively at work on a full-time basis for an
employer.]
[EMPLOYEE INSURANCE - means the life insurance in effect on the life of any
employee.]
[EMPLOYER - means an employer participating under this policy.]
ENROLLMENT FORM - means the form which is completed and signed by the applicant
when applying for the initial coverage under this policy.
EVIDENCE OF INSURABILITY - is information, including medical information,
satisfactory to the Company, that is used to determine an insured's underwriting
class.
FINAL PREMIUM PAYMENT DATE - means the certificate anniversary nearest the
insured's 95th birthday.
INSURED - means any eligible [employee] or dependent insured under this policy
for whom a certificate has been issued.
ISSUANCE AND ACCEPTANCE - means the date the certificate is mailed if the
enrollment form or application is approved with no changes requiring the consent
of the certificate owner; otherwise, the date the Company receives the
certificate owner's consent to any changes.
[MONTHLY DEDUCTION SUB-ACCOUNT - is a sub-account of the Variable Account to
which net premiums are allocated to pay all or a portion of the insurance
charges, charges for any benefits provided by rider, and administrative
charges.]
MONTHLY PROCESSING DATE - is the date on which the monthly deduction is deducted
from certificate values. This date is shown on the specifications page for each
certificate.
NET PREMIUM - is equal to the premium less the premium expense charge.
PAID-UP INSURANCE - is insurance, usually for a reduced amount, on which no
further premiums are due.
PLAN - means, with respect to any [employer], the insurance provided under this
policy to [employees of the employer.]
PLAN ANNIVERSARY - means, with respect to any plan, [the same day of the year as
the plan effective date.]
5
<PAGE>
PLAN EFFECTIVE DATE - means, with respect to any [employer], the first date on
which insurance under this policy is provided to [employees of that employer.]
POLICY VALUE - is the sum of the certificate values.
PRINCIPAL OFFICE - means the Company's office located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
PRO RATA - refers to the manner in which a payment or deduction will be
allocated among the General Account and/or the sub-accounts of the Variable
Account, excluding the monthly deduction sub-account . A PRO-RATA allocation
will be in the same proportion that the certificate value in each account or
sub-account bears to the total certificate value.
[SIMPLIFIED UNDERWRITING LIMIT - is the maximum amount of life insurance which
may be issued on the life of an insured employee without evidence of
insurability.]
SUB-ACCOUNTS - are the sub-accounts of the Variable Account.
SURRENDER VALUE - except as otherwise provided in the paid-up insurance option,
is the certificate value less the [sum of the] debt [and the applicable
surrender charge.]
[TRUST - means the Trust, as established under the Declaration of Trust and
Agreement dated _______________________.]
[WAGES - means basic salary, and does not include overtime, bonuses,
commissions, and any other extra compensation.]
WRITTEN REQUEST - is a request [in writing] satisfactory to the Company, and
filed at its Principal Office.
ELIGIBILITY
[PARTICIPATION - Each participant in the Trust is eligible to become an
[employer] under this policy, subject to the Company's approval of the
participant's application to participate under this policy. If the application
is approved, the [employer's] participation under this policy will commence on
the plan effective date.]
CLASS(ES) OF ELIGIBLE [EMPLOYEES] - [An employee] is eligible if the [employee
is employed by the employer], is in an eligible class of [employees] as shown in
the Schedule Pages, is ["actively at work"] and has completed the waiting
period.
6
<PAGE>
WAITING PERIOD - The waiting period is the period of continuous [employment on a
full-time work schedule an employee must perform for the employer] before the
[employee's] insurance can become effective. The waiting period under this
policy is shown in the Schedule Pages.
ELECTION OF INSURANCE - To elect [employee] insurance, an eligible [employee]
must complete the necessary enrollment form furnished by the Company [and, when
the amount of benefit for an insured employee exceeds the simplified
underwriting limit, provide the Company with evidence of insurability, which
shows that the [employee] is an acceptable risk. ]
EFFECTIVE DATE OF [EMPLOYEE] INSURANCE - Insurance on an eligible [employee] who
is accepted for insurance by the Company before the plan effective date
applicable to his or her [employer] will be effective on the plan effective
date, if he or she is [actively at work] on that date.
Insurance on any other eligible [employee] will become effective on the first
monthly processing date following the date he or she is accepted for insurance
by the Company, if he or she is [actively at work] on that monthly processing
date.
If the insurance on an [employee] does not become effective solely because the
[employee] is [not actively at work], it will become effective on the first
monthly processing date following his or her [return to active work], but only
if the [employee] is still eligible.
If evidence of insurability was required and if there has been a material change
in the proposed insured's health between the time of completion of the
enrollment form for this coverage and the effective date of coverage, new
evidence of insurability will be required before such insured's coverage will
become effective.
Notwithstanding the above, in no event will new insurance become effective if
this policy has terminated.
[DEPENDENT COVERAGE
A dependent will become eligible for coverage under this policy on the latest
of:
- the date of issue of this policy if the dependent is not disabled on
that day, or
- the date the [employee] completes the waiting period, if the dependent
is not disabled on that day, or
- the date the dependent is no longer disabled if he or she was disabled
on the day he or she would normally have become eligible.
7
<PAGE>
If an eligible dependent is enrolled for coverage before or within 31 days after
the dependent became eligible for coverage, the dependent's coverage will take
effect on the date shown in the applicable certificate or in an amendment to
such certificate, provided payment is made no later than the issuance and
acceptance of the certificate or, if applicable, the date of the amendment, all
while the dependent is living and not disabled on the date the certificate is
delivered. If the dependent is disabled on the date the certificate is
delivered, coverage will take effect on the day he or she is no longer disabled.
If an eligible dependent enrolls more than 31 days after the date the dependent
became eligible for coverage, the Company may require evidence of insurability
satisfactory to the Company before the dependent will be covered under this
policy. ]
[Dependent coverage may be provided by a rider attached to a certificate or a
separate certificate with the dependent as the insured.]
GENERAL PROVISIONS
ADJUSTMENT OF COST FACTORS - Monthly insurance charges, premium expense charges,
administrative charges, and a charge for mortality and expense risk used to
calculate certificate values are set by the Company, subject to any guarantees
set forth in this policy. Any changes in these factors will be by underwriting
class, and will be based on changes in future expectations for such elements as:
investment earnings, mortality, persistency and expenses.
ENTIRE CONTRACT - The entire contract consists of:
- this policy, and
- a copy of the policy application which is attached to this policy.
All statements by the policyholder and any insured person in the enrollment
forms, including any subsequent applications, are considered representations and
not warranties. The Company will not use any statement to contest this policy
or any certificate issued under it or defend a claim unless the statement is in
an enrollment form or application and a copy of the instrument containing the
statement is or has been furnished to the insured or the beneficiary.
INCONTESTABILITY - Except for failure to pay premiums, each certificate issued
under this policy cannot be contested after the certificate for that insured has
been in force during the insured's lifetime for two years from the date of issue
of the certificate.
The validity of this policy shall not be contested, except for non-payment of
premiums, after it has been in force for two years from the date of issue.
8
<PAGE>
Except for failure to pay premiums, a requested increase in the face amount
cannot be contested after the increased amount has been in force during the
insured's lifetime for two years from its effective date.
INSURED'S CERTIFICATE - The Company will issue a certificate to each insured
setting forth the insured's name and a description of the benefits provided by
the policy.
MISSTATEMENT OF AGE - If an insured's age is misstated, the death proceeds will
be adjusted if death occurs before the insured's age 95. The adjusted death
proceeds will be equal to the insured's certificate value plus the death benefit
which the insurance charges for the amount at risk on the monthly payment date
immediately prior to the date of death would have purchased at the correct age.
OWNERSHIP OF ASSETS - The Company shall have exclusive and absolute ownership
and control of its assets, including the assets of the Variable Account.
MONEY PAYABLE - All money payable by or to the Company is to be paid in the
lawful currency of the United States of America.
NONPARTICIPATING - No insurance dividends will be paid on this policy.
SUICIDE EXCLUSION - The risk of suicide of an insured within two years of the
date of issue of the insured's certificate is not assumed. Instead of the death
benefit, the beneficiary will receive the sum of the premiums paid for the
insured's insurance, less the sum of any outstanding debt and partial withdrawal
amounts.
The risk of suicide of an insured within two years of the effective date of any
requested increase in the face amount is also not assumed to the extent of such
increase. Instead of the death benefit for the increase in face amount, the
beneficiary will receive the sum of the monthly deductions paid for such
increase.
ASSIGNMENT - The policyholder may not assign this policy. The certificate owner
may assign rights in the certificate subject to the provisions of the
Certificate Owner and Beneficiary provision.
PROTECTION OF PROCEEDS - To the extent allowed by law, the death proceeds and
certificate values will be exempt from attachment by the claims of creditors of
the payee. No beneficiary may assign, transfer, anticipate or encumber the
proceeds or payments unless the certificate owner gives them this right.
9
<PAGE>
ANNUAL REPORT - A report will be mailed to each certificate owner's last known
address at least once a year. This report will show the following information
for each certificate as of a date not more than two months prior to the date of
the report:
- the death benefit,
- the certificate value in the General Account and in each sub-account,
- the surrender value,
- certificate premiums paid and monthly deductions made during the year,
- partial withdrawals and certificate loans, including accrued interest,
- increases and decreases in the face amount,
- changes in the Maximum Single Premium and the Maximum Level Premium,
and
- any other information required by law.
PROJECTIONS - The certificate owner may request an illustration of future
benefits based on both the guaranteed and then current assumptions. The Company
reserves the right to charge a fee for each projection requested; however, the
fee will never be more than $25.
AUTHORITY - No change in the policy or a certificate will be valid until it is
approved by the President, a Vice President or Secretary of the Company. This
approval must be endorsed on or attached to the policy or certificate. No agent
or other person has authority to accept representations or information not in a
written enrollment form or application, nor may that person change this policy
or a certificate or waive any of its provisions.
CHANGE IN POLICY - Except as otherwise provided below, the Company has the
right, [at any time], to change the insurance rate, interest rate and expenses
shown in the Schedule Pages for certificates issued on or after the effective
date of the change.
The policyholder may change the provisions of this policy on any premium due
date if the change is approved by the Company. Written consent must be given for
such change. The Company may change the provisions of this policy on any premium
due date if the policyholder agrees. The consent of an insured or other person
referred to in this policy is required to amend, modify or change this policy as
it pertains to their inforce coverage. All changes to this policy will apply
after the effective date of the change, and will not be applied retroactively.
10
<PAGE>
FACTS RELATING TO COVERAGE - At any reasonable time, the Company will have the
right to inspect any records of the policyholder which relate to this policy.
CONFORMITY WITH STATE STATUTES - If any provision of this policy is in conflict
with any applicable statute, it is hereby amended to comply with the minimum
requirements of such statute.
CERTIFICATE OWNER AND BENEFICIARY
CERTIFICATE OWNER - The insured is the owner of the certificate insuring his
or her life unless another is named as owner in the enrollment form. The
certificate owner may change the ownership without the consent of any
beneficiary. The consent of the insured is required whenever the face amount
of insurance is increased. The certificate owner may exercise all other
rights and options granted by this policy, subject to the consent of any
irrevocable beneficiary. The consent of any revocable beneficiary is not
required.
ASSIGNMENT - A certificate may be assigned by written request. An absolute
assignment will transfer ownership from the certificate owner to the assignee.
A certificate also may be collaterally assigned as security. The limitations on
ownership rights while a collateral assignment is in force are set forth in the
assignment. An assignment will take place only when recorded at the Principal
Office. When recorded, the assignment will take effect as of the date the
written request was signed. Any rights created by the assignment will be
subject to any payments made or actions taken by the Company before the change
is recorded.
The Company will not be responsible for the validity of any assignment or the
extent of any assignee's interest. If a certificate is assigned as collateral,
any excess of the amount due the assignee will accrue to those otherwise
entitled to it.
BENEFICIARY - The beneficiary is named by the certificate owner to receive the
death proceeds. The interest of any beneficiary will be subject to any
assignment. A beneficiary may be revocable or irrevocable. A revocable
beneficiary may be changed at a later time. An irrevocable beneficiary must
consent in writing to any change. Unless otherwise indicated, the beneficiary
will be revocable.
A change of beneficiary may be made by written request while the insured is
living. The change will take place as of the date the request is signed even if
the insured is not living on the day the request is received by the Company.
Any rights created by the change will be subject to any payments made or actions
taken by the Company before the written request is received.
The interest of a beneficiary who dies before the insured will pass to the
surviving beneficiaries in proportion to their share in the proceeds unless
otherwise provided. If a common disaster clause is in effect on the date of an
insured's death, the beneficiary must survive the insured for
11
<PAGE>
the number of days following the date of the insured's death as shown in the
clause (exclusive of the date of the insured's death), otherwise payment will
be made in the same manner as if such beneficiary had predeceased the
insured. If all beneficiaries die before the insured, the death proceeds will
pass to the certificate owner or the certificate owner's estate.
BENEFIT
DEATH PROCEEDS - Except as otherwise provided in the paid-up insurance option,
the amount payable on the death of an insured prior to the final premium payment
date will be the death benefit under either Option 1 or Option 2, whichever is
applicable. Options 1 and 2 are described later. Any debt, rider charges, and
monthly deductions due and unpaid through the certificate month in which the
insured dies will be deducted from the death proceeds. Any partial withdrawals
and withdrawal charges applicable since the last monthly processing date also
will be deducted from the death proceeds. The amount payable on the death of the
insured after the final premium payment date will be the certificate value less
debt and less any partial withdrawals and withdrawal charges applicable since
the last monthly processing date.
Interest will be paid on lump sum death proceeds at a rate not less than 3% per
year or the minimum rate set by law, if greater. Interest will be paid from
the date of death to the payment date.
MINIMUM DEATH BENEFIT - This policy must provide a minimum amount at risk on
each insured. The minimum death benefit for each certificate is obtained by
multiplying the certificate value by the percentage shown in the Minimum Death
Benefit Table for each insured's attained age. The minimum death benefit varies
by age. The Minimum Death Benefit Table is shown in the Schedule Pages.
The minimum death benefit is determined according to the rules set forth in the
federal tax laws. The minimum death benefit will be adjusted to conform to any
changes in the law.
DEATH BENEFIT OPTIONS - There are two death benefit options. The option is
elected in the insured's enrollment form. The death benefit options are:
Option 1 - The death benefit is the greater of:
- the face amount, or
- the minimum death benefit.
Option 2 - (Not available under paid-up insurance option) The death benefit is
the greater of:
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- the face amount plus the certificate value on the date due proof of
death is received by the Company, increased by any monthly deductions
made by the Company after the date of death, or
- the minimum death benefit.
FACE AMOUNT - The face amount will be [that selected by the certificate owner]
pursuant to the schedule of insurance elected by the [employer]. The schedules
(if any) are shown in the Schedule Pages.
The face amount for each insured is shown in the schedule attached to the
certificate of insurance. The death benefit option may be changed by the
certificate owner on written request. The effective date of the change is the
monthly processing date following the date the request is received at the
Principal Office. Evidence of insurability is required to change from Option 1
to Option 2. If the change is from Option 1 to Option 2 and the Company
determines, based on the evidence of insurability, that the insured is an
acceptable risk, the face amount under Option 2 will be equal to the death
benefit less the certificate value under Option 1 on the effective date of the
change. If the change is from Option 2 to Option 1, the face amount will be
equal to the death benefit under Option 2 on the effective date of the change.
The death benefit option may not be changed more than once in any certificate
year. The option may not be changed if it reduces the face amount to less than
the Minimum Face Amount shown in the Schedule Pages.
BENEFIT CHANGE - The face amount of a certificate of insurance may be changed
according to the Increase or Decrease provisions if such request is made by the
certificate owner:
- during the lifetime of the insured, and
- by written request while the certificate is in force.
The Company will deduct the transaction charge for a change in face amount from
the certificate value on the effective date of the change. The transaction
charge for a change is shown in the Schedule Pages.
INCREASE - All of the following must occur before the effective date of any
increase in the face amount:
- evidence of insurability must be provided to the Company,
- the insured must be under the Company's maximum issue age for new
insurance and be insurable according to the Company's underwriting
rules, and
- payment to the Company of the transaction charge for an increase plus
two times the next monthly deduction, if the certificate surrender
value is less than this sum.
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The effective date of the increased face amount will be the first monthly
processing date on or following the date all the conditions are met. New
certificate pages, including a Supplemental Insurance Charge Table, will be
issued. These pages will include the following information for the additional
face amount of insurance:
- the effective date,
- the amount of the increase,
- the underwriting class,
- a new Table of Guaranteed Net Single Premiums, if the underwriting
class of the insured has changed,
- the new Maximum Single Premium and Maximum Level Premium applicable to
the certificate, [and]
[- any applicable surrender charge and Minimum Monthly Factor].
The minimum increase amount is shown in the Schedule Pages.
The certificate owner may return the new certificate pages by mailing or
delivering them to the Principal Office or to an agent of the Company within ten
days after receiving them, 45 days after completion of Part 1 of the application
for the increase, or ten days after Company mails the Notice of Withdrawal Right
to the certificate owner. If the certificate pages are returned, the increase
will be considered void from the beginning, and the Company will refund the
charges deducted from the policy value which would not have been deducted but
for the increase. The refunded amount will be added to the certificate value
unless the certificate owner requests otherwise. The Company also will waive
any surrender charge for the increase.
DECREASE - Existing insurance will be decreased or eliminated in the following
order:
- first, the most recent increase,
- second, the next most recent increases successively, and
- last, the initial face amount.
A surrender charge, if applicable, will be deducted from the certificate
value on the date of the decrease. Such charge will be:
- the surrender charge for any increased amount which is eliminated in
the order set forth above, plus
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- a proportionate share of the surrender charge for a partial reduction
in an increase or in the initial face amount.
The certificate owner may specify from which sub-account this charge will be
deducted. If no specification is made, the Company will allocate the charge
among the General Account and all the sub-accounts (except the monthly deduction
sub-account if the Payor Option is in force) in the same proportion that the
certificate value in the General Account and the certificate value in each sub-
account bear to the total certificate value.
The effective date of the decreased face amount will be the first monthly
processing date on or following the date of the Company's receipt of the request
for a decrease. New Schedule Pages will be issued. These pages will include the
following information:
- the effective date of the decrease,
- the revised surrender charge, if any, as of the effective date of the
decrease,
- the amount of the decrease and the benefit remaining in force, [and]
- the new Maximum Single Premium and Maximum Level Premium[, and]
[- the new Minimum Monthly Factor].
The minimum decrease amount is shown in the Schedule Pages. The decrease will
not be approved if it results in a certificate face amount less than the Minimum
Face Amount.
PREMIUMS
POLICY PREMIUMS - The policy premium, which is due on the plan effective date
and on each premium due date thereafter, is the sum of all certificate premiums
[deducted from employee's wages] since the prior premium due date. Any premiums
for persons on direct-payment status may be excluded from the policy premium. No
insurance will be in force [under any plan] until the policy premium due on the
plan effective date is paid[, unless otherwise provided]. Policy premiums after
the first are payable by the policyholder to the Company on each due date at the
Principal Office. The Company will send a notice for the payment of policy
premiums, after the first, for all coverage in force under the policy. A change
in the policy premium due to a change in the insurance in force or a change in
cost factors will become payable on the next policy premium due date after the
change. Each policy premium will include any adjustment in past premiums which
is due to those changes which have not been taken into account at a prior date.
The amount of the premium due is the amount shown in the premium notice sent to
the policyholder.
CERTIFICATE PREMIUMS - The certificate premium is the premium paid by the
insured or on the insured's behalf for insurance coverage under this policy. The
amount of certificate premium
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[authorized by the certificate owner on the enrollment form to be deducted
from his or her wages] is called the planned premium. Additional certificate
premiums, called unplanned premiums, may be paid at any time before the
insured's age 95 or the date the paid-up insurance option is elected, if
sooner. Certificate premium payments may be in any amount subject to the
limits described below. Planned premium payments may be skipped or their
frequency and amount may be changed.
MAXIMUM PREMIUM - The Company may limit the maximum certificate premium received
in any certificate year to an amount not less than the Maximum Level Premium.
The sum of the premiums paid on each certificate less any partial withdrawals
may not exceed the greater of:
- the Maximum Single Premium, or
- the sum of the Maximum Level Premiums to the date of payment.
The amounts of the Maximum Single Premium and the Maximum Level Premium are
shown in the Certificate Schedules. The Maximum Single Premium and the Maximum
Level Premium will change whenever there is a benefit change. The new Maximum
Single Premium and Maximum Level Premium will be shown in new specification
pages issued with each benefit change. These premium limitations do not apply
to the extent necessary to prevent lapse of a certificate during the certificate
year.
The Maximum Single Premium and Maximum Level Premium are determined according to
the rules set forth in the federal tax laws. These premiums will be adjusted to
conform to any changes in the federal tax laws.
In the event the maximum premium limit applies, the Company will return the
excess premium payment with interest, to the certificate owner within 60 days
after the policy anniversary. The Company will pay interest on each premium
refund at the General Account interest rate in effect on the date such premium
was paid.
NET PREMIUM AND ALLOCATION OF NET PREMIUMS - The net premium is equal to the
premium less any premium expense charge. The premium expense charge in effect
on the policy issue date is shown in the Schedule Pages as "PREMIUM EXPENSE
CHARGE." It may be adjusted to reflect any increase or decrease in the
applicable state or local premium expense rate.
The certificate owner may allocate the net premiums to one or more of the sub-
accounts , to the General Account, or to any combination of these accounts. Net
premiums may not be allocated to more than seven sub-accounts at any one time
without the consent of the Company. There may not be certificate value in more
than seven sub-accounts at any one time. The minimum percentage that may be
allocated to any one of these accounts is 1% of the net premium paid. All
percentage allocations must be in whole numbers. The total allocation to all
selected accounts must equal 100%. The initial sub-accounts that were chosen
are shown in the application for this policy, a copy of which is attached to
this policy. The allocation of future net premiums may be
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changed at any time upon written request. A processing charge of up to $25
may be made for changing the premium allocation.
CONTINUATION OF COVERAGE - If planned premiums are not paid as scheduled, the
coverage under the certificate will continue in force as long as the surrender
value of the certificate is sufficient to cover the monthly deduction. If the
surrender value of the certificate is not sufficient, the Certificate Grace
Period provision will apply.
GRACE PERIOD
POLICY PREMIUM GRACE PERIOD - If, prior to the due date of any policy premium
after the first, the [employer] has not previously given notice to the Company
that its participation is to be discontinued, a grace period of 31 days will be
granted for payment of the policy premiums. If any policy premium is not paid
by the end of this grace period, the policy will be discontinued at the end of
such period. The policy will be discontinued before that date if the
policyholder has given to the Company written notice in advance to discontinue
it.
CERTIFICATE GRACE PERIOD - [If the certificate is in a Minimum Monthly Factor
Period, the certificate grace period of 62 days will begin if the sum of the
premiums paid since the beginning of the Minimum Monthly Factor Period less
debt, partial withdrawals and partial withdrawal charges made during the
Minimum Monthly Factor Period is less than the Minimum Monthly Factor times the
number of months elapsed since the beginning of the Minimum Monthly Factor
Period.] [Thereafter,] the certificate grace period of 62 days will begin if the
surrender value of the certificate is less than the amount needed to pay the
next monthly deduction.
We will send a notice to the owner's last known address at least 15 days and not
more than 45 prior to the end of the grace period if the certificate surrender
value is not adequate to prevent lapse.
REINSTATEMENT - A certificate may be reinstated during the insured's lifetime if
the coverage has ended because of non-payment of the premium (lapsed) and has
not been surrendered. A certificate will be reinstated effective on the monthly
processing date following the date the Company receives:
- a written application for reinstatement,
- evidence of insurability showing the insured is insurable according to
the Company's underwriting rules, and
- payment of the reinstatement premium.
The reinstatement premium will not exceed the amount necessary to keep the
certificate in force for three months beginning on the date of reinstatement.
The premium paid on reinstatement will be allocated to the General Account and
the sub-accounts in accordance with the certificate owner's most recent premium
allocation.
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The certificate value on the date of reinstatement is:
- the net premium paid to reinstate the certificate increased by
interest from the date the payment was received at the Principal
Office, plus
- an amount equal to the certificate value less debt on the date of
default, minus
- the monthly deduction due on the date of reinstatement.
[The surrender charge on the date of reinstatement is the surrender charge which
would have been in effect had the certificate remained in force from its date of
issue. The certificate value less debt on the date of default will be restored
to the certificate to the extent it does not exceed the surrender charge on the
date of reinstatement. Any debt as of the date of default which was not repaid
on the date of reinstatement will be reinstated.]
[PAYOR OPTION
PREMIUM BILLING AND ALLOCATION - The Payor Option is elected when a payor is
named in the enrollment form. The premium billing procedure will be modified as
described in this section if the Payor Option is elected.
The Company will mail all premium notices to the payor while this option is
in effect. The premium notices will include the insurance charges and
administrative charges to be paid by the certificate owner and the payor.
The net premiums paid by the certificate owner and the payor for these
charges will be allocated to the monthly deduction sub-account, and the
balance of the net premiums will be allocated to the General Account and
appropriate sub-accounts as directed by the certificate owner. No loans,
partial withdrawals or transfers may be made from the monthly deduction
sub-account while this option is in effect.
CHANGES IN THE FACE AMOUNT AND PARTIAL WITHDRAWALS - In the event the payor
agrees to pay the monthly deductions for a specified amount of coverage, the
certificate owner may purchase additional amounts of insurance in accordance
with the Increase provision of this policy. In the event the certificate owner
later decides to decrease the face amount of coverage or make a partial
withdrawal, the certificate owner may eliminate that portion of the face amount
for which charges are being paid before eliminating amounts of insurance which
are paid for by the payor.
GRACE PERIOD - The Company will send a notice to the payor if the value of the
monthly deduction sub-account is less than the amount needed to pay the next
monthly deduction under the policy. This notice will be sent to the last known
address of the payor. The notice will state the due date and the amount of
premium payable. The premium may be paid during a period of 62 days, beginning
on the premium due date. The certificate will remain in force during this grace
period.
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The Company will send a notice to the certificate owner if the premium shown in
the grace period notice is not received by the Company within 31 days of the end
of the grace period, and if the policy value is not sufficient to maintain the
insurance in force.
If the value of the monthly deduction sub-account at the end of the grace period
is not sufficient to pay the monthly deductions which are due, the balance of
the monthly deductions will be withdrawn from the policy value, if any, in the
General Account and the sub-accounts. A lapse occurs if the policy value at the
end of the grace period is not sufficient to pay the monthly deductions which
are due. The certificate terminates on the date of lapse. The death benefit
payable during the grace period will be reduced by any overdue charges.
This option will terminate upon request by the certificate owner or the payor.
If this option terminates at the written request of the payor, a notice will be
sent to the last known address of the certificate owner. This notice will
include a statement showing the premium due, if any.]
CERTIFICATE VALUE
CERTIFICATE VALUE - The certificate value on the date of issue is the net
certificate premium paid, plus any interest earned during the period when
premiums are held in the General Account, less the first monthly deduction.
MONTHLY DEDUCTION - The monthly deduction from each certificate's value is the
insurance charge, the administrative charge, a charge for the cost of any
additional benefits provided by rider, the Variable Account administrative
charge, and the Variable Account mortality and expense risk charge.
These charges will be allocated as follows:
The certificate owner may specify from which sub-account the insurance
charge, the administrative charge, and the charges for the cost of any
additional benefits provided by riders will be deducted. [If the Payor
Option is in force, all monthly insurance and administrative charges will
be deducted from the monthly deduction sub-account.] If no specification
is made, these charges will be allocated PRO RATA among the General Account
and the sub-accounts.
The Variable Account administrative charge and the Variable Account
mortality and expense risk charge are assessed against each sub-account
which generates a charge. In the event this charge is greater than the
value of the sub-account to which it relates on a monthly processing date,
the unpaid balance will be totaled and allocated PRO RATA among the General
Account and the sub-accounts.
Monthly deductions are made on the certificate date and on each monthly
processing date until the final premium payment date. Monthly deductions are
not made if the paid-up option becomes effective.
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INSURANCE CHARGES - Beginning on the date of issue of each certificate and
monthly thereafter, prior to the insured's age 95, an insurance charge will be
deducted from the certificate value. [The certificate owner may specify from
which sub-account this charge will be deducted.]
For each certificate, the insurance charge equals the sum of the insurance
charges applicable to the following:
- the initial face amount, plus
- each increase in the face amount, plus
- any rider benefits.
The insurance charge will be determined each month by the Company. Any change
in the insurance charge will be uniform by underwriting class. The monthly
insurance charge will be adjusted for any decreases in the face amount according
to the Benefit Change provision.
For each certificate, the monthly insurance charge for the initial face amount
will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Insurance Charge Table for
the insured's age, and
(2) is the initial face amount divided by 1,000. For the purpose of this
calculation, the initial face amount will be reduced by the
certificate value minus the administrative charge and charges for
rider benefits at the beginning of the month if Death Benefit Option 1
is in effect to the extent such certificate value does not exceed the
initial face amount; however, if the certificate value exceeds the
initial face amount while Death Benefit Option 1 is in effect, the
excess certificate value will be applied to reduce any increases in
the face amount in the order in which the increases were issued.
The monthly insurance charge for each increase in the face amount issued at the
certificate owner's request will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Supplemental Insurance
Charge Table for the insured's age, and
(2) is the amount of the increase in the face amount divided by 1,000.
For the purpose of this calculation, the increase in the face amount
will be reduced by the excess certificate value minus charges for
rider benefits (as described in the monthly insurance charge for the
initial face amount, above) at the beginning of the month if Death
Benefit Option 1 is in effect.
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If the death benefit of any certificate is the [minimum death benefit] as
defined above, the monthly insurance charge for that portion of the death
benefit which exceeds the face amount will not exceed (1) multiplied by the
quotient of (2) divided by 1,000 where:
(1) is the cost of insurance rate applicable to the initial face amount,
and
(2) is the death benefit less:
(a) the greater of the face amount or the certificate value if Death
Benefit Option 1 is in effect, or
(b) the face amount plus the certificate value if Death Benefit
Option 2 is in effect.
COST OF INSURANCE RATE - The cost of insurance for each certificate is based on
the insured's age and underwriting class. The guaranteed rates are based on the
mortality table shown in the Schedule Pages. The current monthly cost of
insurance rates will be reviewed by the Company when rates for new flexible
premium variable life insurance policies change. Rates will be reviewed not
more than once each year nor less than once in a five-year period. The cost
will not exceed the guaranteed amounts shown in the Insurance Charge Table and
any supplements to it.
GENERAL ACCOUNT - The General Account consists of all assets owned by the
Company other than those in the Variable Account and other separate accounts.
Subject to applicable law, the Company has sole discretion over the investment
of the assets in the General Account. The allocation or transfer of funds to
the General Account does not entitle the certificate owner to share in the
investment experience of the General Account.
BASIS OF VALUE OF GENERAL ACCOUNT - Minimum certificate values of the General
Account are based on the mortality table(s) and minimum guaranteed interest
rate(s) shown in the Schedule Pages. Certificate values are based on interest
rates and insurance rates set by the Company. A detailed statement of the way
this value is determined has been filed with the State Insurance Department.
All values are not less than the minimums required by the law in the state in
which the certificate is delivered.
INTEREST RATE - The guaranteed minimum interest rate used to calculate
certificate values is shown in the Schedule Pages. The actual interest rate
will be determined periodically by the Company but at least annually; however,
the interest rate applicable to that portion of the certificate value equal to
existing debt will be not less than the rate shown in the Schedule Pages.
The interest rate in effect on the date a premium is received at the Principal
Office is guaranteed for one year unless the certificate value associated with
the premium becomes subject to a certificate loan. Certificate value will be
used for payment of fees, charges, certificate loans and partial withdrawals on
a last-in, first-out basis.
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GENERAL ACCOUNT CERTIFICATE VALUE - If a premium is paid with the enrollment
form, or at any time prior to the issuance and acceptance of the certificate,
that premium will be placed in the General Account on the date it is received at
the Principal Office. All certificate value in the General Account that
initially was designated to go to the sub-accounts will be allocated to the
Money Market sub-account upon issuance and acceptance of the certificate. All
certificate value will be allocated in accordance with the certificate owner's
premium allocation no later than the expiration of the period during which the
certificate owner may exercise the Right to Examine provision.
On each monthly payment date, the certificate value in the General Account is :
- the certificate value in the General Account on the preceding monthly
payment date increased by one month's interest; plus
- net premiums received since the last monthly payment date which are
allocated to the General Account, increased by interest from the date
the payment is received by the Company; plus
- Variable Account certificate value transferred to the General Account
from any sub-account since the preceding monthly payment date,
increased by interest from the date the certificate value is
transferred; less
- certificate value transferred from the General Account to a sub-account
since the preceding monthly payment date, and interest on said
transfers from the date of transfer to the monthly payment date; less
- partial withdrawals from the General Account, partial withdrawal
charges and partial withdrawal transaction charges since the last
monthly payment date, and interest on such withdrawals and charges from
the date of withdrawal to the monthly payment date; less
- any transaction charges for any increase in the face amount since the
last monthly payment date, and interest on such charges to the monthly
payment date; less
- any surrender charges incurred since the last monthly payment date, and
interest on such charges to the monthly payment date; and less
- the portion of the monthly deduction allocated to the certificate value
in the General Account.
During any certificate month, the certificate value will be calculated on a
consistent basis.
VARIABLE ACCOUNT - The certificate value may vary if funded through investments
in the sub-accounts. The Variable Account is separate from the General Account.
That portion of the assets
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of the Variable Account equal to the reserves and other certificate
liabilities of the certificates which are supported by the Variable Account
will not be charged with liabilities that arise from any other business the
Company conducts. The Company established the Variable Account to support
variable life insurance contracts. The Variable Account is registered with
the Securities and Exchange Commission ("SEC") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). It also is governed
by the laws of the State of Delaware and New York. The laws of the state in
which the certificate is delivered.
The Variable Account has several sub-accounts. The Company reserves the right,
subject to compliance with applicable law, to change the names of the Variable
Account or its sub-accounts. The sub-accounts in which the certificate owner
initially chose to invest are shown in the enrollment form.
Each sub-account invests its assets in a separate registered investment company
or a separate series of a registered investment company ("Fund").
Income and realized and unrealized gains or losses from the assets of each sub-
account are credited to or charged against that sub-account without regard to
income, gains or losses in the other sub-accounts, the General Account or any
other separate accounts.
VARIABLE ACCOUNT CERTIFICATE VALUE - Certificate value in the General Account
prior to the date of issue will be allocated to purchase units of the sub-
accounts in accordance with the certificate owner's premium allocation no later
than the expiration of the period during which the certificate owner may
exercise the right to examine the certificate. Net premiums paid thereafter
which are allocated to the sub-accounts will purchase additional units of the
sub-accounts.
The number of units purchased in each sub-account is equal to the portion of the
net premium allocated to the sub-account, divided by the value of the applicable
unit as of the valuation date the payment is received at the Principal Office,
or on the date value is transferred to the sub-account from the General Account
or another sub-account.
The number of units will remain fixed unless (1) changed by a subsequent split
of unit value, or (2) reduced because of a transfer, certificate loan, partial
withdrawal, partial withdrawal charge, deletion transaction charge, monthly
deduction, surrender or surrender charge allocated to the sub-account. Any
transaction described in (2) will result in the cancellation of a number of
units which are equal in value.
On each valuation date the Company will value the assets of each sub-account in
which there has been activity. The certificate value in a sub-account at any
time is equal to the number of units this certificate then has in that sub-
account, multiplied by the sub-account's unit value.
The dollar value of a unit of each sub-account varies from valuation date to
valuation date, based on the investment experience of that sub-account. That
experience, in turn, will reflect the investment performance, expenses and
charges of the respective Fund. The value of a unit for
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any sub-account for any valuation period is determined by multiplying that
sub-account's unit value for the immediately preceding valuation period by
the net investment factor for the valuation period for which the unit value
is being calculated.
NET INVESTMENT FACTOR - The net investment factor measures the investment
performance of a sub-account during the valuation period just ended. The net
investment factor for each sub-account is equal to 1.0000 plus the number
arrived at by dividing (a) by (b), where:
(a) is the investment income of that sub-account for the valuation
period, plus capital gains, realized or unrealized, credited during
the valuation period; minus capital losses, realized or unrealized
charged during the valuation period, adjusted for provisions made
for taxes, if any; and
(b) is the value of that sub-account's assets at the beginning of the
valuation period.
The net investment factor may be greater or less than one; therefore, the unit
value may increase or decrease. The certificate owner bears the investment
risk. Subject to any required regulatory approvals, the Company reserves the
right to change the method for determining the net investment factor.
VALUATION DATES AND PERIODS - A valuation date is each day that the New York
Stock Exchange ("NYSE") is open for business, and any other day in which
there is a sufficient degree of trading in the Variable Account's portfolio
securities to materially affect the value of the Variable Account. A
valuation period is the period between valuation dates.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The investment policy of the
Variable Account shall not be changed without the approval of the Insurance
Commissioner of New York. The approval process is on file with the Commissioner
of the state in which this policy is issued.
The Company reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the shares of a Fund
that are held by the Variable Account or that the Variable Account may purchase.
The Company reserves the right to eliminate the shares of any Fund if the shares
of a Fund no longer are available for investment or if, in its judgment, further
investment in any eligible Fund should become inappropriate in view of the
purposes of the Variable Account.
The Company will not substitute any shares attributable to the certificate
owner's interest in a sub-account without notice to the certificate owner and
any prior approval of the SEC required by the 1940 Act. This shall not prevent
the Variable Account from purchasing other securities for other series or
classes of policies, or from permitting a conversion between series or classes
of certificates on the basis of requests made by certificate owners.
The Company reserves the right to establish additional sub-accounts, and to make
such sub-accounts available to any class or series of policies as it deems
appropriate. Each new sub-
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account would invest in a new investment company or in shares of another
open-end investment company. Subject to obtaining any required approvals or
any consents required by applicable law, the Company also reserves the right
to eliminate or combine existing sub-accounts and to transfer the assets of
one or more sub-accounts to any other sub-accounts.
In the event of any substitution or change, the Company may, by appropriate
endorsement, make such changes in this and other policies as may be necessary or
appropriate to reflect the substitution or change. If the Company considers it
to be in the best interests of certificate owners, the Variable Account may be
operated as a management company under the 1940 Act, or it may be deregistered
under that Act in the event registration no longer is required, or it may be
combined with other separate accounts.
No material change in the underlying investment policy of a sub-account of the
Variable Account shall be made until 60 days have elapsed from the date such
change has been filed with the Superintendent of Insurance or such shorter
period as the Superintendent may permit. In the event of a material change in
the underlying investment policy of a sub-account of the Variable Account, you
will be notified of the change. If you have policy value in that sub-account of
the Variable Account or to the General Account. The Company must receive your
written request within sixty (60) days of the later of (1) the effective date of
such change in the investment policy or (2) the receipt of the notice of your
right to transfer. You may then change your premium and deduction allocation
percentages.
FEDERAL TAX CONSIDERATION - The Company intends to make a charge for any effect
which the income, assets or existence of the Variable Account may have upon its
tax. The Variable Account presently is not subject to tax, but the Company may
assess a charge for taxes if the Variable Account at any time becomes subject to
tax.
TRANSFERS OF VALUE
The certificate owner may transfer amounts between the General Account and the
sub-accounts or among the sub accounts by sending the Company a written request.
Once during the first 24 months after the date of issue and during the first 24
months after an increase in the face amount, the certificate owner may transfer,
without charge, all or part of the certificate value in the Variable Account to
the General Account of this certificate. If the certificate owner does so,
future payments will be allocated to the General Account unless specified
otherwise. All other transfers are subject to the following rules.
For the first eighteen months after the effective date of this policy or if the
Company changes the investment philosophy or objectives of any sub-account, you
will have the right to transfer without charge the entire amount in that sub-
account to any other sub-account or to the General Account. This right will
extend for 30 days after we notify you of such a change.
If the Company consents to a transfer, the minimum and maximum amounts that may
be transferred will be determined by the Company according to its then current
rules. In addition,
25
<PAGE>
the Company reserves the right to limit the number of transfers that may be
made in each certificate year, and to establish other reasonable rules
restricting transfers.
The minimum and maximum amounts that may be transferred from the General Account
to the Variable Account shall be determined by the Company. In no event will
the Company's rules provide for a minimum transfer of more than $500. The
maximum transfer amount will not be less than 25% of the certificate value.
Transfers to any sub-account of the Variable Account from the General Account
are permitted only if there has been at least a 180-day period since the last
transfer from the General Account. There is no limit on the number of transfers
between sub-accounts of the Variable Account, and there is no limit on the
number of transfers between the sub-accounts of the Variable Account to the
General Account.
If a transfer would reduce the certificate value in the sub-account from which
the transfer is to be made to less than $100, the Company reserves the right to
include such remaining value in the amount transferred.
There will be no charge for the first twelve transfers per policy year. A
transfer charge of up to $25 will be imposed on each additional transfer and
deducted from the amount that is transferred. Transfers as a result of a
certificate loan or repayment thereof are not subject to these rules.
DOLLAR COST AVERAGING OPTION
The certificate owner may elect automatic transfers of at least $100 to be made
from one sub-account (called the DCA sub-account in this provision) to one or
more of the other sub-accounts of the Variable Account. The Company will permit
the certificate owner designate the Money Market sub-account as the DCA sub-
account. Other sub-accounts of the Variable Account or the General Account may
be designated by the certificate owner as the DCA sub-account subject to the
Company's consent.
Automatic transfers may be made on a monthly, bi-monthly, quarterly, semi-annual
or annual frequency. The Dollar Cost Averaging Option will be treated as one of
the twelve free transfers permitted in a policy year without regard to how many
sub-accounts are elected or the transfer frequency. The Company reserves the
right to limit the number of sub-accounts that may be utilized and may
discontinue this option at any time upon advance written notice to the
certificate owner.
If an automatic transfer reduces the balance in the DCA sub-account to less than
$100, the entire balance will be transferred proportionately to the chosen Sub-
Account(s).
26
<PAGE>
The Dollar Cost Averaging Option will end:
- - when the amount in the DCA sub-account is zero after an automatic transfer
has been made and not payments are allocated to the DCA sub-account before
the next DCA processing date; or
- - upon the certificate owner's request.
The Company will send the certificate owner a written notice when the Dollar
Cost Averaging Option ends. Payments allocated to the DCA sub-account after
this option has ended will not automatically reinstate the option; the
certificate owner must make a new election.
The Dollar Cost Averaging Option and the Automatic Rebalancing Option may not be
in effect at the same time.
AUTOMATIC REBALANCING OPTION
By electing this option the certificate owner may automatically rebalance the
sub-accounts of the Variable Account. The certificate owner may direct the
company to process such transfers on a monthly, bi-monthly, quarterly, semi-
annual or annual frequency. When the certificate owner elects this option he
will designate the percentage allocation for each of the Sub-Accounts chosen.
On each periodic transfer date the Company will review the percentage allocation
in the various Sub-Accounts and, as necessary, transfer funds in order to
reestablish the designated percentage allocation mix.
The Automatic Rebalancing Option will be treated as one of the twelve free
transfers permitted in a policy year without regard to how many sub-accounts are
elected or the transfer frequency. If the amount necessary to reestablish the
designated mix on any transfer date is less than $100, no transfer will be made.
The arrangement may be terminated upon written request. The Company reserves
the right to limit the number of Sub-Accounts that may be utilized for automatic
rebalancing and to discontinue the option upon advance written notice to the
certificate owner.
The Dollar Cost Averaging Option and the Automatic Rebalancing Option may not be
in effect at the same time.
SURRENDER AND PARTIAL WITHDRAWAL OF VALUE
SURRENDER - Upon written request while the insured is living a certificate may
be surrendered by the certificate owner for its surrender value as of the date
the request is received in the Principal Office. The certificate will terminate
on that date. The certificate owner may elect to receive the surrender value in
a lump sum or under a payment option.
27
<PAGE>
SURRENDER VALUE - Except as otherwise provided in the paid-up insurance option,
the surrender value is the certificate value less the [sum of the] debt [and the
applicable surrender charge.]
[The surrender charges, if any, are shown in the Schedule Pages. Any changes in
the surrender charge applicable to a certificate when an insured's face amount
is increased or decreased will be shown in new certificate specification
pages.]
PARTIAL WITHDRAWALS - A certificate owner may withdraw a portion of the
surrender value by written request while a certificate is in force other than as
paid-up insurance. Partial withdrawals may not be made during the first
certificate year. The amount of a partial withdrawal may not be less than the
minimum partial withdrawal amount shown in the Schedule Pages. The partial
withdrawal transaction charge, if any, is shown in the Schedule Pages. In
addition, the withdrawal charge, if any, deducted from the certificate value is
shown in the Schedule Pages.
Under Death Benefit Option 1, the face amount and certificate value will be
reduced by the amount of the partial withdrawal, and the certificate value will
be reduced further by the partial withdrawal transaction charge [and withdrawal
charge.] No partial withdrawal may reduce the face amount to less than the
Minimum Face Amount shown in the Schedule Pages.
Under Death Benefit Option 2, the certificate value will be reduced by the
amount of the partial withdrawal, the partial withdrawal transaction charge [and
the withdrawal charge.]
The Company may defer any transfer from the Variable Account or payment of any
amount payable on surrender, partial withdrawal, transfer, certificate loan, or
death of the insured allocated to the Variable Account during any period when
(a) the NYSE is closed for other than weekends and holidays, or (b) an emergency
exists, as determined by the SEC, such that disposal of portfolio securities or
valuation of assets of the Variable Account is not reasonably practicable.
The Company may postpone a transfer from the General Account or the payment of
any loan, partial withdrawal or surrender from the General Account (other than
for the payment of any premium to the Company) for up to six months from the day
the Company receives the certificate owner's written request and your
certificate, if it is required. The Company will pay interest if payment is not
mailed or delivered within ten days of the date a valid request is made;
however, no interest shall be paid if such interest is less than $25 or the
delay in payment is pursuant to New York law. A "valid request" is made when
all documentation necessary to complete the transaction is received at the
Principal Office. The interest rate credited will be the same rate applied to
proceeds held by the Company under Payment Option C. No payment will be deferred
to pay premiums on policies with the Company.
CERTIFICATE LOANS
CERTIFICATE LOANS - On request a certificate owner may borrow on the sole
security of the certificate.
28
<PAGE>
AMOUNT AVAILABLE - A certificate owner may borrow any amount up to the
certificate's loan value. Except as otherwise provided in the paid-up
insurance option, the maximum loan value in the first certificate year is 75%
of certificate value reduced by applicable surrender charges, monthly
deductions, and interest on debt to the end of the certificate year. The
loan value in the second certificate year and thereafter is 90% of an amount
equal to the certificate value reduced by applicable surrender charges.
There is no minimum limit on the amount of the loan.
The certificate owner may allocate a certificate loan among the General
Account and the sub-accounts. If no such allocation is made, the Company
will allocate the loan PRO RATA on the date the Company receives the loan
request. Certificate value in each sub-account equal to the certificate loan
allocated to each sub-account will be transferred to the General Account to
secure the debt.
LOAN INTEREST - Interest accrues daily at the interest rate shown in the
Schedule Pages. Interest is payable at the end of each certificate year or on a
proportional basis for such shorter period as the debt may exist. Interest not
paid when due will be added to the loan principal and bear interest at the same
rate of interest. If the resulting loan principal exceeds the value in the
General Account, the Company will transfer certificate value equal to that
excess debt from the certificate value in each sub-account to the General
Account as security for the excess debt. The Company will allocate the amount
transferred among the sub-accounts PRO RATA.
REPAYMENT OF DEBT - Debt may be repaid at any time prior to the lapse of a
certificate. Upon repayment of the debt, the portion of the certificate value
that is in the General Account securing the debt will be transferred to the
various accounts and increase the certificate value in these accounts. The
certificate owner may tell the Company how to allocate repayments to the
certificate value among the General Account and the sub-accounts. If no such
instructions are received, the Company will allocate the loan repayment in
accordance with the most recent premium allocation notice. Loan repayments
allocated to the Variable Account cannot exceed certificate value previously
transferred from the Variable Account to secure the debt.
FORECLOSURE - If the debt exceeds the certificate value [less the surrender
charge,] (or the net cash value if a certificate is in force as paid-up
insurance) the certificate will terminate. A notice of such pending termination
will be mailed to the certificate owner's last known address and to any
assignee. If the excess debt is not paid within 62 days after this notice is
mailed, the certificate will terminate with no value.
PAID-UP INSURANCE OPTION
BENEFIT - This is insurance, usually for a reduced amount, for the lifetime of
an insured with no further premiums due. The amount of paid-up insurance is the
amount that the surrender value of the certificate can purchase for a net single
premium at an insured's age and underwriting class on the date this option is
elected. The amount of paid-up insurance may not exceed the death benefit in
effect on the date this option is elected. In the event that the surrender value
of the
29
<PAGE>
certificate exceeds the net single premium for the death benefit on the date
this option is elected, the excess will be paid to the certificate owner.
BASIS OF VALUES - The net single premium is based on the mortality table and
minimum guaranteed interest rate shown in the Schedule Pages. The table of
Guaranteed Net Single Premiums per $1,000 of Insurance is shown in the Schedule
Pages.
EXERCISE OF OPTION - This option may be elected by written request before the
final premium payment date. Certificate value in the Variable Account will be
transferred to the General Account on the date written request to exercise this
option is received in the Principal Office. The Company will issue supplemental
Schedule Pages and endorse the certificate as "paid up" effective as of the
monthly processing date following receipt of the written request. The
supplemental Schedule Pages will show:
- the effective date,
- the death benefit,
- guaranteed cash values, and
- riders.
If an insured dies prior to the effective date, the Company will pay the death
proceeds in effect under the certificate on the date of death.
EFFECT ON THE CERTIFICATE - After the certificate is endorsed as paid up, no
further premiums may be paid. If the death benefit option in effect when the
certificate becomes paid up is Option 2, it will be changed to Option 1. The
certificate owner may not:
- change the death benefit option to Option 2,
- increase or decrease the face amount,
- make partial withdrawals, or
- transfer funds to the Variable Account.
The certificate owner may make certificate loans or surrender the certificate
for its net cash value. Riders will continue only with the consent of the
Company.
The guaranteed cash value of the paid-up insurance equals the net single premium
for the paid-up insurance at the insured's attained age. The net single premium
is determined on the same basis as is used for the purchase price of the paid-up
insurance. The net cash value is the cash value less any debt. The loan value of
paid-up insurance is the amount that, with interest at the certificate
30
<PAGE>
loan interest rate, equals the cash value of the paid-up certificate as of
the next certificate anniversary. The certificate loan interest rate is
shown in the Schedule Pages.
TERMINATION OF POLICY
TERMINATION OF POLICY - This policy may be discontinued by the Company or the
policyholder. The party who initiates the discontinuance will send a notice to
each certificate owner of record, at his or her last known address, at least 15
days prior to the date of discontinuance.
No enrollment forms for new insureds will be accepted on or after the date
notice of discontinuance is received or sent by the Company, whichever is
applicable.
TERMINATION OF INSURANCE CERTIFICATE
TERMINATION OF INSURANCE - Prior to an insured's death, the insured's
certificate will terminate on the first to occur of the following:
- the certificate lapses,
- the foreclosure date,
- the surrender of the certificate is requested,
- the insured is no longer in an eligible class of [employees], or]
[- the insured's coverage is exchanged for coverage with another carrier
or a trustee.]
If an insured ceases to be in an eligible class of [employees], the insured may
continue the certificate by paying premiums directly to the Company.
[If an employee ceases to be in an eligible class of employees or if an eligible
class of employees is discontinued, premiums no longer will be deducted from
wages. The status of the insured's coverage then will change from deduction-
from-wages to direct billing. Certificates on a direct- billing basis are in a
separate and distinct class from certificates of insureds who are on a
deduction-from-wages basis.]
CONTINUATION OF INSURED'S COVERAGE AFTER TERMINATION OF THE POLICY - If this
policy is terminated [and if the coverage on an insured is not transferred to
another insurance carrier,] any certificate then in effect will remain in force
under the discontinued policy, provided it is not cancelled or surrendered by
the certificate owner. [All certificate premiums will be changed from deduction-
from-wages status to direct-billing status. Certificate premiums will then be
payable directly to the Company.]
31
<PAGE>
TRANSFER - If the coverage provided under this policy [to employees of an
employer is] transferred to another insurance carrier or a trustee, the Company
will have the option, with respect to persons not on direct-payment status prior
to the transfer, of transferring certificate values to the new carrier or
trustee or of maintaining the insurance in force on a direct-payment basis. [Any
transferred certificate values will be subject to a surrender charge. ]
[TRANSFER TO ANOTHER INSURANCE CARRIER - If the coverage on an insured under
this policy is transferred to another insurance carrier, any insurance then in
effect not on a direct-payment basis will end on the date the Company receives
written notice of intention to transfer or any later date specified in the
notice.]
PAYMENT OF PROCEEDS
PAYMENT OF PROCEEDS - Upon written request, the surrender value or all or part
of the death proceeds may be placed under one or more of the payment options
currently being offered by the Company. If the certificate owner makes no
election, the Company will pay the benefits in a single sum. Information
regarding the payment options available will be furnished to the certificate
owner or beneficiary upon request. A certificate will be provided to the payee
describing the payment option selected.
If a payment option is selected, the beneficiary, when filing proof of claim,
may pay to the Company any amount that would otherwise be deducted from the
proceeds.
The amount applied under any one option for any one payee must be at least
$5,000. The periodic payment for any one payee must be at least $50.
Subject to the Certificate Owner and Beneficiary provision, the certificate
owner may change any option selection before the proceeds become payable. If
the certificate owner makes no selection, the beneficiary may select an option
when the proceeds become payable.
32
<PAGE>
RIGHT TO EXAMINE CERTIFICATE: You may return this certificate by mailing or
delivering it to our Principal Office or to our agent within ten days after
receiving it or 45 days after you complete the enrollment form, whichever is
later. If returned, the insurance shown in the certificate will be considered
void from the beginning, and you will receive a refund equal to the premiums
paid.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Worcester, Massachusetts
Principal Office: 440 LINCOLN STREET, WORCESTER, MA 01653
1-800-533-7881
Y O U R I N S U R A N C E [GRAPHIC-CERTIFICATE]
- ----------------------------
Certificate Number: [123456]
Insured: [John Doe]
First Allmerica Financial Life Insurance Company certifies that the insured
named in the Certificate Schedule is covered under the group flexible premium
variable life insurance policy identified in the Certificate Schedule.
Certificate Delivered in and Governed by the Laws of New York.
Executed at Worcester, Massachusetts.
/s/ Abigail M. Armstrong /s/ John F. O'Brien
Secretary President
GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CERTIFICATE
Death benefits payable in the event of an insured's death. Adjustable death
benefits may be increased or decreased depending upon the experience of the
separate accounts. Please refer to the "Benefit" Section for an explanation of
how the death benefit is determined. Coverage may expire prior to the Final
Premium Payment Date if premiums paid or the earnings credited are insufficient
to continue coverage to such date. Some benefits reflect investment results.
Flexible premiums payable to age 95. Nonparticipating.
<PAGE>
TABLE OF CONTENTS
Page
CERTIFICATE SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CERTIFICATE OWNER AND BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . .8
BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
GRACE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
[PAYOR OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15]
CERTIFICATE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TRANSFERS OF VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DOLLAR COST AVERAGING OPTION . . . . . . . . . . . . . . . . . . . . . . . . 23
AUTOMATIC REBALANCING OPTION . . . . . . . . . . . . . . . . . . . . . . . . 24
SURRENDER AND PARTIAL WITHDRAWAL OF VALUE . . . . . . . . . . . . . . . . . . 25
CERTIFICATE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PAID-UP INSURANCE OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TERMINATION OF CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . 28
PAYMENT OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2
<PAGE>
CERTIFICATE SCHEDULE
A GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY HAS BEEN ISSUED AND
DELIVERED TO THE GROUP POLICYHOLDER SHOWN BELOW.
POLICYHOLDER: [THE ABC EMPLOYMENT COMPANY] GROUP POLICY NUMBER: [9999]
[EMPLOYER]: [THE ABC EMPLOYMENT COMPANY] CASE NUMBER: [87]
CERTIFICATE DATE: [August 15, 1994] WAITING PERIOD: [30 DAYS]
COVERAGE UNDER THE ABOVE GROUP POLICY IS PROVIDED TO:
INSURED: [JOHN Q. DOE]
CERTIFICATE NUMBER: [123456]
CERTIFICATE OF INSURANCE
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY CERTIFIES THAT IT COVERS THE
INSURED NAMED ABOVE ACCORDING TO THE FOLLOWING SPECIFICATIONS:
FORM NO. SCHEDULE OF BENEFITS
1029-94 NON-SMOKER AGE: [35]
INITIAL FACE AMOUNT [$50,000] OPTION [1]
[FORM NO. RIDERS
1085-94 WAIVER OF [INSURANCE CHARGES]/[PREMIUM RIDER: $XXXX.XX]
1080-94 ACCIDENTAL DEATH BENEFIT RIDER $[50,000]
1081-94 OTHER INSURED RIDER (SEE RIDER SCHEDULE PAGE)
1084-94 LIFE INSURANCE EXCHANGE OPTION RIDER]
[PLANNED PREMIUM: $XXXX.XX a year]
FINAL PREMIUM PAYMENT DATE: [August 15, 2054]
MO. PROCESSING DATE: [1st day of each month]
THE SURRENDER VALUE MAY BECOME INSUFFICIENT TO CONTINUE THIS CERTIFICATE IN
FORCE TO THE FINAL PREMIUM PAYMENT DATE BECAUSE OF THE FOLLOWING FACTORS: POLICY
LOANS, PARTIAL WITHDRAWALS, INCREASES IN FACE AMOUNT, CHANGES IN THE DEATH
BENEFIT OPTION, ADDITIONAL RIDERS, INCREASED CURRENT INSURANCE CHARGES, ADVERSE
INVESTMENT EXPERIENCE AND CHANGES IN THE AMOUNT, TIMING AND FREQUENCY OF PREMIUM
PAYMENTS.
3
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
UNDERWRITING CLASS: [SIMPLIFIED APPLICATION] [STANDARD] [RATED]
MAXIMUM SINGLE PREMIUM: [$XXXXX.XX]
MAXIMUM LEVEL PREMIUM: [$XXXX.XX]
MINIMUM FACE AMOUNT: [$50,000]
MINIMUM INCREASE AMOUNT: [$1,000 - $10,000]
MINIMUM DECREASE AMOUNT: [$1,000 - $10,000]
MINIMUM PARTIAL WITHDRAWAL AMOUNT: [$500]
[MINIMUM MONTHLY FACTOR PERIOD: 48 months beginning on the Certificate Date.]
[MINIMUM MONTHLY FACTOR: $XX.XX]
MORTALITY TABLE: [1980 CSO Mortality Table B, [Smoker or Non-smoker] (Or
appropriate increases in such tables for non-standard risks). For insureds
under age 18, the mortality table used is the 1980 CSO Mortality Table B (or
appropriate increases in such table for non-standard risks) ]
MINIMUM GUARANTEED INTEREST RATE: [4%] a year (General Account only)
MINIMUM GUARANTEED INTEREST RATE FOR LOANED AMOUNTS: [6%] a year
CERTIFICATE LOAN INTEREST RATE: [8%] a year in arrears.
[ADDITIONAL BENEFITS PROVIDED BY RIDER
FORM NO. RIDER COST OF PAYABLE
INSURANCE TO
1085P-94 WAIVER OF [INSURANCE [SEE TABLE]
CHARGES][PREMIUM RIDER]
1080P-94 ACCIDENTAL DEATH BENEFIT [SEE TABLE]
RIDER
1081P-94 OTHER INSURED RIDER [SEE TABLE]
1084P-94 LIFE INSURANCE EXCHANGE [$25]
OPTION RIDER]
3A
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
SCHEDULE OF CHARGES
PREMIUM EXPENSE CHARGE : [2%]
ADMINISTRATIVE CHARGE: [$5] PER MONTH
CHANGE IN FACE AMOUNT CHARGE: [$2.50] PER $1,000 UP TO [$50.00]
SURRENDER CHARGE - [Surrender charges begin on the date of issue of the
certificate and on the effective date of each increase in the face amount.
Certificate Maximum Certificate Maximum Certificate Maximum
Year Surrender Year Surrender Year Surrender
Charge Charge Charge
1 $ XX 6 $ XX 11 $ X
2 XX 7 XX 12 X
3 XX 8 XX 13 X
4 XX 9 XX 14 X
5 XX 10 XX 15 0
Surrender charges decrease linearly each month.]
During the first two certificate years, the actual surrender charge for the
initial face amount is the lesser of the maximum surrender charge, or [$425]
plus [30%] of the first $996.37 of premiums paid plus 9% of the excess.
TRANSFER CHARGE: Will not exceed $25; no charge for the first twelve transfers
in any policy year.
PARTIAL WITHDRAWAL TRANSACTION CHARGE: [2%] of amount withdrawn, not to exceed
[$25] per withdrawal.
WITHDRAWAL CHARGE - [A portion of the partial withdrawal will not be subject to
the withdrawal charge. This amount is (a) less (b) where:
(a) is 10% of the certificate value on the date the written request is
received at our Principal Office, and
(b) is the sum of the withdrawals (or portions thereof) made in the same
certificate year which were not subject to the withdrawal charge.]
[A charge will be made on the balance of the withdrawal (called "excess
withdrawal"). This charge is obtained by multiplying the excess withdrawal by
5%; however, in no event will the withdrawal charge exceed the surrender charge
in effect on the date of the withdrawal.]
[The certificate's surrender charge will be reduced by the withdrawal charge, if
any. There will be no withdrawal charge if there is no surrender charge
applicable to the certificate on the date of the withdrawal.]
3A
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
VARIABLE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE: One-twelfth of the charge,
currently [.90%] on an annual basis, applied each month to the prior month's
sub-account value. This charge may not exceed .90% on an annual basis.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: [One-twelfth of the charge, currently
[.0%] on an annual basis applied each month to the prior month's sub-account
value. This charge may not exceed [.25%] on an annual basis, for up to [10]
policy years.]
MINIMUM DEATH BENEFIT TABLE
<TABLE>
<CAPTION>
AGE PERCENT AGE PERCENT
--- ------- --- -------
<S> <C> <C> <C>
[thru 40 250% 60 130
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75 thru 90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95 100]
</TABLE>
3C
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF INSURANCE
<TABLE>
<CAPTION>
AGE MONTHLY RATE AGE MONTHLY RATE AGE MONTHLY RATE
<S> <C> <C> <C> <C> <C>
[1 0.107367 32 0.152234 63 1.670072
2 0.099022 33 0.156409 64 1.857654
3 0.097979 34 0.167460 65 2.063881
4 0.094850 35 0.171023 66 2.287829
5 0.090678 36 0.180420 67 2.527497
6 0.086507 37 0.190862 68 2.783030
7 0.081293 38 0.204438 69 3.062172
8 0.078165 39 0.219062 70 3.379323
9 0.076079 40 0.234733 71 3.790732
10 0.075037 41 0.253542 72 4.161454
11 0.078165 42 0.271311 73 4.655584
12 0.085464 43 0.293267 74 5.213054
13 0.097979 44 0.314182 75 5.822860
14 0.112582 45 0.340335 76 6.478284
15 0.157453 46 0.366497 77 7.174732
16 0.177287 47 0.394761 78 7.905188
17 0.192950 48 0.427226 79 8.692701
18 0.153278 49 0.460752 80 9.569594
19 0.158497 50 0.497438 81 10.562707
20 0.161628 51 0.541484 82 11.704274
21 0.161628 52 0.590804 83 13.019195
22 0.158497 53 0.647509 84 14.484673
23 0.156409 54 0.712665 85 16.089642
24 0.153278 55 0.783139 86 17.795048
25 0.150146 56 0.859996 87 19.620188
26 0.147015 57 0.943258 88 21.530024
27 0.145972 58 1.031888 89 23.559309
28 0.143884 59 1.128019 90 25.740786
29 0.145972 60 1.239089 91 28.127585
30 0.145972 61 1.361981 92 30.804714
31 0.149103 62 1.504187 93 33.942691
94 38.120888]
</TABLE>
3D
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
PAID-UP INSURANCE OPTION
TABLE OF GUARANTEED NET SINGLE PREMIUMS
PER $1,000 OF INSURANCE
<TABLE>
<CAPTION>
NET SINGLE NET SINGLE NET SINGLE
AGE PREMIUM AGE PREMIUM AGE PREMIUM
<S> <C> <C> <C> <C> <C>
[1 60.894 32 173.7248 63 511.4018
2 62.643 33 180.3151 64 526.5514
3 64.5529 34 187.1735 65 541.7773
4 66.5578 35 194.2909 66 557.0621
5 68.6865 36 201.6876 67 572.3916
6 70.9527 37 209.3558 68 587.7782
7 73.3546 38 217.3019 69 603.2328
8 75.9143 39 225.5191 70 618.7454
9 78.6229 40 234.0147 71 634.2734
10 81.4711 41 242.7895 72 649.5793
11 84.4651 42 251.8450 73 664.9097
12 87.5637 43 261.1969 74 679.9816
13 90.7399 44 270.8414 75 694.7264
14 93.9499 45 280.7952 76 709.1245
15 97.1798 46 291.0497 77 723.1920
16 100.447 47 301.6162 78 736.9687
17 103.7534 48 312.5073 79 750.5269
18 107.1251 49 323.7105 80 763.9053
19 110.6045 50 335.2460 81 777.0900
20 114.2047 51 347.1163 82 790.0470
21 117.9392 52 359.3003 83 802.7011
22 121.8535 53 371.7959 84 814.9721
23 125.9714 54 384.5779 85 826.8582
24 130.3024 55 397.6278 86 838.4168
25 134.8639 56 410.9453 87 849.8197
26 139.6589 57 424.5311 88 861.2630
27 144.7056 58 438.3814 89 873.0856
28 149.9928 59 452.4987 90 885.7281
29 155.5466 60 466.8925 91 899.8253
30 161.3417 61 481.5193 92 916.3037
31 167.4044 62 496.3733 93 936.6055
94 963.1215]
</TABLE>
The rates shown above are based on 1980 CSO Table [B], [Nonsmoker} with interest
at [4.5]% a year.
3E
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
TABLE OF MONTHLY WAIVER RIDER COST OF INSURANCE RATES
<TABLE>
<CAPTION>
MONTHLY MONTHLY
AGE RATE AGE RATE
<S> <C> <C> <C>
[0-19 0.04 42 0.06
20 0.04 43 0.06
21 0.04 44 0.06
22 0.04 45 0.06
23 0.04 46 0.07
24 0.04 47 0.07
25 0.04 48 0.08
26 0.04 49 0.08
27 0.04 50 0.09
28 0.04 51 0.10
29 0.04 52 0.11
30 0.04 53 0.12
31 0.05 54 0.13
32 0.05 55 0.15
33 0.05 56 0.17
34 0.05 57 0.18
35 0.05 58 0.20
36 0.05 59 0.14
37 0.05 60 0.14
38 0.05 61 0.14
39 0.05 62 0.14
40 0.05 63 0.14
41 0.06 64 0.14]
</TABLE>
THE MONTHLY CHARGE IS APPLIED TO THE GREATER OF THE CURRENT MONTH'S INSURANCE
AND RIDER CHARGES OR ONE-HALF OF THE MONTHLY WAIVER BENEFIT.
3F
<PAGE>
CERTIFICATE SCHEDULE (CONTINUED)
CERTIFICATE NUMBER: [12334] EFFECTIVE DATE: [July 7, 1994]
OTHER INSURED: [MARY DOE] TERM BENEFIT: [$10,000]
AGE [35] SEX [FEMALE] TERM EXPIRY DATE: [July 7, 2054]
UNDERWRITING CLASS [NON-SMOKER]
OTHER INSURED RIDER
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF INSURANCE
<TABLE>
<CAPTION>
AGE MONTHLY RATE AGE MONTHLY RATE AGE MONTHLY RATE
<S> <C> <C> <C> <C> <C>
32 0.152234 63 1.670072
33 0.156409 64 1.857654
34 0.16746 65 2.063881
35 0.171023 66 2.287829
36 0.18042 67 2.527497
37 0.190862 68 2.78303
38 0.204438 69 3.062172
39 0.219062 70 3.379323
40 0.234733 71 3.790732
41 0.253542 72 4.161454
42 0.271311 73 4.655584
43 0.293267 74 5.213054
44 0.314182 75 5.82286
45 0.340335 76 6.478284
46 0.366497 77 7.174732
47 0.394761 78 7.91
[18 0.153278 49 0.460752 80 9.569594
19 0.158497 50 0.497438 81 10.562707
20 0.161628 51 0.541484 82 11.704274
21 0.161628 52 0.590804 83 13.019195
22 0.158497 53 0.647509 84 14.484673
23 0.156409 54 0.712665 85 16.089642
24 0.153278 55 0.783139 86 17.795048
25 0.150146 56 0.859996 87 19.620188
26 0.147015 57 0.943258 88 21.530024
27 0.145972 58 1.031888 89 23.559309
28 0.143884 59 1.128019 90 25.740786
29 0.145972 60 1.239089 91 28.127585
30 0.145972 61 1.361981 92 30.804714
31 0.149103 62 1.504187 93 33.942691
94 38.120888]
</TABLE>
3G
<PAGE>
DEFINITIONS
[ACQUIRED - means born or legally adopted.]
AGE - means the insured's age as of the nearest birthday measured from a
certificate anniversary.
AMOUNT AT RISK - for each certificate is the death benefit provided by the
certificate less its certificate value.
BENEFIT CHANGE - means any change in a certificate's face amount, the addition
or deletion of a rider or a change in the death benefit option for an insured.
CERTIFICATE DATE - is shown in the Certificate Schedule, and is the effective
date of coverage under this certificate. Certificate months, years and
anniversaries are measured from this date.
CERTIFICATE OWNER - means you or your assignee.
CERTIFICATE YEAR - means a period of 12 months commencing on the same day of the
year as the certificate date.
DEATH PROCEEDS - is the death benefit adjusted for any debt, rider charges and
monthly deductions.
DEBT - means any unpaid certificate loans, plus interest due and accrued on such
loans.
[DEPENDENT - means your eligible spouse.]
[DEPENDENT COVERAGE - means the life insurance in effect on the life of a
dependent.]
ENROLLMENT FORM - means the form which is completed and signed by the applicant
when applying for the initial coverage.
EVIDENCE OF INSURABILITY - is information, including medical information,
satisfactory to us, that is used to determine an insured's underwriting class.
4
<PAGE>
FINAL PREMIUM PAYMENT DATE - means the certificate anniversary nearest the
insured's 95th birthday.
[MONTHLY DEDUCTION SUB-ACCOUNT - is a sub-account of the Variable Account to
which net premiums are allocated to pay all or a portion of the insurance
charges, charges for any benefits provided by riders, and administrative
charges.]
MONTHLY PROCESSING DATE - is the date on which the monthly deduction is deducted
from certificate values. This date is shown in the Schedule Page.
NET PREMIUM - is equal to the premium less the premium expense charge.
OWNER - is the owner of this certificate.
PAID-UP INSURANCE - is insurance, usually for a reduced amount, on which no
further premiums are due.
PRINCIPAL OFFICE - means our office located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
PRO RATA - refers to the manner in which a payment or deduction will be
allocated among the General Account and/or the sub-accounts of the Variable
Account, excluding the monthly deduction sub-account. A PRO-RATA allocation
will be in the same proportion that the certificate value in each account or
sub-account bears to the total certificate value.
SUB-ACCOUNTS - are the sub-accounts of the Variable Account.
SURRENDER VALUE - except as otherwise provided in the paid-up insurance option,
is the certificate value less the [sum of the] debt [and the applicable
surrender charge.]
WE, US, OUR - means FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY. To reach
our service center, call 1-800-533-7881.
WRITTEN REQUEST - is a request [in writing] satisfactory to us, and filed at our
Principal Office.
YOU, YOUR - means the owner of this certificate.
GENERAL PROVISIONS
ADJUSTMENT OF COST FACTORS - Monthly insurance charges, premium expense charges,
5
<PAGE>
administrative charges and a charge for mortality and expense risk used to
calculate certificate values are set by us, subject to any guarantees set forth
in the policy. Any changes in these factors will be by underwriting class, and
will be based on changes in future expectations for such elements as:
investment earnings, mortality, persistency and expenses.
INCONTESTABILITY - Except for failure to pay premiums, the insurance coverage
under this certificate cannot be contested after it has been in force during the
insured's lifetime for two years from the certificate date.
Except for failure to pay premiums, a requested increase in the face amount
cannot be contested after the increased amount has been in force during the
insured's lifetime for two years from its effective date.
All statements by any insured person in an enrollment form, including any
subsequent applications, are considered representations and not warranties. We
will not use any statement to contest the coverage under this certificate or
defend a claim unless the statement is in an enrollment form or application, and
a copy of the instrument containing the statement is or has been furnished to
the insured or the beneficiary.
MISSTATEMENT OF AGE - If an insured's age is misstated, and death occurs before
the insured's age 95, the death proceeds will be adjusted. The adjusted death
proceeds will be equal to the insured's certificate value plus the death benefit
which the insurance charges for the amount at risk on the monthly payment date
immediately prior to the date of death would have purchased at the correct age.
OWNERSHIP OF ASSETS - We shall have exclusive and absolute ownership and control
of our assets, including the assets of the Variable Account.
MONEY PAYABLE - All money payable by or to us is to be paid in the lawful
currency of the United States of America.
SUICIDE EXCLUSION - The risk of suicide of an insured within two years of the
certificate date is not assumed. Instead of the death benefit, the beneficiary
will receive the sum of the certificate premiums paid less the sum of any
outstanding debt and partial withdrawal amounts.
The risk of suicide of an insured within two years of the effective date of any
requested increase in the face amount is also not assumed to the extent of such
increase. Instead of the death benefit for the increase in face amount, the
beneficiary will receive the sum of the monthly deductions paid for such
increase.
6
<PAGE>
ASSIGNMENT - You may assign rights in the certificate subject to the provisions
of the Certificate Owner and Beneficiary provision.
PROTECTION OF PROCEEDS - To the extent allowed by law, the death proceeds and
certificate values will be exempt from attachment by the claims of creditors of
the payee. No beneficiary can assign, transfer, anticipate or encumber the
proceeds or payments unless you give them this right.
ANNUAL REPORT - A report will be mailed to your last known address at least once
a year. This report will show the following information for each certificate as
of a date not more than two months prior to the date of the report:
o the death benefit,
o the certificate value in the General Account and in each sub-account,
o the surrender value,
o certificate premiums paid and monthly deductions made during the year,
o partial withdrawals and certificate loans, including accrued interest,
o increases and decreases in the face amount,
o changes in the Maximum Single Premium and the Maximum Level Premium;
and
o any other information required by law.
PROJECTIONS - You may request an illustration of future benefits based on both
the guaranteed and then current assumptions. We reserve the right to charge a
fee for each projection requested; however, the fee will never be more than $25.
AUTHORITY - No change in the certificate will be valid until it is approved by
our President, a Vice President or Secretary. This approval must be endorsed on
or attached to the certificate. The consent of an insured or other person
referred to in this certificate is required to amend, modify or change this
certificate. No agent or other person has authority to accept representations
or information not in a written enrollment form or application, nor may that
person change this certificate or waive any of its provisions.
7
<PAGE>
CERTIFICATE OWNER AND BENEFICIARY
CERTIFICATE OWNER - The insured is the owner of the certificate insuring his or
her life unless another is named as owner in the enrollment form. The owner may
change the ownership without the consent of any beneficiary. The consent of the
insured is required whenever the face amount of insurance is increased. The
owner may exercise all other rights and options granted by the certificate,
subject to the consent of any irrevocable beneficiary. The consent of any
revocable beneficiary is not required.
ASSIGNMENT - A certificate may be assigned by written request. An absolute
assignment will transfer ownership from you to the assignee. A certificate may
also be collaterally assigned as security. The limitations on ownership rights
while a collateral assignment is in force are set forth in the assignment. An
assignment will take place only when recorded at our Principal Office. When
recorded, the assignment will take effect as of the date the written request was
signed. Any rights created by the assignment will be subject to any payments
made or actions taken by us before the change is recorded.
We will not be responsible for the validity of any assignment or the extent of
any assignee's interest. If a certificate is assigned as collateral, any excess
of the amount due the assignee will accrue to those otherwise entitled to it.
BENEFICIARY - The beneficiary is named by you to receive the death proceeds.
The interest of any beneficiary will be subject to any assignment. A
beneficiary may be revocable or irrevocable. A revocable beneficiary may be
changed at a later time. An irrevocable beneficiary must consent in writing to
any change. Unless otherwise indicated, the beneficiary will be revocable.
A change of beneficiary may be made by written request while the insured is
living. The change will take place as of the date the request is signed even if
the insured is not living on the day the request is received by us. Any rights
created by the change will be subject to any payments made or actions taken by
us before the written request is received.
The interest of a beneficiary who dies before the insured will pass to the
surviving beneficiaries in proportion to their share in the proceeds unless
otherwise provided. If a common disaster clause is in effect on the date of the
insured's death, the beneficiary must survive the insured for the number of days
following the date of the insured's death as shown in the clause (exclusive of
the date of the insured's death); otherwise payment will be made in the same
manner as if such beneficiary had predeceased the insured. If all beneficiaries
die before the insured, the death proceeds will pass to the owner or the owner's
estate.
8
<PAGE>
BENEFIT
DEATH PROCEEDS - Except as otherwise provided in the paid-up insurance option,
the amount payable on the death of the insured prior to the final premium
payment date will be the death benefit under either Option 1 or Option 2,
whichever is applicable. Options 1 and 2 are described later. Any debt, rider
charges, and monthly deductions due and unpaid through the certificate month in
which the insured dies will be deducted from the death proceeds. Any partial
withdrawals and withdrawal charges applicable since the last monthly processing
date also will be deducted from the death proceeds. The amount payable on the
death of the insured after the final premium payment date will be the
certificate value less debt and less any partial withdrawals and withdrawal
charges applicable since the last monthly processing date.
Interest will be paid on lump sum death proceeds at a rate not less than 3% per
year or the minimum rate set by law, if greater. Interest will be paid from the
date of death to the payment date.
MINIMUM DEATH BENEFIT - This certificate provides a minimum amount at risk on
the insured. The minimum death benefit is obtained by multiplying the
certificate value by the percentage shown in the Minimum Death Benefit Table for
the insured's attained age. The minimum death benefit varies by age. The
Minimum Death Benefit Table is shown in the Certificate Schedule.
The minimum death benefit is determined according to the rules set forth in the
federal tax laws. The minimum death benefit will be adjusted to conform to any
changes in the law.
DEATH BENEFIT OPTIONS - There are two death benefit options. The option is
elected in the insured's enrollment form. The death benefit options are:
Option 1 - The death benefit is the greater of:
o the face amount, or
o the minimum death benefit.
Option 2 - (Not available under paid-up insurance option) The death benefit is
the greater of:
o the face amount plus the certificate value on the date due proof of
death is received by us, increased by any monthly deductions made by
us after the date of death, or
o the minimum death benefit.
9
<PAGE>
FACE AMOUNT - The face amount is shown in the Certificate Schedule. The death
benefit option may be changed by you upon written request. The effective date
of the change is the monthly processing date following the date the request is
received at our Principal Office. Evidence of insurability is required to
change from Option 1 to Option 2. If the change is from Option 1 to Option 2
and we determine, based on the evidence of insurability, that the insured is an
acceptable risk, the face amount under Option 2 will be equal to the death
benefit less the certificate value under Option 1 on the effective date of the
change. If the change is from Option 2 to Option 1, the face amount will be
equal to the death benefit under Option 2 on the effective date of the change.
The death benefit option may not be changed more than once in any certificate
year. The option may not be changed if it reduces the face amount to less than
the Minimum Face Amount shown in the Certificate Schedule.
BENEFIT CHANGE - The face amount of this certificate of insurance may be changed
according to the Increase or Decrease provisions if such request is made by you:
o during the lifetime of the insured, and
o by written request while the certificate is in force.
We will deduct the transaction charge for a change in face amount from the
certificate value on the effective date of the change. The transaction charge
for a change is shown in the Certificate Schedule.
INCREASE - All of the following must occur before the effective date of any
increase in the face amount:
o evidence of insurability must be provided to us,
o the insured must be under our maximum issue age for new insurance and
be insurable according to our underwriting rules, and
o payment to us of the transaction charge for an increase plus two times
the next monthly deduction, if the certificate surrender value is less
than this sum.
The effective date of the increased face amount will be the first monthly
processing date on or following the date all the conditions are met. New
certificate pages, including a Supplemental Insurance Charge Table, will be
issued. These pages will include the following information for the additional
face amount of insurance:
o the effective date,
10
<PAGE>
o the amount of the increase,
o the underwriting class,
o a new Table of Guaranteed Net Single Premiums, if the underwriting
class of the insured has changed,
o the new Maximum Single Premium and Maximum Level Premium applicable to
the certificate[, and]
[o any applicable surrender charge and Minimum Monthly Factor].
The minimum increase amount is shown in the Certificate Schedule.
You may return the new certificate pages by mailing or delivering them to our
Principal Office or to our agent within ten days after receiving them, 45 days
after you complete Part 1 of the application for the increase, or ten days after
we mail you the Notice of Withdrawal Right. If the certificate pages are
returned, the increase will be considered void from the beginning, and we will
refund the charges deducted from the certificate value which would not have been
deducted but for the increase. The refunded amount will be added to your
certificate value unless you otherwise request. We also will waive any
surrender charge for the increase.
DECREASE - Existing insurance will be decreased or eliminated in the following
order:
o first, the most recent increase,
o second, the next most recent increases successively, and
o last, the initial face amount.
A surrender charge, if applicable, will be deducted from the certificate value
on the date of the decrease. Such charge will be:
o the surrender charge for any increased amount which is eliminated in
the order set forth above, plus
o a proportionate share of the surrender charge for a partial reduction
in an increase or in the initial face amount.
You may specify from which sub-account this charge will be deducted. If you do
not so specify, we will allocate the charge among the General Account and all
the sub-accounts
11
<PAGE>
[(except the monthly deduction sub-account if the Payor Option is in force)] in
the same proportion that the certificate value in the General Account and the
certificate value in each sub-account bear to the total certificate value.
The effective date of the decreased face amount will be the first monthly
processing date on or following the date of our receipt of the request for a
decrease. New specification pages will be issued. These pages will include the
following information:
o the effective date of the decrease,
o the revised surrender charge, if any, as of the effective date of the
decrease,
o the amount of the decrease and the benefit remaining in force[, and]
o the new Maximum Single Premium and Maximum Level Premium[, and]
[o the new Minimum Monthly Factor.]
The minimum decrease amount is shown in the Certificate Schedule. The decrease
will not be approved if it results in a certificate face amount less than the
Minimum Face Amount.
PREMIUMS
CERTIFICATE PREMIUMS - The certificate premium is the premium paid for insurance
coverage under the policy. The amount of certificate premium [authorized by you
on the enrollment form to be deducted from your wages] is called the planned
premium. Additional certificate premiums, called "unplanned premiums," may be
paid at any time before the insured's age 95 or the date the paid-up insurance
option is elected, if sooner. Certificate premiums may be in any amount subject
to the limits described below. Planned premium payments may be skipped, or their
frequency and amount may be changed.
MAXIMUM PREMIUM - We may limit the maximum certificate premium received in any
certificate year to an amount not less than the Maximum Level Premium. The sum
of the premiums paid on each certificate, less any partial withdrawals, may not
exceed the greater of:
o the Maximum Single Premium, or
o the sum of the Maximum Level Premiums to the date of payment.
The amounts of the Maximum Single Premium and Maximum Level Premium are shown in
12
<PAGE>
the Certificate Schedule. The Maximum Single Premium and Maximum Level Premium
will change whenever there is a benefit change. The new Maximum Single Premium
and Maximum Level Premium will be shown in new specification pages issued with
each benefit change. These premium limitations do not apply to the extent
necessary to prevent lapse of the certificate during the certificate year.
The Maximum Single Premium and Maximum Level Premium are determined according to
the rules set forth in the federal tax laws. These premiums will be adjusted to
conform to any changes in the federal tax laws.
In the event the maximum premium limit applies, we will return the excess
premium payment with interest to you within 60 days after the policy
anniversary. The Company will pay interest on each premium refund at the
General Account interest rate in effect on the date such premium was paid.
NET PREMIUMS AND ALLOCATION OF NET PREMIUMS - The net premium is equal to the
premium less any premium expense charge. The premium expense charge in effect
on the certificate issue date is shown in the Certificate Schedule as "PREMIUM
EXPENSE CHARGE." It may be adjusted to reflect any increase or decrease in the
applicable state or local premium expense rate.
You may allocate the net premiums to one or more of the sub-accounts, to the
General Account, or to any combination of these accounts. You may not allocate
net premiums to more than seven sub-accounts at any one time without our
consent. There may not be certificate value in more than seven sub-accounts at
any one time. The minimum percentage that you may allocate to any one of these
accounts is 1% of the net premium paid. All percentage allocations must be in
whole numbers. The total allocation to all selected accounts must equal 100%.
The sub-accounts that you chose for your initial allocations are shown in the
enrollment form for this certificate, a copy of which is attached to this
certificate. You may change the allocation of future net premiums at any time
upon written request. A processing charge of up to $25 may be made for changing
the premium allocation.
CONTINUATION OF COVERAGE - If planned premiums are not paid as scheduled, the
coverage under the certificate will continue in force as long as the surrender
value of the certificate is sufficient to cover the monthly deduction. If the
surrender value of the certificate is not sufficient, the Certificate Grace
Period provision will apply.
GRACE PERIOD
CERTIFICATE GRACE PERIOD - [If the certificate is in a Minimum Monthly Factor
Period, the certificate grace period of 62 days will begin if the sum of the
premiums paid since the
13
<PAGE>
beginning of the Minimum Monthly Factor Period less debt, partial withdrawals
and partial withdrawal charges made during the Minimum Monthly Factor Period is
less than the Minimum Monthly Factor times the number of months elapsed since
the beginning of the Minimum Monthly Factor Period.] [Thereafter,] the
certificate grace period of 62 days will begin if the surrender value of the
certificate is less than the amount needed to pay the next monthly deduction.
We will send a notice to your last known address at least 15 days and not more
than 30 days prior to the end of the grace period if the surrender value is not
adequate to prevent lapse.
REINSTATEMENT - A certificate may be reinstated during the insured's lifetime if
the coverage has ended because of non-payment of the premium (lapsed) and has
not been surrendered. A certificate will be reinstated effective on the monthly
processing date following the date we receive:
o a written application for reinstatement,
o evidence of insurability showing the insured is insurable according to
our underwriting rules, and
o payment of the reinstatement premium.
The reinstatement premium will not exceed the amount necessary to keep the
certificate in force for three months beginning on the date of reinstatement.
The premiums paid on reinstatement will be allocated to the General Account and
the sub-accounts in accordance with your most recent premium allocation.
The certificate value on the date of reinstatement is:
o the net premium paid to reinstate the certificate increased by
interest from the date the payment was received at our Principal
Office, plus
o an amount equal to the certificate value less debt on the date of
default, minus
o the monthly deduction due on the date of reinstatement.
[The surrender charge on the date of reinstatement is the surrender charge which
would have been in effect had the certificate remained in force from its date of
issue. The certificate value less debt on the date of default will be restored
to the certificate to the extent it does not exceed the surrender charge on the
date of reinstatement. Any debt as of the date of default which was not repaid
on the date of reinstatement will be reinstated.]
14
<PAGE>
[PAYOR OPTION
PREMIUM BILLING AND ALLOCATION - The Payor Option is elected when a payor is
named in the enrollment form. Our premium billing procedure will be modified as
described in this section if the Payor Option is elected.
We will mail all premium notices to the payor while this option is in effect.
The premium notices will include the insurance charges and administrative
charges to be paid by you and the payor. The net premiums paid by you and the
payor for these charges will be allocated to the monthly deduction sub-account,
and the balance of the net premiums will be allocated to the General Account and
appropriate sub-accounts as you direct. No loans, partial withdrawals or
transfers may be made from the monthly deduction sub-account while this option
is in effect.
CHANGES IN THE FACE AMOUNT AND PARTIAL WITHDRAWALS - In the event the payor
agrees to pay the monthly deductions for a specified amount of coverage, you may
purchase additional amounts of insurance in accordance with the Increase
provision of this certificate. In the event you later decide to decrease the
face amount of coverage or make a partial withdrawal, you may eliminate that
portion of the face amount for which you are paying the charges before
eliminating amounts of insurance which are paid for by the payor.
GRACE PERIOD - We will send a notice to the payor if the value of the monthly
deduction sub-account is less than the amount needed to pay the next monthly
deduction under the certificate. This notice will be sent to the last known
address of the payor. The notice will state the due date and the amount of
premium payable. The premium may be paid during a period of 62 days, beginning
on the premium due date. The certificate will remain in force during this grace
period.
We will send a notice to you if the premium shown in the grace period notice is
not received by us within 31 days of the end of the grace period, and if the
certificate value is not sufficient to maintain the insurance in force.
If the value of the monthly deduction sub-account at the end of the grace period
is not sufficient to pay the monthly deductions which are due, the balance of
the monthly deductions will be withdrawn from the certificate value, if any, in
the General Account and the sub-accounts . A lapse occurs if the certificate
value at the end of the grace period is not sufficient to pay the monthly
deductions which are due. The certificate terminates on the date of lapse. The
death benefit payable during the grace period will be reduced by any overdue
charges.
15
<PAGE>
This option will terminate upon request by you or the payor. If this option
terminates at the written request of the payor, a notice will be sent to your
last known address. This notice will include a statement showing the premium
due, if any.]
CERTIFICATE VALUE
CERTIFICATE VALUE - The certificate value on the date of issue is the net
certificate premium paid, plus any interest earned during the period when
premiums are held in the General Account, less the first monthly deduction.
MONTHLY DEDUCTION - The monthly deduction from each certificate's value is the
insurance charge, the administrative charge, a charge for the cost of any
additional benefits provided by rider, the Variable Account administrative
charge, and the Variable Account mortality and expense risk charge.
These charges will be allocated as follows:
You may specify from which sub-account the insurance charge, the
administrative charge, and the charges for the cost of any additional
benefits provided by riders will be deducted. [If the Payor Option is in
force, all monthly insurance and administrative charges will be deducted
from the monthly deduction sub-account.] If you do not so specify, these
charges will be allocated PRO RATA among the General Account and the sub-
accounts.
The Variable Account administrative charge and the Variable Account
mortality and expense risk charge are assessed against each sub-account
that generates a charge. In the event this charge is greater than the
value of the sub-account to which it relates on a monthly processing date,
the unpaid balance will be totaled and allocated PRO RATA among the General
Account and the sub-accounts.
Monthly deductions are made on the certificate date and on each monthly
processing date until the final premium payment date. Monthly deductions are
not made if you elect the paid-up option.
INSURANCE CHARGES - Beginning on the date of issue of each certificate and
monthly thereafter, prior to the insured's age 95, an insurance charge will be
deducted from the certificate value. [You may specify from which sub-account
this charge will be deducted.]
For each certificate, the insurance charge equals the sum of the insurance
charges applicable
to the following:
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o the initial face amount, plus
o each increase in the face amount, plus
o any rider benefits.
The insurance charge will be determined each month by the Company. Any change
in the insurance charge will be uniform by underwriting class. The monthly
insurance charge will be adjusted for any decreases in the face amount according
to the Benefit Change provision.
For each certificate, the monthly insurance charge for the initial face amount
will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Insurance Charge Table for
the insured's age, and
(2) is the initial face amount divided by 1,000. For the purpose of this
calculation, the initial face amount will be reduced by the
certificate value minus the administrative charge and charges for
rider benefits at the beginning of the month if Death Benefit Option 1
is in effect to the extent such certificate value does not exceed the
initial face amount; however, if the certificate value exceeds the
initial face amount while Death Benefit Option 1 is in effect, the
excess certificate value will be applied to reduce any increases in
the face amount in the order in which the increases were issued.
The monthly insurance charge for each increase in the face amount issued at the
certificate owner's request will not exceed (1) multiplied by (2) where:
(1) is the cost of insurance rate shown in the Supplemental Insurance
Charge Table for the insured's age, and
(2) is the amount of the increase in the face amount divided by 1,000.
For the purpose of this calculation, the increase in the face amount
will be reduced by the excess certificate value minus charges for
rider benefits (as described in the monthly insurance charge for the
initial face amount, above) at the beginning of the month if Death
Benefit Option 1 is in effect.
If the death benefit of any certificate is the [minimum death benefit] as
defined above, the monthly insurance charge for that portion of the death
benefit which exceeds the face amount will not exceed (1) multiplied by the
quotient of (2) divided by 1,000 where:
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(1) is the cost of insurance rate applicable to the initial face amount,
and
(2) is the death benefit less:
(a) the greater of the face amount or the certificate value if Death
Benefit Option 1 is in effect, or
(b) the face amount plus the certificate value if Death Benefit
Option 2 is in effect.
COST OF INSURANCE RATE - The cost of insurance is based on the insured's age and
underwriting class. The guaranteed rates are based on the mortality table shown
in the Certificate Schedule. We will review the current monthly cost of
insurance rates when rates for new group flexible premium variable life
insurance policies change. Rates will be reviewed not more than once each year
nor less than once in a five-year period. The cost will not exceed the
guaranteed amounts shown in the Insurance Charge Table and any supplements to
it.
GENERAL ACCOUNT - The General Account consists of all assets owned by us other
than those in the Variable Account and other separate accounts. Subject to
applicable law, we have sole discretion over the investment of the assets in the
General Account. The allocation or transfer of funds to the General Account
does not entitle you to share in the investment experience of the General
Account.
BASIS OF VALUE OF GENERAL ACCOUNT - Minimum certificate values of the General
Account are based on the mortality table(s) and minimum guaranteed interest
rate(s) shown in the Schedule Pages. Certificate values are based on interest
rates and insurance rates set by the Company. A detailed statement of the way
this value is determined has been filed with the State Insurance
Department. All values are not less than the minimums required by the law in
the state in which the certificate is delivered.
INTEREST RATE - The guaranteed minimum interest rate used to calculate
certificate values in the General Account is shown in the Certificate Schedule.
The actual interest rate will be determined periodically by us at least
annually; however, the interest rate applicable to that portion of the
certificate value equal to existing debt will be not less than the rate shown in
the Certificate Schedule.
The interest rate in effect on the date a premium is received at our Principal
Office is guaranteed for one year unless the certificate value associated with
the premium becomes subject to a certificate loan. Certificate value will be
used for payment of fees, charges, certificate loans and partial withdrawals on
a last-in, first-out basis.
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GENERAL ACCOUNT CERTIFICATE VALUE - If premium is paid with the enrollment form
or at any time prior to issuance and acceptance of the certificate, that premium
will be placed in the General Account on the date it is received at our
Principal Office. All certificate value will be allocated in accordance with
your premium allocation no later than the expiration of the period during which
you may exercise your right to examine the certificate.
On each monthly payment date, the certificate value in the General Account is:
o the certificate value in the General Account on the preceding monthly
payment date increased by one month's interest; plus
o net premiums received since the last monthly payment date which are
allocated to the General Account, increased by interest from the date
the payment is received by us; plus
o Variable Account certificate value transferred to the General Account
from any sub-account since the preceding monthly payment date,
increased by interest from the date the certificate value is
transferred; less
o certificate value transferred from the General Account to a sub-
account since the preceding monthly payment date, and interest on
said transfers from the date of transfer to the monthly payment date;
less
o partial withdrawals from the General Account, partial withdrawal
charges and partial withdrawal transaction charges since the last
monthly payment date, and interest on such withdrawals and charges
from the date of withdrawal to the monthly payment date; less
o any transaction charges for any increase in the face amount since the
last monthly payment date, and interest on such charges to the monthly
payment date; less
o any surrender charges incurred since the last monthly payment date,
and interest on such charges to the monthly payment date; and less
o the portion of the month deduction allocated to the certificate value
in the General Account.
During any certificate month, the certificate value will be calculated on a
consistent basis.
VARIABLE ACCOUNT - The certificate value may vary if funded through investments
in the sub-accounts. The Variable Account is separate from our General Account.
That portion of the
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assets of the Variable Account equal to the reserves and other certificate
liabilities of the certificates which are supported by the Variable Account will
not be charged with liabilities that arise from any other business we conduct.
We established the Variable Account to support variable life insurance
contracts. The Variable Account is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940 ("1940 Act"). It also is governed by the laws of the State of Delaware
and New York. The laws of the state in which the certificate is delivered.
The Variable Account has several sub-accounts. We reserve the right, subject to
compliance with applicable law, to change the names of the Variable Account or
its sub-accounts. The sub-accounts in which you initially chose to invest are
shown in your enrollment form.
Each sub-account invests its assets in a separate registered investment company
or a separate series of a registered investment company ("Fund").
Income and realized and unrealized gains or losses from the assets of each sub-
account are credited to or charged against that sub-account without regard to
income, gains or losses in the other sub-accounts, the General Account or any
other separate accounts.
VARIABLE ACCOUNT CERTIFICATE VALUE - Certificate value in the General Account
prior to the date of issue will be allocated to purchase units of the sub-
accounts in accordance with your premium allocation no later than the expiration
of the period during which you may exercise the right to examine the
certificate. Net premiums paid thereafter which are allocated to the sub-
accounts will purchase additional units of the sub-accounts.
The number of units purchased in each sub-account is equal to the portion of the
net premium allocated to the sub-account, divided by the value of the applicable
unit as of the valuation date the payment is received at our Principal Office,
or on the date value is transferred to the sub-account from the General Account
or another sub-account.
The number of units will remain fixed unless (1) changed by a subsequent split
of unit value, or (2) reduced because of a transfer, certificate loan, partial
withdrawal, partial withdrawal charge, deletion transaction charge, monthly
deduction, surrender or surrender charge allocated to the sub-account. Any
transaction described in (2) will result in the cancellation of a number of
units which are equal in value.
On each valuation date we will value the assets of each sub-account in which
there has been activity. The certificate value in a sub-account at any time is
equal to the number of units this certificate then has in that sub-account,
multiplied by the sub-account's unit value.
The dollar value of a unit of each sub-account varies from valuation date to
valuation date,
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based on the investment experience of that sub-account. That experience, in
turn, will reflect the investment performance, expenses and charges of the
respective Fund. The value of a unit for any sub-account for any valuation
period is determined by multiplying that sub-account's
unit value for the immediately preceding valuation period by the net investment
factor for the valuation period for which the unit value is being calculated.
NET INVESTMENT FACTOR - The net investment factor measures the investment
performance of a sub-account during the valuation period just ended. The net
investment factor for each sub-account is equal to 1.0000 plus the number
arrived at by dividing (a) by (b), where:
(a) is the investment income of that sub-account for the valuation period,
plus capital gains, realized or unrealized, credited during the
valuation period; minus capital losses, realized or unrealized charged
during the valuation period, adjusted for provisions made for taxes,
if any; and
(b) is the value of that sub-account's assets at the beginning of the
valuation period.
The net investment factor may be greater or less than one; therefore, the unit
value may increase or decrease. You bear the investment risk. Subject to any
required regulatory approvals, we reserve the right to change the method for
determining the net investment factor.
VALUATION DATES AND PERIODS - A valuation date is each day that the New York
Stock Exchange ("NYSE") is open for business, and any other day in which there
is a sufficient degree of trading in the Variable Account's portfolio securities
to materially affect the value of the Variable Account. A valuation period is
the period between valuation dates.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The investment policy of the
Variable Account shall not be changed without the approval of the Insurance
Commissioner of Massachusetts and the Superintendent of Insurance for the State
of New York. The approval process is on file with the Commissioner of the state
in which this policy is issued.
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of a Fund that are
held by the Variable Account or that the Variable Account may purchase. We
reserve the right to eliminate the shares of any Fund if the shares of a Fund no
longer are available for investment or if, in our judgment, further investment
in any eligible Fund should become inappropriate in view of the purposes of the
Variable Account.
We will not substitute any shares attributable to your interest in a sub-account
without notice
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to you and any prior approval of the SEC required by the 1940 Act. This shall
not prevent the Variable Account from purchasing other securities for other
series or classes of policies, or from permitting a conversion between series or
classes of certificates on the basis of requests made by certificate owners.
We reserve the right to establish additional sub-accounts, and to make such sub-
accounts available to any class or series of policies as we deem appropriate.
Each new sub-account would invest in a new investment company or in shares of
another open-end investment company. Subject to obtaining any required
approvals or any consents required by applicable law, we also reserve the right
to eliminate or combine existing sub-accounts and to transfer the assets of one
or more sub-accounts to any other sub-accounts.
In the event of any substitution or change, we may, by appropriate endorsement,
make such changes in this and other policies as may be necessary or appropriate
to reflect the substitution or change. If we consider it to be in the best
interests of certificate owners, the Variable Account may be operated as a
management company under the 1940 Act, or it may be deregistered under that Act
in the event registration no longer is required, or it may be combined with
other separate accounts.
No material change in the underlying investment policy of a sub-account of the
Variable Account shall be made until 60 days have elapsed from the date such
change has been filed with the Superintendent of Insurance or such shorter
period as the Superintendent may permit. In the event of a material change in
the underlying investment policy of a sub-account of the Variable Account, you
will be notified of the change. If you have a policy value in that sub-
account, the Company will transfer it without charge on written request by you
to another sub-account of the Variable Account or the General Account. The
Company must receive your written request within sixty (60) days of the later
of (1) the effective date of such change in the investment policy or (2) the
receipt of the notice of your right to transfer. You may then change your
premium and deduction allocation percentages.
FEDERAL TAX CONSIDERATION - We intend to make a charge for any effect which the
income, assets or existence of the Variable Account may have upon its tax. The
Variable Account presently is not subject to tax, but we may assess a charge for
taxes if the Variable Account at any time becomes subject to tax.
TRANSFERS OF VALUE
You may transfer amounts between the General Account and the sub-accounts or
among the sub accounts by sending us a written request. Once during the first
24 months after the date of issue and during the first 24 months after an
increase in the face amount, you may transfer, without charge, all or part of
the certificate value in the Variable Account to the General
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Account of this certificate. If you do so, future payments will be allocated to
the General Account unless specified otherwise. All other transfers are subject
to the following rules.
For the first eighteen months after the effective date of this certificate or if
the Company changes the investment philosophy or objectives of any sub-account,
you will have the right to transfer without charge the entire amount in that
sub-account to any other sub-account or to the General Account. This right will
extend for 30 days after we notify you of such a change.
The minimum and maximum amounts that may be transferred from the General Account
to the Variable Account shall be determined by the Company. In no event will
the Company's rules provide for a minimum transfer of more than $500. The
maximum transfer amount will not be less than 25% of the certificate value.
Transfers to any sub-account of the Variable Account from the General Account
are permitted only if there has been at least a 180-day period since the last
transfer from the General Account. There is no limit on the number of transfers
between sub-accounts of the Variable Account, and there is no limit on the
number of transfers between the sub-accounts of the Variable Account to the
General Account.
If a transfer would reduce the certificate value in the sub-account from which
the transfer is to be made to less than $100, we reserve the right to include
such remaining value in the amount transferred.
There will be no charge for the first twelve transfers per policy year. A
transfer charge of up to $25 will be imposed on each additional transfer and
deducted from the amount that is transferred. Transfers as a result of a
certificate loan or repayment thereof are not subject to these rules.
DOLLAR COST AVERAGING OPTION
You may elect automatic transfers of at least $100 to be made from one sub-
account (called the DCA sub-account in this provision) to one or more of the
other sub-accounts of the Variable Account. We will permit you to designate the
Money Market sub-account as the DCA sub-account. Other sub-accounts of the
Variable Account or the General Account may be designated by you as the DCA sub-
account subject to our consent.
Automatic transfers may be made on a monthly, bi-monthly, quarterly, semi-annual
or annual frequency. The Dollar Cost Averaging Option will be treated as one of
the twelve free transfers permitted in a policy year without regard to how many
sub-accounts are elected or the transfer frequency. We reserve the right to
limit the number of sub-accounts that may be
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utilized and we may discontinue this option at any time upon advance written
notice to you.
If an automatic transfer reduces the balance in the DCA sub-account to less than
$100, the entire balance will be transferred proportionately to the chosen Sub-
Account(s).
The Dollar Cost Averaging Option will end:
- - when the amount in the DCA sub-account is zero after an automatic transfer
has been made and no payments are allocated to the DCA sub-account before
the next DCA processing date; or
- - upon your request.
We will send you a written notice when the Dollar Cost Averaging Option ends.
Payments allocated to the DCA sub-account after this option has ended will not
automatically reinstate the option; you must make a new election.
The Dollar Cost Averaging Option and the Automatic Rebalancing Option may not be
in effect at the same time.
AUTOMATIC REBALANCING OPTION
By electing this option you may automatically rebalance the sub-accounts of the
Variable Account. You may direct us to process such transfers on a monthly, bi-
monthly, quarterly, semi-annual or annual frequency. When you elect this option
you will designate the percentage allocation for each of the Sub-Accounts
chosen. On each periodic transfer date we will review the percentage allocation
in the various Sub-Accounts and, as necessary, transfer funds in order to
reestablish the designated percentage allocation mix.
The Automatice Rebalancing Option will be treated as one of the twelve free
transfers permitted in a policy year without regard to how many sub-accounts are
elected or the transfer frequency. If the amount necessary to reestablish the
designated mix on any transfer date is less than $100, no transfer will be made.
The arrangement may be terminated upon written request. We reserve the right to
limit the number of Sub-Accounts that may be utilized for automatic rebalancing
and to discontinue the option upon advance written notice to you.
The Dollar Cost Averaging Option and the Automatice Rebalancing Option may not
be in effect at the same time.
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SURRENDER AND PARTIAL WITHDRAWAL OF VALUE
SURRENDER - Upon written request while the insured is living the certificate may
be surrendered by you for its surrender value as of the date the request is
received in our
Principal Office. The certificate will terminate on that date. You may elect
to receive the surrender value in a lump sum or under a payment option.
SURRENDER VALUE - Except as otherwise provided in the paid-up insurance option,
the surrender value is the certificate value less the [sum of the] debt [and the
applicable surrender charge.]
[The surrender charges, if any, are shown in the Certificate Schedule. Any
changes in the surrender charge applicable to a certificate when an insured's
face amount is increased or decreased will be shown in new Certificate Schedule
pages.]
PARTIAL WITHDRAWALS - You may withdraw a portion of the surrender value by
written request while a certificate is in force other than as paid-up insurance.
Partial withdrawals may not be made during the first certificate year. The
amount of a partial withdrawal may not be less than the minimum partial
withdrawal amount shown in the Certificate Schedule. The partial withdrawal
transaction charge, if any, is shown in the Certificate Schedule. In addition,
the withdrawal charge, if any, deducted from the certificate value is shown in
the Certificate Schedule.
Under Death Benefit Option 1, the face amount and certificate value will be
reduced by the amount of the partial withdrawal, and the certificate value will
be reduced further by the partial withdrawal transaction charge [and withdrawal
charge.] No partial withdrawal may reduce the face amount to less than the
Minimum Face Amount shown in the Certificate Schedule.
Under Death Benefit Option 2, the certificate value will be reduced by the
amount of the partial withdrawal, the partial withdrawal transaction charge [and
the withdrawal charge.]
We may defer any transfer from the Variable Account or payment of any amount
payable on surrender, partial withdrawal, transfer, certificate loan, or death
of the insured allocated to the Variable Account during any period when (a) the
NYSE is closed for other than weekends and holidays, or (b) an emergency exists,
as determined by the SEC, such that disposal of portfolio securities or
valuation of assets of the Variable Account is not reasonably practicable.
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The Company may postpone a transfer from the General Account or the payment of
any loan, partial withdrawal or surrender from the General Account (other than
for the payment of any premium to the Company) for up to six months from the day
we receive your written request and your certificate, if it is required.. The
Company will pay interest if payment is not mailed or delivered within ten days
of the date a valid request is made; however, no interest shall be paid if such
interest is less than $25 or the delay in payment is pursuant to New York law.
A "valid request" is made when all documentation necessary to complete the
transaction is received at the Principal Office. The interest rate credited
will be the same rate applied to proceeds held by the Company under Payment
Option C. No payment will be deferred to pay premiums on policies with the
Company.
CERTIFICATE LOANS
CERTIFICATE LOANS - On request you may borrow on the sole security of the
certificate.
AMOUNT AVAILABLE - You may borrow any amount up to the certificate's loan value.
Except as otherwise provided in the paid-up insurance option, the maximum loan
value in the first certificate year is 75% of the certificate value reduced by
applicable surrender charges, monthly deductions and interest on debt to the end
of the certificate year. The loan value in the second certificate year and
thereafter is 90% of an amount equal to certificate value reduced by applicable
surrender charges. There is no minimum limit on the amount of the loan.
You may allocate a certificate loan among the General Account and the sub-
accounts. If no such allocation is made, we will allocate the loan PRO RATA on
the date we receive your loan request. Certificate value in each sub-account
equal to the certificate loan allocated to each sub-account will be transferred
to the General Account to secure the debt.
LOAN INTEREST - Interest accrues daily at the interest rate shown in the
Certificate Schedule. Interest is payable at the end of each certificate year
or on a proportionate basis for such shorter period as the debt may exist.
Interest not paid when due will be added to the loan principal and bear interest
at the same rate of interest. If the resulting loan principal exceeds the
certificate value in the General Account, we will transfer certificate value
equal to that excess debt from the certificate value in each sub-account to the
General Account as security for the excess debt. We will allocate the amount
transferred among the sub-accounts PRO RATA.
REPAYMENT OF DEBT - Debt may be repaid at any time prior to the lapse of a
certificate.
FORECLOSURE - If the debt exceeds the certificate value [less the surrender
charge,] (or the net cash value if a certificate is in force as paid-up
insurance) the certificate will terminate. A notice of such pending termination
will be mailed to your last known address and to any
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assignee. If the excess debt is not paid within 62 days after this notice is
mailed, the certificate will terminate with no value.
PAID-UP INSURANCE OPTION
BENEFIT - This is insurance, usually for a reduced amount, for the lifetime of
the insured with no further premiums due. The amount of paid-up insurance is the
amount that the surrender value of the certificate can purchase for a net single
premium at the insured's age and underwriting class on the date this option is
elected. The amount of paid-up insurance may not exceed the death benefit in
effect on the date this option is elected. In the event that the surrender value
exceeds the net single premium for the death benefit on the date this option is
elected, the excess will be paid to you.
BASIS OF VALUES - The table of Guaranteed Net Single Premiums per $1,000 of
Insurance is shown in the Certificate Schedule.
EXERCISE OF OPTION - This option may be elected by written request before the
final premium payment date. We will issue supplemental specification pages and
endorse the certificate as "paid-up" effective as of the monthly processing date
following receipt of the written request. The supplemental specification pages
will show:
o the effective date,
o the death benefit,
o guaranteed cash values, and
o riders.
If the insured dies prior to the effective date, we will pay the death proceeds
in effect under this certificate on the date of death.
EFFECT ON THE CERTIFICATE - After the certificate is endorsed as paid up, no
further premiums may be paid. If the death benefit option in effect when the
certificate becomes paid up is Option 2, it will be changed to Option 1. You may
not:
o change the death benefit option to Option 2,
o increase or decrease the face amount,
o make partial withdrawals, or
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o transfer funds to the Variable Account.
You may make certificate loans or surrender the certificate for its net cash
value. Riders will continue only with our consent.
The guaranteed cash value of the paid-up insurance equals the net single
premium for the paid-up insurance at the insured's attained age. The net single
premium is determined on the same basis as is used for the purchase price of the
paid-up insurance. The net cash value is the cash value less any debt. The loan
value of paid-up insurance is the amount that, with interest at the certificate
loan interest rate, equals the cash value of the paid-up certificate as of the
next certificate anniversary. The certificate loan interest rate is shown in
the Certificate Schedule.
TERMINATION OF CERTIFICATE
TERMINATION OF INSURANCE - Prior to the insured's death, the certificate will
terminate on the first to occur of the following:
o the certificate lapses,
o the foreclosure date,
o the surrender of the certificate is requested,
[o the insured is no longer in an eligible class of [employees], or]
[o the insured's coverage is exchanged for coverage with another carrier
or a trustee.]
If the insured ceases to be in an eligible class of [employees], you may
continue this certificate by paying premiums directly to us.
[If an employee ceases to be in an eligible class of employees or if an eligible
class of employees is discontinued, premiums will no longer be deducted from
wages. The status of the insured's coverage will then change from deduction-
from-wages to direct billing. Certificates on a direct-billing basis are in a
separate and distinct class from certificates of insureds who are on a
deduction-from-wages basis.]
CONTINUATION OF INSURED'S COVERAGE AFTER TERMINATION OF THE POLICY - If the
group policy is terminated [and if the coverage on an insured is not transferred
to another insurance carrier,] any certificate then in effect will remain in
force under the discontinued policy,
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provided it is not cancelled or surrendered by you.
[All certificate premiums will be changed from deduction-from-wages status to
direct-billing status. Certificate premiums will then be payable directly to
us.]
[TRANSFER TO ANOTHER INSURANCE CARRIER - If the insured's coverage is
transferred to another insurance carrier, any insurance then in effect not on a
direct-payment basis will end on the date we receive written notice of intention
to transfer or any later date specified in the notice.]
PAYMENT OF PROCEEDS
PAYMENT OF PROCEEDS - Upon written request, the surrender value or all or part
of the death proceeds may be placed under one or more of the payment options
currently being offered by us. If you make no election, we will pay the
benefits in a single sum. Information regarding the payment options available
will be furnished to you or your beneficiary upon request. A certificate will
be provided to the payee describing the payment option selected.
If a payment option is selected, the beneficiary, when filing proof of claim,
may pay to us any amount that would otherwise be deducted from the proceeds.
The amount applied under any one option for any one payee must be at least
$5,000. The periodic payment for any one payee must be at least $50.
Subject to the Certificate Owner and Beneficiary provision, you may change any
option selection before the proceeds become payable. If you make no selection,
the beneficiary may select an option when the proceeds become payable.
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FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: WORCESTER, MASSACHUSETTS
Principal Office: 440 LINCOLN STREET, WORCESTER, MA 01653
1-800-533-7881
GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CERTIFICATE
Death benefits payable in the event of an insured's death. Adjustable death
benefits may be increased or decreased. Coverage may expire prior to the Final
Premium Payment Date if premiums paid or the earnings credited are insufficient
to continue coverage to such date. Some benefits reflect investment results.
Flexible premiums payable to age 95. Nonparticipating.
<PAGE>
REVISED BYLAWS
OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the Articles
of Organization. These Bylaws, the powers of the corporation and of its
Directors and stockholders, or of any class of stockholders if there shall be
more than one class of stock, and all matters concerning the conduct and
regulation of the business and affairs of the corporation shall be subject to
such provisions in regard thereto, if any, as are set forth in the Articles of
Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held at 10:00
A.M. on the third Tuesday in March, if not a legal holiday, and if a legal
holiday, then on the next business day, at the principal offices of the
corporation in Massachusetts, or at such other time and place as may be
determined from time to time by the Board of Directors. In the event an Annual
Meeting has not been held on the date fixed by these Bylaws or established by
the Board of Directors, a special meeting in lieu of the Annual Meeting may be
held with all the force and effect of an Annual Meeting. The purposes for which
an annual meeting is to be held, in addition to those prescribed by law or by
the Articles of Organization, may be specified by the President or by the
Directors.
2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be called at
any time by the President or by the Directors. Each call of a meeting shall
state the place, date, hour and purposes of the meeting.
2.3. NOTICE OF MEETINGS. A written notice of each meeting of stockholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meeting to each stockholder entitled to vote at
the meeting and to each stockholder who, by law, by the Articles of Organization
or by these Bylaws, is entitled to notice, by leaving such notice with him or at
his residence or usual place of business, or by mailing it, postage prepaid,
addressed to such stockholder at his address
<PAGE>
as it appears in the records of the corporation. Such notice shall be given by
the Secretary or an Assistant Secretary or by an officer designated by the
Directors. Whenever notice of a meeting is required to be given to a
stockholder under any provision of the Business Corporation or Insurance Law of
the Commonwealth of Massachusetts or of the Articles of Organization or these
Bylaws, a written waiver thereof, executed before or after the meeting by such
stockholder or his attorney thereunto authorized and filed with the records of
the meeting, or the execution by the stockholder of a written consent, shall be
deemed equivalent to such notice. Attendance at any meeting in person or by
proxy without protesting prior thereto or at its commencement shall constitute
waiver of notice, and in such case written waiver of notice need not be
executed.
2.4. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, a quorum as
to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except when a larger quorum is required by law, by the Articles of
Organization or by these Bylaws. Any meeting may be adjourned from time to time
by a majority of the votes properly cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5. ACTION BY VOTE. When a quorum is present at any meeting, a plurality of
the votes properly cast for election to any office shall elect to such office,
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law or by the Articles of Organization. Stockholders entitled to
vote shall have one vote for each share of stock entitled to vote held by them
of record according to the records of the corporation, unless otherwise provided
by Articles of Organization. No ballot shall be required for any election
unless requested by a stockholder present or represented at the meeting and
entitled to vote in the election.
2.6. ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the stockholders may be taken without a meeting if all stockholders
entitled to vote on the matter consent to the action in writing and the written
consents are filed with the records of the meetings of stockholders. Such
consents shall
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be treated for all purposes as a vote at a meeting.
2.7. PROXIES. To the extent permitted by law, stockholders entitled to vote
may vote either in person or by proxy. Except to the extent permitted by law,
no proxy dated more than six months before the meeting named therein shall be
valid. Unless otherwise specifically limited by their terms, such proxies shall
entitle the holders thereof to vote at any adjournment of such meeting but shall
not be valid after the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1. NUMBER. The number of Directors shall be not less than seven nor more
than fifteen. Within these limits, the number of Directors shall be determined
from time to time by resolution of the stockholders or the Board of Directors.
The number of Directors may be increased at any time or from time to time either
by the stockholders or by the Directors by vote of majority of the Directors
then in office. The number of Directors may be decreased to any number
permitted by law at any time or from time to time either by the stockholders or
by the Directors by a vote of a majority of Directors then in office. No
Director need be a stockholder.
3.2. TENURE. Except as otherwise provided by law or by the Articles of
Organization, each Director shall hold office until the next annual meeting of
the stockholders and until his successor is duly elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified. Notwithstanding the
term of office to which a Director may be elected, such term shall be subject to
reduction by the retirement policy adopted from time to time by the Board of
Directors. Any vacancy in the Board of Directors between annual meetings of
stockholders, including a vacancy resulting from the enlargement of the Board,
may be filled by the Directors by vote of a majority of the Directors then in
office.
3.3. POWERS. Except as reserved to the stockholders by law or by the Articles
of Organization, the business of the corporation shall be managed by the
Directors who shall have and may exercise all the powers of the corporation. In
particular, and without limiting the generality of the foregoing, the Directors
may at any time and from time to time issue all or any part of the unissued
capital stock of
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the corporation authorized under the Articles of Organization and may determine,
subject to any requirements of law, the consideration for which stock is to be
issued and the manner of allocating such consideration between capital and
surplus.
3.4. COMMITTEES. The Directors may, by vote of a majority of the Directors
then in office, elect from their number an executive committee and other
committees and delegate to any such committee or committees some or all of the
powers of the Directors except those which by law, by the Articles of
Organization or by these Bylaws they are prohibited from delegating. Except as
the Directors may otherwise determine, any such committee may make rules for the
conduct of its business.
3.5. REGULAR MEETINGS. Regular meetings of the Directors may be held without
call or notice at such places and at such times as the Directors may from time
to time determine, provided that reasonable notice of the first regular meeting
following any such determination shall be given to absent Directors. A regular
meeting of the Directors may be held without call or notice immediately after
and at the same place as the annual meeting of the stockholders.
3.6. SPECIAL MEETINGS. Special meetings of the Directors may be held at any
time and at any place designated in the call of the meeting. Notice shall be
sent to a Director by mail at least forty-eight hours or by telegram or other
forms of telecommunication at least twenty-four hours before the meeting,
addressed to the Director at the Director's usual or last known business or
residence address, or by person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any Director if a
written waiver of notice, executed by the Director before or after the meeting,
is filed with the records of the meeting, or to any Director who attends the
meeting unless attendance is for the purpose of objecting to the transaction of
business. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
3.7. QUORUM. At any meeting of the Directors a majority of the Directors then
in office shall constitute a quorum; provided, however, that at least five
directors must be present to constitute a quorum. Any meeting may be adjourned
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the
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meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, a majority of the Directors present may take any action,
except when a larger vote is required by law or by the Articles of Organization.
3.8. ACTION BY CONSENT. Unless the Articles of Organization otherwise provide,
any action required or permitted to be taken at any meeting of the Directors may
be taken without a meeting if all the Directors consent to the action in writing
and the written consents are filed with the records of the meetings of the
Directors. Such consents shall be treated for all purposes as a vote taken at a
meeting.
3.9. PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Unless otherwise provided by
law or the Articles of Organization, members of the Board of Directors may
participate in a meeting of such Board by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
Section 4. OFFICERS AND AGENTS
4.1. ENUMERATION; QUALIFICATION. The officers of the corporation shall consist
of a Chairman of the Board (if such officer be deemed desirable), a President,
Vice-Presidents (including such Executive Vice Presidents, Senior Vice-
Presidents, Vice Presidents, Second Vice Presidents, and Assistant Vice
Presidents as the Directors may elect), a Treasurer, a Secretary, Assistant
Secretaries and Assistant Treasurers, and such other officers as the Directors
may from time to time in their discretion elect or appoint. The corporation may
also have such agents, if any, as the Directors may from time to time in their
discretion appoint. Any officer may be, but none need be, a Director or
stockholder. Any two or more offices may be held by the same person; provided,
however, that the same person shall not serve as President and as Secretary of
the corporation. Any officer may be required by the Directors to give bond for
the faithful performance of such officer's duties to the corporation in such
amount and with such sureties as the Directors may determine.
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4.2. ELECTION AND TENURE. Officers may be elected by the Board of Directors at
the regular meeting following the annual stockholders meeting, or at any
Directors meeting. All officers shall hold office until the next regular
election of officers following the annual stockholders meeting, and until their
successors are elected and qualified, or in each case until such officer sooner
dies, resigns, is removed or becomes disqualified. The Directors may in their
discretion at any time remove any officer. Vacancies in any office may be
filled by the Directors.
4.3 CHAIRMAN OF THE BOARD. If a Chairman of the Board of Directors is elected,
the Chairman of the Board shall have the duties and powers specified in these
Bylaws and shall have such other duties and powers as may be determined by the
Directors. Unless the Board of Directors otherwise specifies, the Chairman of
the Board shall preside, or designate the person who shall preside, at all
meetings of the stockholders and of the Board of Directors.
4.4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the corporation
shall be the Chairman of the Board, if any, the President, or such other officer
as may be designated by the Directors and shall, subject to the control of the
Directors, have general charge and supervision of the business of the
corporation. If no such designation is made, the President shall be the Chief
Executive Officer. If there is no Chairman of the Board, the Chief Executive
Officer shall preside, or designate the person who shall preside, at all
meetings of the stockholders and of the Board of Directors, unless the Board of
Directors otherwise specifies.
4.5 PRESIDENT AND VICE PRESIDENTS. The President and Vice Presidents (including
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Second Vice
Presidents, and Assistant Vice-Presidents, if any) shall have the duties and
powers specified in these Bylaws and such additional duties and powers as shall
be designated from time to time by the Directors.
4.6. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be in charge of
the funds, securities and valuable papers of the corporation, shall collect all
proceeds from investments which the corporation's records establish to be due,
shall have the duties and powers specified in these Bylaws, and shall have such
additional duties and powers as may be designated from time to time by the
Directors.
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The Treasurer or an Assistant Treasurer shall have authority to transfer
securities; to execute releases, extensions, partial releases, and assignments
without recourse of mortgages; to execute deeds and other instruments or
documents on behalf of the Corporation, and whenever necessary to affix the seal
of the Corporation to the same; and shall have power to vote, on behalf of the
Corporation, in any case where the Corporation, as holder of any security, is
entitled to vote.
If the Treasurer is absent or unable to discharge the duties of office, an
Assistant Treasurer may act. Any Assistant Treasurers shall have such additional
duties and powers as shall be designated from time to time by the Directors.
4.7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall keep a record of
the meetings of the corporation, the proceedings of the Board of Directors, and
any Committees of the Board. The Secretary shall keep such other records as may
be required by the Board. The Secretary shall have custody of the seal of the
corporation and the Secretary or an Assistant Secretary may, whenever required,
affix the seal of the corporation to legal documents and when affixed, may
attest such documents. The Secretary shall perform all acts usually incident to
the office of secretary, and such other duties as are assigned by the Chief
Executive Officer or the Board of Directors.
If the Secretary is absent or unable to discharge the duties of office, an
Assistant Secretary may act. Any Assistant Secretaries shall have such
additional duties and powers as shall be designated from time to time by the
Directors.
4.8. OTHER POWERS. The Chief Executive Officer, Chairman of the Board,
President or any Vice Presidents (including any Executive Vice President, Senior
Vice President, Second Vice President or Assistant Vice President), and such
other employees of the Corporation specifically authorized by the Chief
Executive Officer shall have authority to transfer securities, to execute
releases, extensions, partial releases, and assignments without recourse of
mortgages, and to execute deeds and other instruments or documents on behalf of
the Corporation, and whenever necessary to affix the seal of the Corporation to
the same. The Chief Executive Officer, Chairman of the Board, the President,
any Vice President (including any Executive Vice President, Senior Vice
President, Vice
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President, Second Vice President, or Assistant Vice President,) or the
Treasurer may, whenever necessary, delegate authority to perform any of the acts
referred to in this paragraph to any person pursuant to a special power of
attorney.
Officers shall have, in addition to the duties and powers herein set forth, such
duties and powers as are commonly incident to their respective offices and such
duties and powers as the Directors may lawfully designate.
Section 5. RESIGNATIONS AND REMOVALS
5.1. RESIGNATIONS. Any Director or officer may resign at any time by delivering
his resignation in writing to the Chairman of the Board, if any, the President,
or the Secretary. In addition, a Director may resign by delivering his
resignation in writing to a meeting of the Directors. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
5.2 REMOVALS. A Director may be removed from office (a) with or without
cause by the vote of the holders of a majority of the shares issued and
outstanding and entitled to vote in the election of Directors, provided that
the Directors of a class elected by a particular class of stockholders may be
removed only by the vote of the holders of a majority of the shares of such
class, or (b) with cause by the vote of a majority of the Directors then in
office. A Director may be removed for cause only after reasonable notice and
opportunity to be heard before the body proposing to remove him. The Directors
may remove any officer elected by them with or without cause by the vote of a
majority of the Directors then in office. No Director or officer removed
shall have any right to any compensation as Director or officer for any period
following removal, or any right to damages on account of such removal, unless
the body acting on the removal shall in their or its discretion provide for
compensation.
Section 6. CAPITAL STOCK
6.1. NUMBER AND PAR VALUE. The total number of shares and the par value, if
any, of each class of stock which the corporation is authorized to issue shall
be as stated in the Articles of Organization.
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6.2. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES. The Board
of Directors may provide by resolution that some or all of any or all classes
and series of shares shall be uncertificated shares. Unless such resolution has
been adopted, a stockholder shall be entitled to a certificate stating the
number and the class and the designation of the series, if any, of the shares
held by him, in such form as shall, in conformity to law, be prescribed from
time to time by the Directors. Such certificate shall be signed by the Chairman
of the Board, if any, the President or a Vice President (including any Executive
Vice President, Senior Vice President, Vice President, Second Vice President, or
Assistant Vice President) and by the Treasurer or an Assistant Treasurer. Such
signatures may be facsimiles if the certificate is signed by a transfer agent,
or by a registrar, other than a Director, officer or employee of the
corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the time of its issue.
6.3. LOSS OF CERTIFICATES. In the case of the alleged loss or destruction or
the mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, provided that such lost , destroyed, or mutilated certificate
is first canceled on the books of the corporation, and upon such other
conditions as the Directors may prescribe.
Section 7. TRANSFER OF SHARES OF STOCK
7.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of the
certificate therefor, properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the Directors or the
transfer agent of the corporation may reasonably require. Except as may be
otherwise required by law, by the Articles or Organization or by these By-laws,
the corporation shall be entitled to treat the record holder of stock as shown
on its books as the owner of such stock for all purposes, including the payment
of dividends and the right to receive notice and to
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vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the corporation of his post
office address.
7.2. RECORD DATE AND CLOSING TRANSFER BOOKS. The Directors may fix in advance
a time, which shall not be more than sixty days before the date of any meeting
of stockholders or the date for the payment of any dividend or making of any
distribution to stockholders, as the record date for determining the
stockholders having the right to notice of and to vote at such meeting and any
adjournment thereof or the right to receive such dividend, and in such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the Directors may for any of
such purposes close the transfer books for all or any part of such period. If
no record date is fixed and the transfer books are not closed:
(a) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
acts with respect thereto.
Section 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the fullest extent legally permissible, indemnify and
save harmless each present and former Director, officer, and Home Office
employee against all liabilities and reasonable expenses imposed upon or
incurred by any such person as a result of a final judgment in, or as a result
of a judicially approved settlement of, any action, suit or proceeding brought
by reason of being or having been a Director, officer or Home Office employee of
the corporation or a Director, officer, trustee, employee or fiduciary of any
other corporation, trust, partnership, association or other entity, or by reason
of serving or having
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served as a fiduciary or in any other capacity with respect to any employee
benefit plan, at the request of the corporation.
To the fullest extent legally permissible, the Directors may authorize the
corporation to indemnify and save harmless any person for which indemnification
is provided in these Bylaws or in their discretion any other person acting on
behalf of the corporation, in connection with the defense or disposition of any
claim, action, suit or other proceeding in which such person may be involved or
may be threatened because of any action or omission or alleged action or
omission (including those antedating the adoption of these Bylaws), whether or
not the actual or threatened claim, action, suit or proceeding has resulted in a
final judgment or in a judicially approved settlement. The corporation may, in
advance of final disposition of any such claim, action, suit or proceeding, pay
incurred expenses upon receipt of an undertaking by the person indemnified to
repay such payment if it is determined that indemnification is not authorized
under this section, which undertaking may be accepted without reference to the
financial ability of such person to make repayment. The Directors shall have the
power to authorize that insurance be purchased and maintained against any of the
foregoing liabilities and expenses on behalf of any or all of the foregoing
persons, whether or not the corporation would have the power to indemnify them
against such liabilities and expenses.
Notwithstanding the foregoing, no indemnification shall be provided for any
person with respect to:
(a) any matter as to which such person shall have been adjudicated not to
have acted in good faith in the reasonable belief that the action was in
the best interests of the corporation or, to the extent such matter relates
to service with respect to an employee benefit plan, in the best interests
of the participants or beneficiaries of such employee benefit plan;
(b) any matter as to which such person shall agree or be ordered by any
court of competent jurisdiction to make payment to the corporation;
(c) any matter as to which the corporation shall be prohibited by law or by
order of any court of competent jurisdiction from
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providing indemnification; or
(d) any matter as to which such person shall have been determined by a
majority of the Board of Directors not to be entitled to indemnification
under this section, provided that there has been obtained an opinion in
writing of legal counsel to the effect that, with respect to the matter in
questions, such person had not acted in good faith in the reasonable belief
that the action was in the best interests of the corporation or, to the
extent such matter relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
No matter disposed of by settlement, compromise, the entry of a consent decree
or the entry of any plea in a criminal proceeding, shall of itself be deemed an
adjudication of not having acted in the reasonable belief that the action taken
or omitted was in the best interest of the corporation.
As used in this section, the terms "Director," "officer," and "Home Office
employee" includes the person's heirs, executors and administrators. "Home
Office employee" means any employee of the corporation, other than an employee
within the class of employees eligible to participate in a qualified retirement
plan maintained by the corporation for its individual insurance sales force,
including, but not limited, to career agents, field associate middle managers
and general agents. "Expenses" include but are not limited to amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees.
The rights of indemnification contained in this section shall not be exclusive
of or affect any other rights to which any Director, officer, or Home Office
employee may be entitled by contract or otherwise under law.
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Section 9. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the Directors,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the corporation and the year of its organization, cut or
engraved thereon.
Section 10. FISCAL YEAR
The fiscal year of the corporation shall end on December 31.
Section 11. AMENDMENTS
These Bylaws may be altered, amended or repealed at any annual or special
meeting of the stockholders or by vote of a majority of the Directors then in
office, except that the Directors shall not take any action which provides for
indemnification of Directors nor any action to amend this Section 11.
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Form of
PARTICIPATION AGREEMENT
Between
ALLMERICA INVESTMENT TRUST
And
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this ____ day of _______, 1996 by
and between FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY (hereinafter the
"Company") on its own behalf and on behalf of its VEL ACCOUNT (hereinafter
the "Account"), a segregated asset account of the Company, and Allmerica
Investment Trust ("AIT"), an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts.
WHEREAS, AIT engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate
accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Contracts")
to be offered by the Company or other insurance companies affiliated with the
Company ("Participating Insurance Companies"); and
WHEREAS, the beneficial interest in AIT is divided into several series
of shares each designated a "Fund", and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, AIT is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its
shares are registered under the Securities Act of 1933, as amended
(hereinafter the "1933 Act"); and
WHEREAS, State Mutual Life Assurance Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act
of 1940; and
WHEREAS, the Company has registered or will register certain Variable
Contracts under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company on April 2, 1987, to set aside and invest assets attributable to the
aforesaid Variable Contracts; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
the Account to fund certain of the aforesaid Variable Contracts and AIT is
authorized to sell such shares to unit investment trusts such as the Account
at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company
and AIT agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. AIT agrees to sell to the Company those shares which the Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt by AIT or its designee of the order for the shares
of AIT.
1.2. AIT agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share on those days on which
AIT calculates its net asset value pursuant to rules of the Securities and
Exchange Commission. Notwithstanding the foregoing, the Trustees of AIT
(hereinafter the "Trustees") may refuse to sell shares of any Fund to any
person, or suspend or terminate the offering of shares of any Fund if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees acting in good faith and in light
of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Fund.
1.3. AIT agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts. No shares of any Fund will
be sold to the general public.
1.4. AIT will not sell its shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III, V, VII and Section 2.5 of Article II of this
Agreement is in effect to govern such sales.
1.5. AIT agrees to redeem for cash, on the Company's request, any
full or fractional shares held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by AIT of
the request for redemption.
1.6. The Company agrees to purchase and redeem the shares of each Fund
offered by the then current prospectus of AIT in accordance with the
provisions of such prospectus. The Company agrees that all net amounts
available under the Variable Contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this
reference, as such Schedule A may be amended from time to time hereafter by
mutual written agreement of all the parties hereto, shall be invested in
AIT, in Variable Insurance Products Fund, in such other investment
companies advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account.
1.7. The Company shall pay for AIT shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof.
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1.8. Issuance and transfer of AIT shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from AIT will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.9. AIT shall furnish same day notice to the Company of any income,
dividends or capital gain distributions payable on AIT shares. The Company
hereby elects to receive all such dividends and distributions as are payable
on the Fund shares in additional shares of that Fund. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. AIT shall notify the Company of the number of shares
so issued as payment of such dividends and distributions.
1.10. AIT shall make the net asset value per share for each Fund
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants: that the Contracts are or
will be registered under the 1933 Act or that such registration is not
required under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State
laws; and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale of the Contracts as a
segregated asset account under the Massachusetts Insurance Laws. The Company
further represents and warrants that it has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts, if such registration is
required under the 1940 Act and rules and regulation thereunder.
2.2. AIT represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
AIT is and shall remain registered under the 1940 Act. AIT shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. AIT shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed
advisable by AIT.
2.3. AIT represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so
qualify in the future.
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<PAGE>
2.4. The Company represents that the Variable Contracts are currently
treated as life insurance policies, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it
will notify AIT immediately upon having a reasonable basis for believing
that the Variable Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. AIT currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, and has not
adopted any plan pursuant to Rule 12b-1. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, AIT undertakes to
have its Trustees, a majority of whom are not interested persons of AIT,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. AIT makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that AIT represents that its investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
state of Delaware. AIT further represents that its operations are and shall
at all times remain in material compliance with the laws of the State of
Delaware to the extent required to perform this Agreement.
2.7. AIT represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.8. AIT represents and warrants that all of its Trustees, officers,
employees, investment advisers, and other individuals/entities dealing with
the money and/or securities of AIT are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit
of AIT in an amount not less than $_______. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.9. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of AIT are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage, in an
amount not less than $_______. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. AIT shall provide the Company with as many copies of its current
prospectus as the company may reasonably request. If requested by the Company
in lieu thereof, AIT shall provide such documentation (including a final
copy of the new prospectus as set in type) and other assistance as is
reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for AIT is amended) to have the prospectus for
the Variable Contracts and AIT's prospectus printed together in one
document, such printing to be at the Company's expense.
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<PAGE>
3.2. AIT's prospectus shall state that the Statement of Additional
Information for AIT is available from AIT and AIT shall print and
provide such Statement free of charge to the Company and to any owner of or
participant under a Variable Contract or prospective owner or participant who
requests such Statement.
3.3. AIT shall provide the Company with copies of its proxy material,
reports to stockholders and other communications to stockholders in such
quantity as the Company shall reasonably require for distributing to Variable
contract owners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Variable Contract Owners or
participants;
(ii) vote AIT shares in accordance with instructions received
from Variable Contract owners or participants; and
(iii) vote AIT shares for which no instructions have been
received in the same proportion as shares of such Fund for
which instructions have been received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for Variable Contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account or in its general account in its
own right, to the extent permitted by law. The Company shall be responsible
for assuring that each of its separate accounts participating in AIT
calculates voting privileges in a consistent manner.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall make available, to AIT or its designee, each
piece of sales literature or other promotional material in which AIT or its
Adviser is named, at least fifteen Business Days prior to its use. No such
material shall be used if AIT or its designee object to such use within
fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of AIT or concerning AIT in
connection with the sale of the Variable Contracts other than the information
or representations contained in the registration statement or prospectus for
AIT shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for AIT,
or in sales literature or other promotional material approved by AIT,
except with the permission of AIT.
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4.3. AIT shall make available to the Company or its designee, each
piece of sales literature or other promotional material in which the Company
or its separate account(s) is named, at least fifteen Business Days prior to
its use. No such material shall be used if the Company or its designee object
to such use within fifteen business days after receipt of such material.
4.4. AIT shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Account, or the Variable
Contracts other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or
in published reports for the Account which are in the public domain or
approved by the Company for distribution to Variable Contract owners or
participants, or in sales literature or other promotional material approved by
the Company, except with the permission of the Company.
4.5. AIT will make available to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to AIT or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will make available to AIT at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Variable Contracts or the Account, contemporaneously with the filing of such
document with the Securities and Exchange Commission.
ARTICLE V. FEES AND EXPENSES
5.1. AIT shall pay no fee or other compensation to the Company under
this agreement.
5.2. All expenses incident to performance by AIT under this Agreement
shall be the responsibility of AIT, and shall be paid by AIT (or the
Adviser, pursuant to the terms of any Management Agreement between AIT and
the Adviser as in effect from time to time). AIT shall see to it that all
its shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by AIT,
in accordance with applicable state laws prior to their sale. AIT (or the
Adviser pursuant to the terms of any agreement between AIT and the Adviser
as in effect from time to time) shall bear the expenses for the cost of
registration and qualification of AIT's shares, preparation and filing of
AIT's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type
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and printing the proxy materials and reports to shareholders (including the
costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state
law, all taxes on the issuance or transfer of AIT's shares, and any
expenses permitted to be paid or assumed by AIT pursuant to a plan, if any,
under Rule 12b-1.
5.3. The Company will bear the cost of distributing AIT's prospectus
and proxy materials and reports to Company's Variable Contract owners or
participants.
ARTICLE VI. DIVERSIFICATION
6.1. AIT will at all times invest money from the Variable Contracts in
such a manner as to ensure that the Variable Contracts will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, AIT will at all times comply
with Section 817(h) of the Code and regulations thereunder relating to the
diversification requirements for variable annuity, endowment and life
insurance contracts and any amendments or other modifications to such Section
or Regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Trustees will monitor AIT for the existence of any material
irreconcilable conflict between the interests of the Variable Contract owners
of all separate accounts investing in AIT. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Fund are being managed; (e) a
difference in voting instructions given by variable annuity contract and by
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of Variable Contract owners. AIT shall
promptly inform the Company if the Trustees determine that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under SEC rules and regulations, by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Trustees whenever Variable
Contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as
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determined by a majority of the disinterested trustees), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (1), withdrawing the assets allocable to some or all of
the separate accounts from AIT or any Fund and reinvesting such assets in a
different investment medium, including (but not limited to) another Fund of
AIT, or submitting the question whether such segregation should be
implemented to a vote of all affected Variable Contract owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the option
of making such a change; and (2), establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Variable Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at AIT's election, to withdraw the
Account's investment in AIT and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and termination
must take place within six (6) months after AIT gives written notice that
this provision is being implemented, and until the end of that six month
period AIT shall continue to accept and implement orders by the Company for
the purchase (and redemption) of shares of AIT.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in AIT and terminate this Agreement within six months
after the Trustees inform the Company in writing that they have determined
that such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Until the end of the foregoing six
month period, AIT shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Funds.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will AIT be required to establish a new funding medium for the
Variable Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Variable Contracts if an offer to do
so has been declined by vote of a majority of Variable Contract owners
materially adversely affected by the irreconcilable material conflict. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in AIT and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination, provided, however, that such withdrawal and
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<PAGE>
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the Act or the rules promulgated thereunder with respect to mixed or shared
funding, then (a) AIT and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5
of this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless AIT
and each of its Trustees and officers and each person, if any, who controls
AIT within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including legal and
other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of AIT's shares and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Variable Contracts
or contained in the Contracts or sales literature for the
Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or
on behalf of AIT for use in the Registration Statement or
prospectus for the Variable Contracts or in the Variable Contracts
or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Variable
Contracts or AIT shares; or
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(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature of AIT not supplied by
the Company, or persons under its control) or wrongful conduct of
the Company or persons under its control, with respect to the sale
or distribution of the Variable Contracts of AIT Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus,
or sales literature of AIT or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or
omission was made in reliance upon information furnished to AIT
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to AIT, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified
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Parties, the Company shall be entitled to participate, at its own expense, in
the defense of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of AIT shares or the Contracts or the
operation of AIT.
8.2. INDEMNIFICATION BY AIT
8.2(a). AIT agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of AIT) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, regulation at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct
or any one or more of the Trustees, are related to the operations of AIT
and:
(i) arise as a result of any failure by AIT to provide the services
and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by AIT in this Agreement or
arise out of or result from any other material breach of this
Agreement by AIT;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). AIT shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, AIT or the Account, whichever is
applicable.
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8.2(c). AIT shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified AIT
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to
notify AIT of any such claim shall not relieve AIT from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, AIT will be
entitled to participate, at its own expense, in the defense thereof. AIT
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from AIT to
such party of AIT's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and AIT will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify AIT of
the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of AIT.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933
Act, Securities Act of 1934 and the 1940 Act, and the rules and regulations
and rulings thereunder, including such exemptions from those statutes, rules
and regulations as the Securities and Exchange Commission may grant, and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year's advance
written notice to the other parties; provided, however, such notice shall not
be given earlier than one year following the date of this Agreement; or
(b) at the option of the Company to the extent that shares
of Funds are not reasonably available to meet the requirements of the
Variable Contracts as determined by the Company; provided, however, that
such termination shall apply only to the Fund(s) not reasonably available.
Prompt notice of the election to terminate for such cause shall be furnished
by the Company; or
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(c) at the option of AIT in the event that formal
administrative proceedings are instituted against the Company by the National
Association of Securities Dealers, Inc. ("NASD"), the Securities and Exchange
Commission, any state securities insurance department or any other regulatory
body regarding the Company's duties under this Agreement or related to the
sale of the Variable Contracts, the operation of the Account, or the purchase
of AIT shares; provided, however, that AIT determines in its sole judgment
exercised in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Company to perform its
obligations under this Agreement; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against AIT by the NASD, the
Securities and Exchange Commission, or any state securities or insurance
department or any other regulatory body; provided, however, that the Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the
ability of AIT to perform its obligations under this Agreement; or
(e) upon requisite vote of the Variable Contract owners
having an interest in the Account (or any subaccount of the Account) to
substitute the shares of another investment company for the corresponding
Fund shares of AIT in accordance with the terms of the Variable Contracts
for which those Fund shares had been selected to serve as the underlying
investment media. The Company will give 30 days prior written notice to AIT
of the date of any proposed vote to replace AIT shares; or
(f) at the option of the Company, in the event any of AIT
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Variable Contracts issued or to be issued
by the Company; or
(g) at the option of the Company, if AIT ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that
AIT may fail to so qualify; or
(h) at the option of the Company, if AIT fails to meet the
diversification requirements specified in Article VI hereof.
10.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate which notice shall set forth the basis for such termination.
Furthermore,
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(a) in the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the
effective date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date
of termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, AIT shall at the option of the Company, continue to make
available additional shares of AIT pursuant to the terms and conditions of
this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Variable
Contracts"). Specifically, without limitation, the owners of the Existing
Variable Contracts shall be permitted to reallocate investments in AIT,
redeem investments in AIT and/or invest in AIT upon the making of
additional purchase payments under the Existing Variable Contracts. The
parties agree that this Section 10.4 shall not apply to any terminations
under Article VII and the effect of such Article VII terminations shall be
governed by Article VII of this Agreement.
10.5. The Company shall not redeem AIT shares attributable to the
Variable Contracts (as opposed to AIT shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement Variable
Contract Owner initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption"). Upon
request, the Company will promptly furnish to AIT the opinion of counsel
for the Company (which counsel shall be reasonably satisfactory to AIT) to
the effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Variable Contracts, the Company shall not prevent Variable
Contract Owners from allocating payments to a Fund that was otherwise
available under the Variable Contracts without first giving AIT 90 days
notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to AIT:
Allmerica Investment Trust
440 Lincoln Street
Worcester, Massachusetts 01605
Attention: Secretary
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If to the Company:
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
440 Lincoln Street
Worcester, Massachusetts 01605
Attention: Richard M. Reilly
President
ARTICLE XII. MISCELLANEOUS
12.1. A copy of AIT's Agreement and Declaration of Trust is on
file with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed by AIT's Trustees as Trustees
and not individually, and that AIT's obligations under this instrument are
not binding upon any of the Trustees or Shareholders of AIT, but are
binding only upon the assets and property of AIT.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Variable Contracts and all information
reasonably identified as confidential in writing by any other party hereto
and, except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information until
such time as it may come into the public domain without the express written
consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators)
and shall permit such authorities reasonable access to its books and records
in connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
/s/ Richard M. Reilly
--------------------------------
By: Richard M. Reilly, President
Date: , 1996
--------------------------------
AIT:
SMA INVESTMENT TRUST
By: /s/ John F. O'Brien
--------------------------------
John F. O'Brien
Chairman of the Board of Trustees
Date: , 1996
--------------------------------
Acknowledged:
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
By: /s/ Diane E. Wood
--------------------------------
Diane E. Wood
Vice President and
Chief Investment Officer
Date: 10/23/87
--------------------------------
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SCHEDULE A
CONTRACTS
1. Variable Insurance Policy identified as Contract Form Number
1018-87.
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THE COMMONWEALTH OF MASSACHUSETTS
FEDERAL IDENTIFICATION
NO. 04-1867050
-------------------
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
ONE ASHBURTON PLACE, BOSTON, MASS: 02108
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 175
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
-----------
We,
John F. O'Brien PRESIDENT
and Richard J. Baker SECRETARY
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Corporation)
located at 440 Lincoln Street, Worcester, Massachusetts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on June 30, 1995,
by vote of
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . shares outstanding,
(Class of Stock)
being at least two-thirds of the policyholders present in person or by proxy or
mail and entitled to vote
1. The name by which the corporation shall be known is; -
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
2. The purposes for which the corporation is formed are as follows: -
SEE PAGE 2A
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ----------
<S> <C> <C> <C>
Preferred -- -- --
Common -- 1,000,000 $10.00
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
N/A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
Transfer is subject in certain circumstances to approval of the
commissioner of insurance of The Commonwealth of Massachusetts.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See pages 6A through D hereof.
*If there are no provisions, state "None".
<PAGE>
Foregoing restated articles of organization effect no amendments to the articles
of organization of the corporation as heretofore amended, except amendments to
the following articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
To effect amendments related to the conversion of the corporation
from a mutual life insurance company to a stock life insurance
company including change of name to "First Allmerica Financial
Life Insurance Company", the authorization of 1,000,000 shares of
Common Stock, $10.00 par value, the restatement and amendment of
corporate purposes, and the addition of Article 6 provisions.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this
day of October in the year 1995
/s/ John F. O'Brien
. . . . . . . . . . . . . . . . . . . . . . . President
/s/ Richard J. Baker
. . . . . . . . . . . . . . . . . . . . . . . Secretary
SEE PAGE 7A
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated
articles of organization and, the filing
fee in the amount of $ having
been paid, said articles are deemed to have
been filed with me this
day of October, 1995.
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Richard J. Baker, Esq.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440 Lincoln Street
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Worcester, MA 01653
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(508) - 855-1000
Telephone . . . . . . . . . . . . . . . . . . . . . . . .
Copy Mailed
<PAGE>
Article 2. CORPORATE PURPOSES
The Corporation is constituted for the purpose of transacting on the
stock plan, and when qualified and licensed by law to do so, the kinds of
insurance now or hereafter described in or permitted by Clauses 6th and 16th
of Section 47 and Sections 47A and 54G of Chapter 175 of the General Laws of
The Commonwealth of Massachusetts and any acts in amendment thereof or in
addition thereto, and such other kinds of insurance as may be permitted now
or hereafter to be transacted by insurance corporations organized or
authorized to transact any of the kinds of insurance now or hereafter
described or permitted by said Clauses of Section 47 and Sections 47A and
54G; and including any form of insurance which may be permitted by paragraphs
(b) and (g) of Section 51 of said Chapter 175; and any acts in amendment
thereof or in addition thereto; thus including the authority pursuant to said
Clauses of Section 47 and Sections 47A and 54G; and including, pursuant to
the provisions of paragraph (g) of said Section 51, authority to write such
other form or forms of insurance coverage not included in the provisions of
said Section 47 and Sections 47A and 54G, and not contrary to the law, as
the Commissioner of Insurance, in his or her discretion, may authorize and
license subject to such terms and conditions as he or she may from time to
time prescribe.
The Board of Directors may permit the issuance of participating
policies, and may permit the policyholders of the Company from time to time
to participate in the profits of its operations through the payment of
dividends. The Board of Directors shall have the power to make reasonable
classification or classifications of policies and to take such other action,
in accordance with the law, as may be necessary or desirable to carry into
effect any participation by policyholders in the profits of the operations of
the Company. No policyholder shall have any right to participate in the
profits of the operations of the Company unless and until the Directors of
the Company, in the exercise of their discretion, affirmatively authorize
such participation, and then only to the extent so authorized.
-2A-
<PAGE>
ARTICLE 6
Other Lawful Provisions
6.1 The corporation may carry on any business, operation or activity
referred to in Article 2 to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or in conjunction or
a joint venture or other arrangement with any corporation, association, trust,
firm or individual.
6.2 The corporation may carry on any business, operation or activity
through a wholly or partly owned subsidiary.
6.3 The corporation may be a partner in any business enterprise which it
would have power to conduct by itself.
6.4 The directors may make, amend or repeal the by-laws in whole or in
part, except with respect to any provision thereof which by law or the by-laws
requires action by the stockholders.
6.5 Meetings of the stockholders may be held anywhere in the United
States.
6.6 Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the corporation, and a vote of the
directors refusing permission to make such examination and setting forth that in
the opinion of the directors such examination would be adverse to the interests
of the corporation shall be prima facie evidence that such examination would be
adverse to the interests of the corporation. Every such examination shall be
subject to such reasonable regulations as the directors may establish in regard
thereto.
6.7 The directors may specify the manner in which the accounts of the
corporation shall be kept and may determine what constitutes net earnings,
profits and surplus, what amounts, if any, shall be reserved for any corporate
purpose, and what amounts, if any, shall be declared as dividends. Unless the
board of directors otherwise specifies, the excess of the consideration for any
share of its capital stock with par value issued by it over such par value shall
be surplus. The board of directors may allocate to capital stock less than all
of the consideration for any share of its capital stock without par value issued
by it, in which case the balance of such consideration shall be surplus. All
surplus shall be available for any corporate purpose, including the payment of
dividends.
-6A-
<PAGE>
6.8 The purchase or other acquisition or retention by the corporation of
shares of its own capital stock shall not be deemed a reduction of its capital
stock. Upon any reduction of capital or capital stock, no stockholder shall
have any right to demand any distribution from the corporation, except as and to
the extent that the stockholders shall have provided at the time of authorizing
such reduction.
6.9 The directors shall have the power to fix form time to time their
compensation. No person shall be disqualified from holding any office by reason
of any interest. In the absence of fraud, any director, officer or stockholder
of this corporation individually, or any individual having any interest in any
concern which is a stockholder of this corporation, or any concern in which any
of such directors, officers, stockholders or individuals has an interest, may be
a party to, or may be pecuniarily or otherwise interested in, any contract,
transaction or other act of the corporation, and
(1) such contract, transaction or act shall not be in any way invalidated
or otherwise affected by that fact;
(2) no such director, officer, stockholder or individual shall be liable
to account to the corporation for any profit or benefit realized
through any such contract, transaction or act; and
(3) any such director of the corporation may be counted in determining the
existence of a quorum at any meeting of the directors or of any
committee thereof which shall authorize any such contract, transaction
or act, and may vote to authorize the same;
provided, however, that any contract, transaction or act in which any director
or officer of the corporation is so interested individually or as a director,
officer, trustee or member of any concern which is not a subsidiary or affiliate
of the corporation, or in which any directors or officers are so interested as
holders, collectively, of a majority of shares of capital stock or other
beneficial interest at the time outstanding in any concern which is not a
subsidiary or affiliate of the corporation, shall be duly authorized or ratified
by a majority of the directors who are not so interested, to whom the nature of
such interest has been disclosed and who have made any findings required by law;
the term "interest" including personal interest and interest as a
director, officer, stockholder, shareholder, trustee, member or beneficiary
of any concern;
-6B-
<PAGE>
the term "concern" meaning any corporation, association, trust,
partnership, firm, person or other entity other than the corporation; and
the phrase "subsidiary or affiliate" meaning a concern in which a majority
of the directors, trustees, partners or controlling persons is elected or
appointed by the directors of the corporation, or is constituted of the
directors or officers of the corporation.
To the extent permitted by law, the authorizing or ratifying vote of the holders
of shares representing a majority of the votes of the capital stock of the
corporation outstanding and entitled to vote for the election of directors at
any annual meeting or a special meeting duly called for the purpose (whether
such vote is passed before or after judgment rendered in a suit with respect to
such contract, transaction or act) shall validate any contract, transaction or
act of the corporation, or of the board of directors or any committee thereof,
with regard to all stockholders of the corporation, whether or not of record at
the time of such vote, and with regard to all creditors and other claimants
under the corporation; provided, however, that
A. with respect to the authorization or ratification of contracts,
transactions or acts in which any of the directors, officers or
stockholders of the corporation have an interest, the nature of such
contracts, transactions or acts and the interest of any director,
officer or stockholder therein shall be summarized in the notice of
any such annual or special meeting, or in a statement or letter
accompanying such notice, and shall be fully disclosed at any such
meeting;
B. the stockholders so voting shall have made any findings required by
law;
C. the stockholders so interested may vote at any such meeting except to
the extent otherwise provided by law; and
D. any failure of the stockholders to authorize or ratify such contract,
transaction or act shall not be deemed in any way to invalidate the
same or to deprive the corporation, its directors, officers or
employees of its or their right to proceed with or enforce such
contract, transaction or act.
If the corporation has more than one class or series of capital stock
outstanding, the vote required by this paragraph shall be governed by the
provisions of the Articles of Organization applicable to such classes or series.
-6C-
<PAGE>
No contract, transaction or act shall be avoided by reason of any provision of
this paragraph 6.9 which would be valid but for such provision or provisions.
6.10 A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the Massachusetts Business Corporation Law as in effect at the time such
liability is determined. No amendment or repeal of this paragraph 6.10 shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
6.11 The corporation shall have all powers granted to corporations by the
laws of The Commonwealth of Massachusetts, provided that no such power shall
include any activity inconsistent with the Business Corporation Law or the
general laws of said Commonwealth.
-6D-
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, the undersigned,
constituting a majority of the board of directors have hereto signed our names
this 19th day of September in the year 1995.
/s/ John F. O'Brien
- -------------------------------
John F. O'Brien
- -------------------------------
Michael P. Angelini
/s/ David A. Barrett
- -------------------------------
David A. Barrett
/s/ Gail L. Harrison
- -------------------------------
Gail L. Harrison
/s/ J. Terrence Murray
- -------------------------------
J. Terrence Murray
/s/ Guy W. Nichols
- -------------------------------
Guy W. Nichols
/s/ Robert G. Stachler
- -------------------------------
Robert G. Stachler
/s/ John L. Sprague
- -------------------------------
John L. Sprague
/s/ Richard Manning Wall
- -------------------------------
Richard Manning Wall
/s/ Herbert M. Varnum
- -------------------------------
Herbert M. Varnum
-7A-
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the 18th day of February,
1994 by and among STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA, (hereinafter
the "Company"), a Massachusetts corporation, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto as
may be amended from time to time (each such account hereinafter referred to as
the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
1
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 132G of Chapter 175 of the Insurance Code of the
Commonwealth of Massachusetts and has registered or, prior to any issuance or
sale of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
4
<PAGE>
from time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as life insurance or annuity contracts, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
Commonwealth of Massachusetts and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the Commonwealth of Massachusetts to the extent
required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and
5
<PAGE>
that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the Commonwealth of Massachusetts and
any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less $5
million. The aforesaid includes coverage for larceny and embezzlement is issued
by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
6
<PAGE>
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
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4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the
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Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report) and, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall
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<PAGE>
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
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<PAGE>
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts
or sales literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
11
<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent),
but failure to
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<PAGE>
notify the Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement,
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<PAGE>
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control)
or wrongful conduct of the Fund, Adviser or Underwriter or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
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<PAGE>
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the
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<PAGE>
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 180 (six months) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
16
<PAGE>
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund may
fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective forty five
(45) days after the notice specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the
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Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester, MA 01653
Attention: Rod Vessels
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
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<PAGE>
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as soon as
practical and in any event within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements (statutory and GAAP), as
soon as practical and in any event within 45 days after the end
of each quarterly period:
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<PAGE>
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
By its authorized officer,
By: /s/ Richard M. Reilly
-----------------------------
Title: Vice President
-----------------------------
Date: 2/18/94
-----------------------------
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: /s/ J. Gary Burkhead
-----------------------------
Title: Senior Vice President
-----------------------------
Date: 3/2/94
-----------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ Kurt A. Lange
-----------------------------
Title: President
-----------------------------
Date: 2/28/94
-----------------------------
20
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<S> <C>
Name of Separate Account and Contracts Funded
DATE ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT
Inheiritage Account, August 20, 1991 Variable Inheiritage Form Number 1026.1-94
VEL II - August 20, 1991 VEL '94 - Form Number 1018.1-94
VA-K - August 20, 1991 Exec-Annuity Plus - Form Number A3018.44-94
</TABLE>
21
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run" or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
22
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One
copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
23
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be calculated.
If the initial estimates and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
24
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Allmerica Investment Trust
Delaware Group Premium Fund, Inc.
25
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the 1st day of March, 1994
by and among STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA, (hereinafter the
"Company"), a Massachusetts corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
1
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 132G of Chapter 175 of the Insurance Code of the
Commonwealth of Massachusetts and has registered or, prior to any issuance or
sale of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
4
<PAGE>
from time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as life insurance or annuity contracts, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
Commonwealth of Massachusetts and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the Commonwealth of Massachusetts to the extent
required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and
5
<PAGE>
that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the Commonwealth of Massachusetts and
any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less $5
million. The aforesaid includes coverage for larceny and embezzlement is issued
by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
6
<PAGE>
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
7
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the
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Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report) and, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall
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promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
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7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts
or sales literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
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<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent),
but failure to
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notify the Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice
from the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement,
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<PAGE>
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control)
or wrongful conduct of the Fund, Adviser or Underwriter or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
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<PAGE>
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the
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<PAGE>
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 180 (six months) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
16
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(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund may
fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective forty five
(45) days after the notice specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the
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Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester, MA 01653
Attention: Rod Vessels
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
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12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as soon as
practical and in any event within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements (statutory and GAAP), as
soon as practical and in any event within 45 days after the end
of each quarterly period:
19
<PAGE>
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
By its authorized officer,
By: /s/ Richard M. Reilly
------------------------------
Title: Vice President
------------------------------
Date: 3/14/94
------------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By: /s/ J. Gary Burkhead
------------------------------
Title: Senior Vice President
------------------------------
Date: 3/18/94
------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ Kurt A. Lange
------------------------------
Title: President
------------------------------
Date: 3/24/94
------------------------------
20
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<S> <C>
Name of Separate Account and Contracts Funded
DATE ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT
Inheiritage Account, August 20, 1991 Variable Inheiritage Form Number 1026.1-94
VEL II - August 20, 1991 VEL '94 - Form Number 1018.1-94
VA-K - August 20, 1991 Exec-Annuity Plus - Form Number A3018.44-94
</TABLE>
21
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
22
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One
copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
23
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be calculated.
If the initial estimates and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
24
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Allmerica Investment Trust
Delaware Group Premium Fund, Inc.
25
<PAGE>
Form of
PARTICIPATION AGREEMENT
Among
DELAWARE GROUP PREMIUM FUND, INC.
And
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
And
DELAWARE DISTRIBUTORS, INC.
THIS AGREEMENT, made and entered into this ____ day of ___________, 1996
by and among DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under
the laws of Maryland (the "Fund"), FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY, a Massachusetts corporation (the "Company"), on its own behalf and
on behalf of each separate account of the Company named in Schedule 1 to this
Agreement as in effect at the time this Agreement is executed and such other
separate accounts that may be added to Schedule 1 from time to time in
accordance with the provisions of Article XI of this Agreement (each such
account referred to as the "Account"), and DELAWARE DISTRIBUTORS, INC., a
Delaware corporation (the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively referred to
as "Variable Insurance Products," the owners of such products being referred
<PAGE>
to as "Product owners") to be offered by insurance companies which have
entered into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, the common stock of the Fund (the "Fund shares") consists of
separate series ("Series") issuing separate classes of shares ("Series
shares"), each such class representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred
to herein as the "Fund Registration Statement" and the prospectus contained
therein, or filed pursuant to Rule 497 under the 1933 Act, referred to herein
as the "Fund Prospectus") on Form N-1A to register itself as an open-end
management investment company (File No. 811-5162) under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Fund shares
(File No. 33-14363) under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Company has filed or will file a registration statement
with the SEC to register under the 1933 Act certain variable annuity
contracts described in Schedule 2 to this Agreement as in effect at the time
this Agreement is executed and such other variable annuity contracts and
variable life insurance policies which may be added to Schedule 2 from time
to time in accordance with Article XI of this Agreement
- 2 -
<PAGE>
(such policies and contracts shall be referred to herein collectively as the
"Contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts
Registration Statement" and the prospectus for each such class or classes
being referred to herein as the "Contracts Prospectus," and the owners of the
such contracts, as distinguished from all Product Owners, being referred to
as "Contract Owners"); and
WHEREAS, the Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered the Account
with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by the Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Delaware Management Company, Inc. (the "Investment Manager") is
registered as an investment adviser
- 3 -
<PAGE>
under the 1940 Act and any applicable state securities laws and serves as an
investment manager to the Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of the
Account to fund the Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net
asset value on each such Business Day. Notwithstanding any other provision in
this Agreement to the contrary, the Board of Directors of the Fund (the "Fund
Board") may suspend or terminate the offering of Fund shares of any Series,
if such action is required by law or by
- 4 -
<PAGE>
regulatory authorities having jurisdiction or if, in the sole discretion of
the Fund Board acting in good faith and in light of its fiduciary duties
under Federal and any applicable state laws, suspension or termination is
necessary and in the best interests of the shareholders of any Series (it
being understood that "shareholders" for this purpose shall mean Product
owners).
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing
such requests at the net asset value on a daily basis in accordance with
Section 1.4 of this Agreement, the applicable provisions of the 1940 Act and
the then currently effective Fund Prospectus. Notwithstanding the foregoing,
the Fund may delay redemption of Fund shares of any Series to the extent
permitted by the 1940 Act, any rules, regulations or orders thereunder, or
the then currently effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall
be the agent of the Fund for the limited purpose of receiving redemption and
purchase requests from the Account (but not from the general account of the
Company), and receipt on any Business Day by the Company as such limited
agent of the Fund prior to the time prescribed in the current Fund Prospectus
(which as of the date of execution of this Agreement is 4 p.m.) shall
constitute receipt by the Fund on that same Business Day, provided that the
Fund receives notice of such
- 5 -
<PAGE>
redemption or purchase request by 11:00 a.m. Eastern Time on the next
following Business Day. For purposes of this Agreement, "Business Day" shall
mean any day on which the New York Stock exchange is open for trading or as
otherwise provided in the Fund's then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Series on the same
day that it places an order with the Fund to purchase those Series shares.
Payment for Series shares will be made by the Account or the Company in
Federal Funds transmitted to the Fund by wire to be received by 11:00 a.m. on
the day the Fund is properly notified of the purchase order for Series shares
(unless sufficient proceeds are available from redemption of shares of other
Series). If Federal Funds are not received on time, such funds will be
invested, and Series shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for Series shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by wire on
the day the Fund is notified of the redemption order of Series shares (unless
redemption proceeds are applied to the purchase of shares of other Series),
except that the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the period
permitted under Section 22(e) of the 1940 Act. Neither the Fund nor the
Distributor shall bear any responsibility whatsoever for the proper
disbursement or
- 6 -
<PAGE>
crediting of redemption proceeds; the Company alone shall be responsible for
such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on
any Series shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable
on any Series shares in the form of additional shares of that Series. The
Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends in cash. The Fund
shall notify the Company of the number of Series shares so issued as payment
of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after
the net asset value per share for such Series is calculated, and shall
calculate such net asset value in accordance with the then currently
effective Fund Prospectus. Neither the Fund, any Series, the Distributor, nor
the Investment Manager nor any of
- 7 -
<PAGE>
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect
information supplied by the Company to the Fund, the Distributor or the
Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all
amounts available for investment under the Contracts (other than those listed
on Schedule 3) shall be invested only in the Fund and/or allocated to the
Company's general account, provided that such amounts may also be invested in
an investment company other than the Fund if: (a) such other investment
company is advised by the Fund's investment adviser; (b) the Fund and/or the
Distributor, in their sole discretion, consents to the use of such other
investment company; (c) there is a substitution of the Fund made in
accordance with Section 10.1(e) of this Agreement; or (d) this Agreement is
terminated pursuant to Article X of this Agreement. The Company also agrees
that it will not take any action to operate the Account as a management
investment company under the 1940 Act without the Fund's and Distributor's
prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be sold
only to Participating Insurance Companies and their separate accounts. The
Fund and the Distributor will not sell Fund shares to any insurance company
or separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares of any Series
will be sold to the general public.
- 8 -
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts (i) that the
Contracts be offered and sold in compliance in all material respects with all
applicable Federal and state laws and (ii) that at the time it is issued each
Contract is a suitable purchase for the applicant therefor under applicable
state insurance laws. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly authorized the Account as a separate
account under Title 18, Section 2932 of the Massachusetts Insurance Code, and
has registered or, prior to the issuance of any Contracts, will register the
Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a separate account for the Contracts, and that it will
maintain such registration for so long as any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall
remain registered under the 1940 Act for so long as the Fund shares are sold.
The
- 9 -
<PAGE>
Fund further represents and warrants that it is a corporation duly organized
and in good standing under the laws of Maryland.
2.3. The Fund represents that it currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain such qualification (under Subchapter M or any successor or
similar provision), and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Fund represents that it will comply with Section 817(h) of the
Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
The Company shall make every effort to maintain such treatment and shall
notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that
they might not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Delaware, to the extent required to
perform this Agreement and with any investment restrictions set forth on
Schedule 4, as
- 10 -
<PAGE>
amended from time to time by the Company in accordance with Section 6.6. The
Fund, however, makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. The Company alone shall be responsible for informing the Fund of any
investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that the Distributor is
duly registered as a broker-dealer under the 1934 Act, a member in good
standing with the NASD, and duly registered as a broker-dealer under
applicable state securities laws; its operations are in compliance with
applicable law, and it will distribute the Fund shares according to
applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents
and warrants that the Investment Manager is registered as an investment
adviser under the Investment Advisers Act of 1940 and is in compliance with
applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act.
- 11 -
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company (at its expense) with as
many copies of the current Fund Prospectus as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
the Fund Prospectus (including a final copy of the new prospectus as set in
type at the Distributor's expense) and other assistance as is reasonably
necessary in order for the Company to have a new Contracts Prospectus printed
together with the Fund Prospectus in one document (the cost of such printing
to be shared equally by the Company and the Distributor).
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. The Fund (at its cost) shall provide the Company with copies of
its proxy material, shareholder reports and other communications to the
Company.
3.4. The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce or
encourage Contract owners to (a) charge the Fund's investment adviser or
contract with any
- 12 -
<PAGE>
sub-investment adviser, or (b) change, modify, substitute, add or delete the
Fund or other investment media.
3.5. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund or the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund
or the Distributor. The Fund and the Distributor agree to respond to any
request for approval on a prompt and timely basis. Failure to respond shall
not relieve the Company of the obligation to obtain the prior written
permission of the Fund or the Distributor.
3.6. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund
other than the information or representations contained in the Fund
Registration Statement or Fund Prospectus, as such Registration Statement and
Prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or by the Distributor, except with the prior
written permission of the Fund or the Distributor. The Fund and the
Distributor agree to respond to any request for permission on a prompt and
timely basis. Failure to respond shall not relieve the Company of the
obligation to obtain the prior written permission of the Fund or the
Distributor.
- 13 -
<PAGE>
3.7. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company,
the Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. Failure to respond shall not relieve the Fund
or the Distributor of the obligation to obtain the prior written permission
of the Company.
3.8. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, that relate to the Fund or Fund shares,
promptly after the filing of such document with the SEC or other regulatory
authorities.
3.9. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts
- 14 -
<PAGE>
Prospectuses, Statements of Additional Information, reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Contracts
or those Sub-Accounts of the Account to which Contract purchase payments and
value are allocable, promptly after the filing of such document with the SEC
or other regulatory authorities.
3.10. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of
additional information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.11. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape dis-
- 15 -
<PAGE>
play, signs or billboards, motion pictures or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, Statements of Additional Information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract owners;
(b) vote Fund shares of each Series attributable to Contract
owners in accordance with instructions or proxies timely
received from such Contract owners;
(c) vote Fund shares of each Series attributable to Contract
owners for which no instructions have been received in the
same proportion as Fund shares of such Series for which
instructions have been timely received; and
(d) vote Fund shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable
to Contract owners in the same proportion as Fund shares of
such Series for which instructions have been timely received.
- 16 -
<PAGE>
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with other Participating Insurance Companies.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Distributor shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Series
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then the Distributor may make payments to the
Company in amounts agreed to by the Company and the Distributor in writing.
Currently, no such payments are contemplated. The Fund currently does
not intend to make any payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act or in contravention of such rule, although it
may make payments pursuant to Rule 12b-1 in the future.
5.2. All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except
as may otherwise be provided in Sections 1.4 and 3.1 of this Agreement (or
Article VII, as it may be amended), the Company shall not bear any of the
expenses for the cost of registration and qualification of the Fund shares
under Federal and any state securities law, preparation and filing of the
Fund Prospectus and Fund Registration Statement,
- 17 -
<PAGE>
Fund proxy materials and reports, setting the Prospectus in type, setting in
type and printing and distributing the Fund proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by
any Federal or state securities law, all taxes on the issuance or transfer of
Fund shares, and any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect
for so long as Fund shares are sold the continuous offering of Fund shares as
described in the
- 18 -
<PAGE>
the currently effective Fund Prospectus. The Fund shall register and qualify
Fund shares for sale to the extent required by applicable securities laws of
the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such Contract as
a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of
Directors, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
6.6. The Company shall amend Schedule 4 when appropriate in order to
inform the Fund of any applicable investment restrictions with which the Fund
must comply.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Fund intends to file
an application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary
to permit Fund shares to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies. The parties to this Agreement
- 19 -
<PAGE>
agree than any conditions or undertakings that may be imposed on the Company,
the Fund and/or the Distributor by virtue of such order shall be incorporated
herein by this reference, as of the date such order is granted, as though set
forth herein in full, and such parties agree to comply with such conditions
and undertakings to the extent applicable to each such party. The Fund and
the Distributor will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings incorporated by reference herein on the parties to such
agreement.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Fund, the
Distributor and each person who controls or is associated with the Fund or
the Distributor within the meaning of such terms under the federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any
- 20 -
<PAGE>
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature
or other promotional material for the Contracts
or the Contracts themselves (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Fund
or the Distributor (or a person authorized in writing to do
so on behalf of the Fund or the Distributor) for use in the
Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by or on behalf
of the Company (other than statements or representations
contained in the Fund Registration Statement, Fund Prospectus
or sales literature or other promotional material of the Fund
not supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its control
with respect to the sale or distribution of the Contracts or
Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company; or
(d) arise as a result of any failure by the Company to provide
the services and furnish the materials or
- 21 -
<PAGE>
to make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares
on a timely basis in accordance with the procedures set forth
in Article I.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company and
each person who controls or is associated with the Company within the meaning
of such terms under the federal securities laws and any officer, director,
employee or agent of the foregoing, against any and all losses, claims,
damages or liabilities, joint or several (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted),
to which they or any of them may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Fund Registration Statement, Fund Prospectus (or any
amendment or
- 22 -
<PAGE>
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Fund
or the Distributor for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement
thereto) or sales literature for the Fund or otherwise for
use in connection with the sale of the Contracts or Fund
shares; or
(b) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact by the
Distributor or the Fund (other than statements or
representations contained in the Fund Registration Statement,
Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Distributor or the
Fund or persons under their control) or wrongful conduct of
the Distributor or persons under its control with respect to
the sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information
furnished in writing by the Distributor or the Fund to the
Company (or a person authorized in writing to do so on behalf
of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
- 23 -
<PAGE>
requirements specified in Article VI of this Agreement); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is due
to the wilful misfeasance, bad faith, gross negligence or reckless disregard
of duty by the party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action,
if a claim in respect thereof is to be made by the indemnified party against
any person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party
will not relieve it from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result
of the failure to give such notice. The indemnifying party, upon the request
of the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others
the indemnifying party may
- 24 -
<PAGE>
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of
- 25 -
<PAGE>
the state of Delaware, without giving effect to the principles of conflicts
of laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant, and the terms hereof shall be limited, interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written
notice to the other parties, such termination to be effective no earlier than
one year following the date on which the first Contract is issued to the
public; or
(b) at the option of the Company if shares of any Series are not
reasonably available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for such cause
shall be furnished by the Company, said termination to be effective ten days
after receipt of notice unless the Fund makes available a sufficient number
of Fund shares to meet the requirements of the Contracts within said ten-day
period; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body
- 26 -
<PAGE>
regarding the Company's duties under this Agreement or related to the sale of
the Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Fund shares, or an expected or anticipated
ruling, judgment or outcome which would, in the Fund's reasonable judgment,
materially impair the Company's ability to meet and perform the Company's
obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an interest
in the affected Series and the written approval of the Distributor (unless
otherwise required by applicable law), to substitute the shares of another
investment company for the corresponding Series shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts
are not registered, issued or sold in accordance with applicable Federal
and/or state law; or
(g) by either the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests
of (i) all Product owners or (ii) the interests of the Participating
Insurance Companies investing in the Fund; or
- 27 -
<PAGE>
(h) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Sub-chapter M of the Code, or under any
successor or similar provision, or if the Company reasonably believes based
on an opinion of counsel satisfactory to the Fund that the Fund may fail to
so qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and any
regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under the Code,
or if the Fund reasonably believes that the Contracts may fail to so qualify;
or
(k) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall have
suffered a material adverse change, in its business or financial condition or
(2) the Company shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business and
operations or either the Fund or the Distributor; or
(l) at the option of the Company, if the Company shall determine,
in its sole judgment exercised in good faith, that the Fund or the
Distributor shall have been the subject of material adverse publicity which
is likely to have a material
- 28 -
<PAGE>
adverse impact upon the business and operations of the Company; or
(m) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another insurance
company pursuant to an assumption reinsurance agreement) unless the
non-assigning party consents thereto or unless this Agreement is assigned to
an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate which notice shall set
forth the basis for such termination. Furthermore:
(a) In the event that any termination is based upon the provisions
of Article VII or the provisions of Section 10.1(a) of this Agreement, such
prior written notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior
written notice shall be given at least ninety (90) days before the effective
date of termination.
(c) in the event that any termination is based upon the provisions
of Section 10.1(e) of this Agreement, such prior written notice shall be
given at least sixty (60) days
- 29 -
<PAGE>
before the date of any proposed vote to replace the Fund's shares.
10.3. Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account).
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor may, at the
option of the Fund, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Fund desires pursuant to
the terms and conditions of this Agreement as provided in paragraph (b)
below, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the Fund or Distributor so elects to
made additional Fund shares available, the owners of the Existing Contracts
or the Company, whichever shall have legal authority to do so, shall be
permitted to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the
- 30 -
<PAGE>
Distributor and the Fund will continue to make Fund shares available after
such termination. If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect except
for Section 10.1(a) and thereafter either the Fund or the Company may
terminate the Agreement, as so continued pursuant to this Section 10.4, upon
prior written notice to the other party, such notice to be for a period that
is reasonable under the circumstances but, if given by the Fund, need not be
for more than six months.
(c) The parties agree that this Section 10.4 shall not apply to
any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to
add new classes or variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in
the Fund. The provisions of this Agreement shall be equally applicable to
each such class of contracts or policies, unless the context otherwise
requires.
- 31 -
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
Delaware Group Premium Fund, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to the Company:
Abigail M. Armstrong
Secretary and Counsel
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01605
If to the Distributor:
Mr. Michael P. Drennan
Vice President
Delaware Distributors, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
- 32 -
<PAGE>
13.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as
applicable, by such party, and when so executed and delivered this Agreement
will be the valid and binding obligation of such party enforceable in
accordance with its terms.
- 33 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized officer on the
date specified below.
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
(Company)
Date: , 1996 By:
------------ ----------------------------
Name:
Title:
DELAWARE GROUP PREMIUM FUND, INC.
(Fund)
Date: , 1996 By:
------------ ----------------------------
Name:
Title:
DELAWARE DISTRIBUTORS, INC.
(Distributor)
Date: , 1996 By:
------------ ----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
Separate Accounts of First Allmerica Financial Life Insurance Company
Investing in the Fund
As of December ___, 1996
NAME OF ACCOUNT DATE ESTABLISHED
- --------------- ----------------
Separate Account VA-K November 1, 1990
of First Allmerica Financial Life
Insurance Company
<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of ____________, 1991
Individual Variable Annuity Policies
funded by sub-accounts of Separate Account VA-K
and investing in shares of
Delaware Group Premium Fund, Inc.
<PAGE>
SCHEDULE 3
Variable Contracts
Excluded from Section 1.8
As of December 23, 1991
Individual Variable Annuity Policies Marketed
under the name "ExecAnnuity Plus"
<PAGE>
SCHEDULE 4
Investment Restrictions
Applicable to the Fund
As of ___________, 1996
<PAGE>
SERVICE AGREEMENT
This Agreement is entered into and effective as of the 1st day of
November, 1995, by and between FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS
COMPANY ("FIIOC") and ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
("Company").
WHEREAS, FIIOC provides transfer agency and other services to
Fidelity's Variable Insurance Products Fund and Variable Insurance Products Fund
II (collectively "Funds"); and
WHEREAS, the services provided by FIIOC on behalf of the Funds
include responding to inquiries about the Funds, including the provision of
information about the Funds' investment objectives, investment policies,
portfolio holdings, etc.; and
WHEREAS, Company holds shares of the Funds in order to fund certain
variable annuity contracts, group annuity contracts, and/or variable life
insurance policies, the beneficial interests in which are held by individuals,
plan trustees, or others who look to Company to provide information about the
Funds similar to the information provided by FIIOC; and
WHEREAS, the Company and one or both of the Funds have entered into one
or more Participation Agreements, under which the Company agrees not to provide
information about the Funds except for information provided by the Funds or
their designees; and
WHEREAS, FIIOC and Company desire that Company be able to respond to
inquiries about the Funds from individual variable annuity owners, participants
in group annuity contracts issued by the Company, and owners and participants
under variable life insurance policies issued by the Company, and prospective
customers for any of the above; and
WHEREAS, FIIOC and Company recognize that Company's efforts in
responding to customer inquiries will reduce the burden that such inquiries
would place on FIIOC should such inquiries be directed to FIIOC.
NOW THEREFORE, the parties do agree as follows:
1. INFORMATION TO BE PROVIDED TO COMPANY. FIIOC agrees to provide
to Company, on a periodic basis, directly or through a designee, information
about the Funds' investment objectives, investment policies, portfolio
holdings, performance, etc. The content and format of such information shall
be as FIIOC, in its sole discretion, shall choose. FIIOC may change the
format and/or content of such informational reports, and the frequency with
which such information is provided. For purposes of Section 4.2 of each of
the Company's Participation Agreement(s) with the Funds, FIIOC represents
that it is the designee of the Funds, and Company may therefore use the
information provided by FIIOC without seeking additional permission from the
Funds.
2. USE OF INFORMATION BY COMPANY. Company may use the information
provided by FIIOC in communications to individuals, plan trustees, or others who
have legal title or beneficial interest in the annuity or life insurance
products issued by Company, and to prospective purchasers of such products or
beneficial interests thereunder. If such information is contained as part of
larger pieces of sales literature, advertising, etc., such pieces shall be
furnished for review to the Funds in accordance with the terms of the Company's
Participation Agreements with the Funds. Nothing herein shall give the Company
the right to expand upon, reformat or otherwise alter the information provided
by FIIOC. Company acknowledges that the information provided it by FIIOC may
need to be supplemented with additional qualifying information, regulatory
disclaimers, or other information before it may be conveyed to persons outside
the Company.
1
<PAGE>
3. COMPENSATION TO COMPANY. In recognition of the fact that Company
will respond to inquiries that otherwise would be handled by FIIOC, FIIOC agrees
to pay Company a quarterly fee computed as follows:
At the close of each calendar quarter, FIIOC will determine the Average
Daily Assets held in the Funds by the Company. Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter divided by the
number of calendar days in the quarter. The Average Daily Assets shall be
multiplied by 0.0002 (2 basis points) and that sum shall be divided by four.
The resulting number shall be the quarterly fee for that quarter, which shall be
paid to Company during the following month.
Should the Participation Agreement(s) between Company and the Fund(s)
be terminated effective before the last day of a quarter, Company shall be
entitled to a fee for that portion of the quarter during which the
Participation Agreement was still in effect, unless such termination is due
to misconduct on the part of the Company. For such a stub quarter, Average
Daily Assets shall be the sum of the daily assets for each calendar day in
the quarter through and including the date of termination of the
Participation Agreement(s), divided by the number of calendar days in that
quarter for which the Participation Agreement was in effect. Such Average
Daily Assets shall be multiplied by 0.0002 (2 basis points) and that number
shall be multiplied by the number of days in such quarter that the
Participation Agreement was in effect, then divided by three hundred
sixty-five. The resulting number shall be the quarterly fee for the stub
quarter, which shall be paid to Company during the following month.
4. TERMINATION. This Agreement may be terminated by Company at any
time upon written notice to FIIOC. FIIOC may terminate this Agreement at any
time upon ninety (90) days' written notice to Company. FIIOC may terminate
this Agreement immediately upon written notice to Company (1) if required by
any applicable law or regulation, (2) if so required by action of the Fund(s)
Board of Trustees, or (3) if Company engages in any material breach of this
Agreement. This Agreement shall terminate immediately and automatically upon
the termination of Company's Participation Agreement(s) with the Funds, and
in such event no notice need be given hereunder.
5. INDEMNIFICATION. Company agrees to indemnify and hold harmless
FIIOC for any misuse by Company, its affiliates, its agents, its brokers, and
any persons controlling Company, under common control with Company, or
controlled by Company, of the information provided by FIIOC under this
Agreement.
6. APPLICABLE LAW. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts.
7. ASSIGNMENT. This Agreement may not be assigned, except that it
shall be assigned automatically to any successor to FIIOC as the Funds' transfer
agent, and any such successor shall be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands as of the date
first written above.
FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
By: /s/ Virginia Meany
--------------------------
Virginia Meany
Senior Vice President
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
--------------------------
Name: Richard M. Reilly
--------------------------
Title: President
--------------------------
2
<PAGE>
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.
AND
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of this 1st day of May, 1995 by
and among STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA (hereinafter, the
"Company"), a Massachusetts insurance company, on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A hereto
as may be amended from time to time (each account hereinafter referred to as
the "Account"), and T. ROWE PRICE INTERNATIONAL SERIES, INC., a corporation
organized under the laws of Maryland (hereinafter referred to as the "Fund")
and T. ROWE PRICE INVESTMENT SERVICES, INC. (hereinafter the "Underwriter"),
a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is or will be available to act as the investment
vehicle for separate accounts established for variable life insurance and
variable annuity contracts (the "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements with
the Fund and Underwriter (hereinafter "Participating Insurance Companies");
and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest
in a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has filed an application to obtain an order from the
Securities and Exchange Commission ("SEC") granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act")
and Rules 6e-2(b)(15) and 6e-3(T) (b)(15) thereunder, if and to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
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WHEREAS, Rowe Price-Fleming International, Inc. (hereinafter referred to
as the "Adviser") is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts supported wholly or partially
by the Account (the "Contracts") under the 1933 Act, and said Contracts are
listed in Schedule A hereto, as it may be amended from time to time by mutual
written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed
in Schedule A hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios") on behalf of the Account to
fund the aforesaid Contracts, and the Underwriter is authorized to sell such
shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net
asset value pursuant to rules of the SEC, and the Fund shall use reasonable
efforts to calculate such net asset value on each day which the New York
Stock Exchange is open for trading. Notwithstanding the foregoing, the Board
of Directors of the Fund (hereinafter the "Board") may refuse to sell shares
of any Designated Portfolio to any person, or suspend or terminate the
offering of shares of any Designated Portfolio if such action is required by
law or by regulatory authorities having jurisdiction, or is, in the sole
discretion of the Board acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts.
No shares of any Designated
<PAGE>
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Portfolios will be sold to the general public. The Fund and the Underwriter
will not sell Fund shares to any insurance company or separate account unless
an agreement containing provisions substantially the same as Articles I and
VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or
postpone the date of payment or satisfaction upon redemption consistent with
Section 22(e) of the 1940 Act and any sales thereunder, and in accordance
with the procedures and policies of the Fund as described in the then current
prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and
the Fund receives notice of such order by 9:30 a.m. Baltimore time on the
next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and
in accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day
after receipt of an order to purchase Fund shares. Payment shall be in
federal funds transmitted by wire by 3:00 p.m. Baltimore time. If payment in
Federal Funds for any purchase is not received or is received by the Fund
after 3:00 p.m. Baltimore time on such Business Day, the Company shall
promptly, upon the Fund's request, reimburse the Fund for any charges, costs,
fees, interest or other expenses incurred by the Fund in connection with any
advances to, or borrowings or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions effected
by the Fund based upon such purchase request. For purposes of Section 2.8 and
2.9 hereof, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolio's shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Fund
shall use its best efforts to furnish advance notice of the day such
dividends and distributions are expected to be paid.
<PAGE>
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1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
(normally by 6:30 p.m. Baltimore time) and shall use its best efforts to make
such net asset value per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Contracts may be invested in other investment companies,
provided, however, that (a) such other investment company, or series thereof,
has investment objectives or policies that are substantially different from
the investment objectives and policies of the Fund; or (b) the Company gives
the Fund and the Underwriter 45 days written notice of its intention to make
such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company
so informs the Fund and Underwriter prior to their signing this Agreement; or
(d) the Fund or Underwriter consents to the use of such other investment
company, such consent not to be unreasonably withheld.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and state
laws and that the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements. The Company further represents
and warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset
account under the Massachusetts insurance laws and has registered or, prior
to any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
the Fund is and shall remain registered under the 1940 Act. The Fund shall
amend the Registration Statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states only if and to the
extent deemed advisable by the Fund or the Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
may make such payments in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund will undertake
to have a Board, a majority of whom are not interested persons of the Fund,
formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the
various states, except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance
with the laws of the Commonwealth of Massachusetts to the extent required to
perform this Agreement.
<PAGE>
-5-
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the Commonwealth of Massachusetts and
any applicable state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the Commonwealth
of Massachusetts and any applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond
or similar coverage for the benefit of the Fund in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act
or related provisions as may be promulgated from time to time. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued
by a reputable bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or
securities of the Fund are covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund, in an amount not less than $5 million.
The aforesaid bond includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, STATEMENTS OF ADDITIONAL INFORMATION, AND PROXY
STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company with as many copies of
the Fund's current prospectus as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the new prospectus as set in type at
the Fund's expense) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for the
Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document.
The Underwriter shall bear the expense of printing copies of its
current prospectus that will be distributed to existing Contract owners and
the Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Contracts issued by
the Company.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company
(or, in the Fund's discretion, from the Fund), and the Underwriter (or the
Fund), at its expense, shall print, or otherwise reproduce, and provide a
copy of such SAI free of charge to the Company for itself and for any owner
of a Contract who requests such SAI.
<PAGE>
-6-
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Underwriter, at the Company's expense,
shall provide the Company with copies of the Fund's annual and semi-annual
reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by
the Company. If requested by the Company in lieu thereof, the Underwriter
shall provide such documentation (which may include a final copy of the
Fund's annual and semi-annual reports as set in type or in camera-ready copy)
and other assistance as is reasonably necessary in order for the Company (at
the Company's expense) to print such shareholder communications for
distribution to Contract Owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Designated Portfolio for which instructions have been
received.
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable contract owners or to
the extent otherwise required by law. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to the
extent permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive
Order and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well
as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors or trustees and
with whatever rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a
Portfolio thereof) or the Adviser or the Underwriter is named, at least
fifteen calendar days prior to its use. No such material shall be used if the
Fund or its designee reasonably object to such use within fifteen calendar
days after receipt of such material. The Fund or its designee reserves the
right to reasonably object to the continued use of such material, and no such
material shall be used if the Fund or its designee so object.
<PAGE>
-7-
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI
for the Fund shares, as such registration statement and prospectus or SAI may
be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee or by the Underwriter, except with the
permission of the Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company, each piece of sales literature or
other promotional material in which the Company, and/or its Account, is named
at least fifteen calendar days prior to its use. No such material shall be
used if the Company reasonably objects to such use within fifteen calendar
days after receipt of such material. The Company reserves the right to
reasonably object to the continued use of such material and no such material
shall be used if the Company so objects.
4.4 The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts,
as such registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Fund or its shares, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filling of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, and registration
statements, prospectuses, SAIs, shareholder reports, proxy materials, and any
other communications distributed or made generally available with regard to
the Funds.
<PAGE>
-8-
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or
any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company
or to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or
other resources available to the Underwriter. No such payments shall be made
directly by the Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior
to their sale. The Fund shall bear the expenses for the cost of registration
and qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting
the prospectus in type, setting in type and printing the proxy materials and
reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or
transfer of the Fund's shares.
5.3 The Company shall bear the expenses of printing (in accordance
with Section 3.1) and distributing the Fund's prospectus to owners of
Contracts issued by the Company and of distributing the Fund's proxy
materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION.
6.1 The Fund will invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations issued thereunder (or any successor
provisions). Without limiting the scope of the foregoing, the Fund will
comply with Section 817(h) of the Code and Treasury Regulation Section
1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make
every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at
the time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make
every effort to maintain such treatment, and that it will notify the Fund and
the Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees
<PAGE>
-9-
that any prospectus offering a contract that is a "modified endowment
contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS. The following provisions apply effective
upon (a) the issuance of the Shared Funding Exemptive Order, and (b)
investment in the Fund by a separate account of a Participating Insurance
Company supporting variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Contract owner voting
instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested Board members), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
<PAGE>
-10-
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts
with the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Fund and terminate this Agreement
with respect to such Account within six months after the Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
members of the Board. Until the end of the foregoing six month period, the
Fund shall continue to accept and implement orders by the company for the
purchase (and redemption) of shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Contract if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the Board
determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall
be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board.
7.7 If and to the extent the Shared Funding Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of this Agreement, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with the Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6,
7.1, 7.2, 7.3, 7.4 and 7.5 of the Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to such Sections
are contained in the Shared Funding Exemptive Order or any amendment thereto.
If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 3.4, 3.5, 3.6, 7.1.,
7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of their officers and directors and each
person, if any, who controls the Fund or the Underwriter within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation
<PAGE>
-11-
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the Registration Statement, prospectus, or statement
of additional information for the Contracts or contained
in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
Registration Statement, prospectus or statement of
additional information for the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature of the Fund not supplied by the Company
or persons under its control) or wrongful conduct of the
Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts
or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the qualification requirements specified in Article
VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
<PAGE>
-12-
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision. In
case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action and to settle the
claim at its own expense; provided, however, that no such settlement shall,
without the Indemnified Parties' written consent, include any factual
stipulation referring to the Indemnified Parties or their conduct. After
notice from the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or
the operation of the Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement or any material fact contained
in the Registration Statement or prospectus or SAI or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the
<PAGE>
-13-
Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance or such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or the Account, whichever is
applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Underwriter in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
<PAGE>
-14-
against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to
such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officer or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or
litigation (including legal and other expenses) to which the Indemnified
Parties may be required to pay or may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
expenses, damages, liabilities or expenses (or actions in respect thereof) or
settlements, are related to the operations of the Fund and:
(v) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or the
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
<PAGE>
-15-
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of
any such claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall
be entitled to assume the expense thereof, with counsel satisfactory to the
party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Fund to such
party of the Fund's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Fund will not be liable to such party under this Agreement for
any legal or other expenses subsequently involved by such party independently
in connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to, any Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated Portfolio
based upon the Company's determination that shares of the
Fund are not reasonably available to meet the requirements
of the Contracts; provided that such termination shall apply
only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund
and the Underwriter in the event any of the Designated
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
<PAGE>
-16-
investment media of the Contracts issued or to be issued
by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any
Account, or the purchase of the Fund shares, provided,
however, that the Fund or Underwriter determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its
obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund
or Underwriter by the NASD, the SEC, or any state
securities or insurance department or any other regulatory
body, provided, however, that the Company determines in
its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated
Portfolio in the event that such Designated Portfolio
ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice
to the Company in the event that the Contracts fail to
meet the qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgement exercised in good faith, that the
Company has suffered a material adverse change in its
business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that the Fund
or the Underwriter has suffered a material adverse change
in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(j) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.11 hereof and at the time such notice was given
<PAGE>
-17-
there was no notice of termination outstanding under any
other provision of this Agreement; provided, however, any
termination under this Section 10.1(j) shall be effective
forty-five days after the notice specified in Section 1.11
was given.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, the owners of the Existing Contracts may
be permitted to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section
10.2 shall not apply to any termination under Article VII and the effect of
such Article VII termination shall be governed by Article VII of this
Agreement. The parties further agree that this Section 10.2 shall not apply
to any termination under Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption"), or
(iii) as permitted by an order of the SEC pursuant to Section 26(b) of the
1940 Act. Upon request, the Company will promptly furnish to the Fund and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of
the Contracts, the Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the Contracts
without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
T. Rowe Price International Series, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Eric S. Levy
<PAGE>
-18-
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Terrie Westren
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither
the Board, officers, agents or shareholders assume any personal liability or
responsibility for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information without the
express written consent of the affected party until such time as such
information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provisions of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Massachusetts Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable annuity operations of the Company are being
conducted in a manner consistent with the Massachusetts variable annuity laws
and regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
<PAGE>
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: STATE MUTUAL LIFE ASSURANCE COMPANY OF
AMERICA
By its authorized officer
By: /s/ Robert P. Moreno
-----------------------------------
Title: Vice President
--------------------------------
Date: 5/2/95
---------------------------------
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
Date: April 26, 1995
---------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/
-----------------------------------
Title: Vice President
--------------------------------
Date: April 26, 1995
---------------------------------
<PAGE>
SCHEDULE A
Pending issuance of the Shared Funding Order, the Underwriter shall not
sell to the Company, and the Fund shall not make available for purchase to
the Company, shares of the Designated Portfolio for variable life insurance
Contracts supported wholly or partially by the Accounts.
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
- -------------------------------------- ------------------- -------------------------
<S> <C> <C>
Separate Account VA-K of State Mutual ExecAnnuity Plus T. Rowe Price International Series, Inc.
Life Assurance Company of America, 33-71052 ----------------------------------------
August 20, 1991 811-8814 - T. Rowe Price International
Stock Portfolio
Allmerica Select Separate Account of Allmerica Select T. Rowe Price International Series, Inc.
State Mutual Life Assurance Company 33-71058 ----------------------------------------
of America, August 20, 1991 811-8116 - T. Rowe Price International
Stock Portfolio
VEL II Account of State Mutual Life VEL '93 T. Rowe Price International Seres, Inc.
Assurance Company of America, 33-71056 ----------------------------------------
August 20, 1991 811-8130 - T. Rowe Price International
Stock Portfolio
Inheiritage Account of State Mutual Variable Inheiritage T. Rowe Price International Series, Inc.
Life Assurance Company of America, 33-74184 ------------------------------------------
August 20, 1991 811-8304 - T. Rowe Price International
Stock Portfolio
CONTRACTS TO BE ADDED LATER THIS MONTH
(INITIAL REGISTRATIONS HAVE NOT BEEN FILED YET):
Group VEL Account of State Mutual Group VEL T. Rowe Price International Series, Inc.
Life Assurance ------------------------------------------
- T. Rowe Price International
Stock Portfolio
Allmerica Select Separate Account II of Select VEL T. Rowe Price International Series, Inc.
State Mutual Life Assurance Company ------------------------------------------
of America - T. Rowe Price International
Stock Portfolio
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
THIS AGREEMENT, made and entered into this 15th day of April, 1996 by
and among FIRST ALLMERICA FINANCIAL LIFE INSURANCE (hereinafter the
"Insurance Company"), a Delaware corporation, on its own behalf and on behalf
of each segregated asset account of the Insurance Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS,
INC., a Maryland corporation (the "Company") and INVESCO FUNDS GROUP, INC.
("INVESCO"), a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance
contracts to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and
Exchange Commission (the "Commission"), dated December 29, 1993 (File No.
812-8590), granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Company to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that
may or may not be affiliated with one another (the "Mixed and Shared Funding
Exemptive Order"); and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and
as a broker dealer under the Securities Exchange Act of 1934, as amended,
(the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
1
<PAGE>
WHEREAS, the Insurance Company has registered under the 1933 Act, or
will register under the 1933 Act, certain variable [annuity/life insurance]
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement
of all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to
sell such shares to unit investment trusts such as the Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. SALE OF COMPANY SHARES
1.1. INVESCO agrees to sell to the Insurance Company those shares of
the Company which each Account orders, executing such orders on a daily basis
at the net asset value next computed after receipt by the Company or its
designee of the order for the shares of the Company. For purposes of this
Section 1.1, the Insurance Company shall be the designee of the Company for
receipt of such orders from the Accounts and receipt by such designee shall
constitute receipt by the Company; provided that the Company receives notice
of such order by 8:00 a.m., Mountain Time, on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange
is open for trading and on which the Company calculates its net asset value
pursuant to the rules of the Commission.
1.2. The Company agrees to make its shares available for purchase at
the applicable net asset value per share by the Insurance Company and its
Accounts on those days on which the Company calculates its Funds' net asset
values pursuant to rules of the Commission and the Company shall use
reasonable efforts to calculate its Funds' net asset values on each day on
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the board of directors of the Company (hereinafter the "Board")
may refuse to sell shares of any Fund to any person, or suspend or terminate
the offering of shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of that Fund.
1.3. The Company and INVESCO agree that shares of the Company will be
sold only to Participating Insurance Companies and their separate accounts.
No shares of any Fund will be sold to the general public.
2
<PAGE>
1.4. The Company and INVESCO will not sell Company shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Sections 2.1, 3.4, 3.5 and Article VII
of this Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request,
any full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption.
For purposes of this Section 1.5, the Insurance Company shall be the designee
of the Company for receipt of requests for redemption from each Account and
receipt by that designee shall constitute receipt by the Company; provided
that the Company receives notice of the request for redemption by 8:00 a.m.,
Mountain Time, on the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund offered by the then-current prospectus of the Company in accordance
with the provisions of that prospectus. The Insurance Company agrees that all
net amounts available under the Contracts shall be invested in the Company,
in such other Funds advised by INVESCO as may be mutually agreed to in
writing by the parties hereto, or in the Insurance Company's general account,
provided that such amounts may also be invested in an investment company
other than the Company if (a) the other investment company, or series
thereof, has investment objectives or policies that are substantially
different from the investment objectives and polices of all the Funds of the
Company; or (b) the Insurance Company gives the Company and INVESCO 45 days
written notice of its intention to make the other investment company
available as a funding vehicle for the Contracts; or (c) the other investment
company was available as a funding vehicle for the Contracts prior to the
date of this Agreement and the Insurance Company so informs the Company and
INVESCO prior to their signing this Agreement; or (d) the Company or INVESCO
consents to the use of the other investment company.
1.7. The Insurance Company shall pay for Company shares by 9:00 a.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof.
Payment shall be in federal funds transmitted by wire. For the purpose of
Sections 2.10 and 2.11, upon receipt by the Company of the federal funds so
wired, such funds shall cease to be the responsibility of the Insurance
Company and shall become the responsibility of the Company. Payment of
aggregate redemption proceeds (aggregate redemptions of a Fund's shares by an
Account) of less than $1 million for a given Business Day will be made by
wiring federal funds to the Insurance Company on the next Business Day after
receipt of the redemption request. Payment of aggregate redemption proceeds
of $1 million or more will be by wiring federal funds within seven days after
receipt of the redemption request. Notwithstanding the foregoing, in the
event that one or more Funds has insufficient cash on hand to pay aggregate
redemptions on the next Business Day, and if such Fund has determined to
settle redemption transactions for all of its shareholders on a delayed
basis (more than one Business Day, but in no event more than seven calendar
days, after the date on which the redemption order is received, unless
otherwise permitted by an order of the Commission under Section 22(e) of
the 1940 Act), the Company shall be permitted to delay sending redemption
proceeds to the Insurance Company by the same number of days that the
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Company is delaying sending redemption proceeds to the other shareholders of
the Fund.
Redemptions of up to the lesser of $250,000 or 1% of the net asset value
of the Fund whose shares are to be redeemed in any 90-day period will be made
in cash. Redemptions in excess of that amount in any 90-day period may, in
the sole discretion of the Company, be in-kind redemptions, with the
securities to be delivered in payment of redemptions selected by the Company
and valued at the value assigned to them in computing the Fund's net asset
value per share.
1.8. Issuance and transfer of the Company's shares will be by book
entry only. Stock certificates will not be issued to the Insurance Company or
any Account. Shares ordered from the Company will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital
gain distributions payable on a Fund's shares in additional shares of that
Fund. The Insurance Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Company shall notify the Insurance Company of the number of shares issued as
payment of dividends and distributions.
1.10. The Company shall make the net asset value per share for each
Fund available to the Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make those per-share net asset values available
by 6:00 p.m., Mountain Time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Insurance Company represents and warrants that the Contracts
are, or will be, registered under the 1933 Act; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with applicable state insurance suitability requirements.
The Insurance Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it
has legally and validly established the Account prior to any issuance or sale
thereof as a segregated asset account under Section 2932 of the Delaware
Insurance Code and has registered, or prior to any issuance or sale of the
Contracts will register, the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment
account for the Contracts.
2.2. The Company represents and warrants that Company shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sale in compliance with the laws of the State of
Maryland and all applicable federal securities laws and that the Company is
and shall remain registered under the 1940 Act. The Company shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act
from time to time
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as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
2.3. The Company represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code
of 1986, as amended, (the "Code") and that it will make every effort to
maintain that qualification (under Subchapter M or any successor or similar
provision) and that it will notify the Insurance Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts
are currently treated as [annuity/life insurance/endowment/modified endowment]
contracts, under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Company
and INVESCO immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated
in the future.
2.5. The Company currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent
that it decides to finance distribution expenses pursuant to Rule 12b-1, the
Company undertakes to have a board of directors, a majority of whom are not
interested persons of the Company, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.6. The Company makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states.
2.7. INVESCO represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the
Commission. INVESCO further represents that it will sell and distribute the
Company shares in accordance with the laws of the State of Delaware and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado
and any applicable state and federal securities laws.
2.10. The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities dealing with the money and/or securities of the
Company
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are, and shall continue to be at all times, covered by a blanket fidelity
bond or similar coverage for the benefit of the Company in an amount not less
than the minimum coverage required currently by Section 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. That
fidelity bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Company, in an amount not less than the
minimum coverage required currently for entities subject to the requirements
of Rule 17g-1 of the 1940 Act or related provisions or may be promulgated
from time to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company. The
Insurance Company further represents and warrants that the employees of
Insurance Company, or such other persons designated by Insurance Company,
listed on Schedule C have been authorized by all necessary action of
Insurance Company to give directions, instructions and certifications to the
Company and INVESCO on behalf of Insurance Company. The Company and INVESCO
are authorized to act and rely upon any directions, instructions and
certifications received from such persons unless and until they have been
notified in writing by the Insurance Company of a change in such persons, and
the Company and INVESCO shall incur no liability in doing so.
2.12 The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request. If requested by the Insurance
Company in lieu thereof, the Company shall provide such documentation
(including a final copy of the new prospectus as set in type at the Company's
expense) and other assistance as is reasonably necessary in order for the
Insurance Company once each year (or more frequently if the prospectus for
the Company is amended) to have the prospectus for the Contracts and the
Company's prospectus printed together in one document (at the Insurance
Company's expense).
3.2. The Company's prospectus shall state that the Statement of
Additional Information for the Company (the "SAI") is available from INVESCO
(or in the Company's discretion, the Prospectus shall state that the SAI is
available from the Company), and INVESCO (or the Company), at its expense,
shall print and provide the SAI free of charge to the Insurance Company and
to any owner of a Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company
with copies of its proxy material, reports to stockholders and other
communications
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to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Commission continues to interpret the
1940 Act to require pass-through voting privileges for variable contract
owners. The Insurance Company reserves the right to vote Company shares held
in any segregated asset account in its own right, to the extent permitted by
law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Company calculates
voting privileges in a manner consistent with the standards set forth on
Schedule D attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance
Companies. The Insurance Company shall fulfill its obligations under, and
abide by the terms and conditions of, the Mixed and Shared Funding Exemptive
Order.
3.5. The Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Company will either
provide for annual meetings (except insofar as the Commission may interpret
Section 16 of the 1940 Act not to require such meetings) or, as the Company
currently intends, comply with Section 16(c) of the 1940 Act (although the
Company is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further, the
Company will act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company, a sub-adviser of one of the
Funds, or INVESCO is named, at least fifteen calendar days prior to its use.
No such material shall be used if the Company or its designee objects to such
use within ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus for the Company's shares, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the
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Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the
Company or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall
cause to be furnished, to the Insurance Company or its designee, each piece
of sales literature or other promotional material in which the Insurance
Company and/or its separate account(s), is named at least fifteen calendar
days prior to its use. No such material shall be used if the Insurance
Company or its designee object to such use within ten calendar days after
receipt of that material.
4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the
Insurance Company, the Account, or the Contracts other than the information
or representations contained in a registration statement or prospectus for
the Contracts, as that registration statement and prospectus may be amended
or supplemented from time to time, or in published reports for the Account
which are in the public domain or approved by the Insurance Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Insurance Company or its designee, except with the
permission of the Insurance Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or
its shares, contemporaneously with the filing of the document with the
Commission, the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece
of sales literature and other promotional material, application for
exemption, request for no action letter, and any amendment to any of the
above, that relates to the Contracts or the Account, contemporaneously with
the filing of the document with the Commission, the NASD, or other regulatory
authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media, sales literature (I.E., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials.
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4.8. At the request of any party to this Agreement, each other party
will make available to the other party's independent auditors and/or
representative of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested. Company
agrees that Insurance Company shall have the right to inspect, audit and copy
all records pertaining to the performance of services under this Agreement
pursuant to the requirements of the California Insurance Department. However,
Company and INVESCO shall own and control all of their respective records
pertaining to their performance of the services under this Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Company and INVESCO shall pay no fee or other compensation to
the Insurance Company under this agreement, except that if the Company or any
Fund adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then INVESCO may make payments to the Insurance
Company if and in amounts agreed to by INVESCO in writing, subject to review
by the board of directors of the Company. No such payments shall be made
directly by the Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all
its shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Company or INVESCO, in accordance with applicable state laws prior to their
sale. The Company shall bear the expenses for the cost of registration and
qualification of the Company's shares, preparation and filing of the
Company's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Company's shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of
distributing to Contract owners the Company's prospectus, proxy materials and
reports.
ARTICLE VI. DIVERSIFICATION
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified
endowment or life insurance contracts and any amendments or other
modifications to that Section or Regulation.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Company for the existence of any
material irreconcilable conflict between the interests of the variable
contract owners of all separate accounts investing in the Company. An
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or
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state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Fund are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of variable contract
owners. The Board shall promptly inform the Insurance Company if it
determines that an irreconcilable material conflict exists and the
implications thereof. The Board shall have sole authority to determine
whether an irreconcilable material conflict exists and such determination
shall be binding upon the Insurance Company.
7.2. The Insurance Company will report promptly any potential or
existing conflicts of which it is aware to the Board. The Insurance Company
will assist the Board in carrying out its responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Insurance Company
to inform the Board whenever Contract owner voting instructions are to be
disregarded. Such responsibilities shall be carried out by Insurance Company
with a view only to the interests of the Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of
its directors who are not interested persons of the Company, INVESCO, or any
sub-adviser to any of the Funds (the "Independent Directors"), that a
material irreconcilable conflict exists, the Insurance Company and/or other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from the Company or
any Fund and reinvesting those assets in a different investment medium,
including (but not limited to) another Fund of the Company, or submitting the
question whether such segregation should be implemented to a vote of all
affected variable contract owners and, as appropriate, segregating the assets
of any appropriate group (e.g., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected variable contract owners the option of making such a change; and
(2), establishing a new registered management investment company or managed
separate account and obtaining approval thereof by the Commission.
7.4. If a material irreconcilable conflict arises because of a decision
by the Insurance Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Insurance Company may be required, at the Company's election, to
withdraw the affected Account's investment in the Company and terminate this
Agreement with respect to that Account; provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Directors. Any such
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withdrawal and termination must take place within six (6) months after the
Company gives written notice that this provision is being implemented, and
until the end of that six month period INVESCO and the Company shall continue
to accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the Board informs the Insurance Company in writing that it has determined
that the state insurance regulator's decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Until the end of the foregoing six month period, INVESCO and the
Company shall continue to accept and implement orders by the Insurance
Company for the purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the Board
determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Insurance Company will withdraw
the Account's investment in the Company and terminate this Agreement within
six (6) months after the Board informs the Insurance Company in writing of
the foregoing determination, provided, however, that the withdrawal and
termination shall be limited to the extent required by the material
irreconcilable conflict, as determined by a majority of the Independent
Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and
Shared Funding Exemptive Order, then (a) the Company and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent those rules are applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to those
Sections are contained in the Rule(s) as so amended or adopted.
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ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of the Company's shares or the Contracts and:
(i) arise out of or based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or contained
in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Insurance Company by or on behalf of
the Company for use in the registration statement or prospectus for
the Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or shares of the Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Company not supplied by the Insurance Company, or persons under its
control) or wrongful conduct of the Insurance Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Company Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Company or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
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necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company; or
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party
that may arise from that Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of that Indemnified Party's
duties or by reason of that Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Company, whichever is
applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless that Indemnified Party shall have notified the
Insurance Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon that Indemnified Party (or after the Indemnified Party
shall have received notice of such service on any designated agent).
Notwithstanding the foregoing, the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Insurance Company of its
obligations hereunder except to the extent that the Insurance Company has
been prejudiced by such failure to give notice. In addition, any failure by
the Indemnified Party to notify the Insurance Company of any such claim shall
not relieve the Insurance Company from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Insurance Company shall be entitled to
participate, at its own expense, in the defense of the action. The Insurance
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; PROVIDED, HOWEVER, that if
the Indemnified Party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the Insurance Company, the Insurance Company shall not
have the right to assume said defense, but shall pay the costs and expenses
thereof (except that in no event shall the Insurance Company be liable for
the fees and expenses of more than one counsel for Indemnified Parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances). After notice from
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<PAGE>
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Insurance
Company will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by the party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d) The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Company's shares or the Contracts
or the operation of the Company.
8.2 Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section
8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of INVESCO) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Company (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if the statement or omission or alleged statement
or omission was made in reliance upon and in conformity with
information furnished in writing to INVESCO or the Company by or on
behalf of the Insurance Company for use in the registration
statement or prospectus for the Company or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Company shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by INVESCO or persons under its control) or
wrongful conduct of the Company, INVESCO or persons
14
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under their control, with respect to the sale or distribution of
the Contracts or shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished in writing to the Insurance Company by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this Agreement or
arise out of or result from any other material breach of this
Agreement by INVESCO; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b) INVESCO shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party that may arise
from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason
of the Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to the Insurance Company or the Account, whichever is
applicable.
8.2(c) INVESCO shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
the Indemnified Party shall have notified INVESCO in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Indemnified Party (or after the Indemnified Party shall have received notice
of such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve INVESCO of its obligations hereunder except to the extent that
INVESCO has been prejudiced by such failure to give notice. In addition, any
failure by the Indemnified Party to notify INVESCO of any such claim shall
not relieve INVESCO from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, INVESCO will be entitled to participate,
15
<PAGE>
at its own expense, in the defense thereof. INVESCO also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in
the action; PROVIDED, HOWEVER, that if the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to INVESCO, INVESCO shall not
have the right to assume said defense, but shall pay the costs and expenses
thereof (except that in no event shall INVESCO be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances).
After notice from INVESCO to the Indemnified Party of INVESCO's election to
assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to
the Indemnified Party, the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and INVESCO will not be liable to
that party under this Agreement for any legal or other expenses subsequently
incurred by that party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 INDEMNIFICATION BY THE COMPANY
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as those losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements result from the gross negligence, bad
faith, willful misconduct, or reckless disregard of duty of the Board or any
member thereof, are related to the operations of the Company and:
(i) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement (including a failure to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
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8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party that may arise
from the Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason
of the Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to the Insurance Company, the Company, INVESCO or the
Account, whichever is applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
the Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Indemnified Party (or after the Indemnified Party shall have received notice
of such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations hereunder except to the extent that
the Company has been prejudiced by such failure to give notice. In addition,
any failure by the Indemnified Party to notify the Company of any such claim
shall not relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company will be entitled to
participate, at its own expense, in the defense thereof. The Company also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action; PROVIDED, HOWEVER, that if the Indemnified
Party shall have reasonably concluded that there may be defenses available to
it which are different from or additional to those available to the Company,
the Company shall not have the right to assume said defense, but shall pay
the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations
or circumstances). After notice from the Company to the Indemnified Party
of the Company's election to assume the defense thereof, and in the absence
of such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to that party under this Agreement for any legal
or other expenses subsequently incurred by that party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or
any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, the operation of the
Account, or the sale or acquisition of shares of the Company.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof
interpreted under and in accordance with the laws of the State of Colorado.
17
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the
Commission may grant (including, but not limited to, the Mixed and Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written
notice to the other parties; provided, however such notice shall not
be given earlier than one year following the date of this Agreement;
or
(b) at the option of the Insurance Company to the extent that
shares of Funds are not reasonably available to meet the
requirements of the Contracts as determined by the Insurance
Company, provided however, that such a termination shall apply only
to the Fund(s) not reasonably available. Prompt written notice of
the election to terminate for such cause shall be furnished by the
Insurance Company; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or
any other regulatory body regarding the Insurance Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Company's shares,
provided, however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the
Insurance Company to perform its obligations under this Agreement;
or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or
INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided,
however, the the Insurance Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Company
or INVESCO to perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in that Account (or any
subaccount) to substitute the shares of another investment company
for the corresponding Fund shares in accordance with the terms of
the Contracts for which those Fund shares had been selected to serve
as the underlying investment media. The Insurance Company will give
at least 30 days' prior written notice to the Company of the date of
any proposed vote to replace the Company's shares; or
18
<PAGE>
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or exemptions therefrom, or
such law precludes the use of those shares as the underlying
investment media of the Contracts issued or to be issued by the
Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases
to qualify as a regulated investment company under Subchapter M of
the Code or under any successor or similar provision, or if the
Insurance Company reasonably believes that the Company may fail to
so qualify; or
(h) at the option of the Insurance Company, if the Company fails to
meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or INVESCO, if (1) the
Company or INVESCO, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity
and that material adverse change or material adverse publicity will
have a material adverse impact upon the business and operations of
either the Company or INVESCO, (2) the Company or INVESCO shall
notify the Insurance Company in writing of that determination and
its intent to terminate this Agreement, and (3) after considering
the actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the determination
of the Company or INVESCO shall continue to apply on the sixtieth
(60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised
in good faith, that either the Company or INVESCO has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Insurance Company,
(2) the Insurance Company shall notify the Company and INVESCO in
writing of the determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the
Company and/or INVESCO and any other changes in circumstances since
the giving of such a notice, the determination shall continue to
apply on the sixtieth (60th) day following the giving of the notice,
which sixtieth day shall be the effective date of termination; or
(k) at the option of either the Company of INVESCO, if the
Insurance Company gives the Company and INVESCO the written notice
specified in Section 1.6(b) hereof and at the time that notice was
given there was no notice of termination outstanding under any other
19
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provision of this Agreement; provided, however any termination under
this Section 10.1(k) shall be effective forty five (45) days after
the notice specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon
the provisions of Article VII, or the provisions of Section
10.1(a), 10.1(i), 10.1(j), or 10.1(k) of this Agreement, the
prior written notice shall be given in advance of the effective
date of termination as required by those provisions; and
(b) in the event that any termination is based upon
the provisions of Section 10.1(c) or 10.1(d) of this Agreement,
the prior written notice shall be given at least ninety (90) days
before the effective date of termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance
Company, continue to make available additional shares of the Company pursuant
to the terms and conditions of this Agreement, for all Contracts in effect on
the effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall
be permitted to reallocate investments in the Company, redeem investments in
the Company and/or invest in the Company upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 shall not apply to any terminations under Article VII and the
effect of Article VII terminations shall be governed by Article VII of this
Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Company and INVESCO the opinion of
counsel for the Insurance Company (which counsel shall be reasonably
satisfactory to the Company and INVESCO) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
ARTICLE XI. NOTICES.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set
forth below or at such other address as the other party may from time to time
specify in writing.
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If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
440 Lincoln Street
Worcester, MA 01653
Attention: Abigail M. Armstrong, Secretary
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information without the
express written consent of the affected party unless and until that
information may come into the public domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.7. No party may assign this Agreement without the prior written
consent of the others.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Insurance Company:
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
By its authorized officer,
By: /s/ Jerome F. Weihs
-------------------------------
Title: Vice - President
----------------------------
Date: April 15, 1996
-----------------------------
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
-------------------------------
Title: Treasurer
----------------------------
Date: April 17, 1996
-----------------------------
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ ROnald L. Grooms
-------------------------------
Title: Senior Vice President
----------------------------
Date: April 17, 1996
-----------------------------
22
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SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Insurance Company's Board
which Established the Account
Group VEL Account November 22, 1993
23
<PAGE>
SCHEDULE B
CONTRACTS
1. CONTRACT FORM 1029-94
24
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
FIRST ALLMERICA
SEPARATE ACCOUNTS S134
NAME ADDRESS AND PHONE NUMBER
440 LINCOLN STREET
(1) DANIEL J. MAHONEY WORCESTER MA 01653
---------------------------------- -----------------------------------
Print or Type Name
/s/ Daniel J. Mahoney Phone: 508-855-4330
---------------------------------- -----------------------------------
Signature
(2) SEBRINA M. DEBERADINIS Same
---------------------------------- -----------------------------------
Print or Type Name
/s/ Sebrina M. Deberadinis Phone: 508-855-6447
---------------------------------- -----------------------------------
Signature
(3) VICTORIA A. ABBOTT Same
---------------------------------- -----------------------------------
Print or Type Name
/s/ Victoria A. Abbott Phone: 508-855-2124
---------------------------------- -----------------------------------
Signature
(4) DONNA M. MURPHY Same
---------------------------------- -----------------------------------
Print or Type Name
/s/ Donna M. Murphy Phone: 508-855-2126
---------------------------------- -----------------------------------
Signature
25
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Schedule D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Company by INVESCO, the Company and
the Insurance Company. The defined terms herein shall have the meanings
assigned in the Participation Agreement except that the term "Insurance
Company" shall also include the department or third party assigned by
the Insurance Company to perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time INVESCO will inform the Insurance Company of the
Record, Mailing and Meeting dates. This will be done verbally approximately
two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best
efforts to call in the number of Customers to INVESCO, as soon
as possible, but no later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Insurance Company by the Company. The Insurance
Company, at its expense, shall produce and personalize the Voting
Instruction cards. The Legal Department of INVESCO ("INVESCO Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Company).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
4. During this time, INVESCO Legal will develop, produce, and the Company
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Insurance Company). Contents of envelope sent
to customers by Insurance Company will include:
26
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a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company)
addressed to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge
at Insurance Company reviews and approves the contents of the mailing
package to ensure correctness and completeness. Copy of this approval
sent to INVESCO Legal.
6. Package mailed by the Insurance Company.
* The Company MUST allow at least a 15-day solicitation time to
the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days
from (but NOT including) the meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
8. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," I.E.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of SHARES.) INVESCO Legal
must review and approve tabulation format.
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<PAGE>
11. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provided a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
28
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June 6, 1996
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Gentlemen:
In my capacity as Counsel of First Allmerica Financial Life Insurance Company
(the "Company"), I have participated in the preparation of the initial
Registration Statement for the Group VEL Account on Form S-6 and N-8B-2 under
the Securities Act of 1933 and the Investment Company Act of 1940, with respect
to the group flexible premium variable life policies and certificates issued by
the Company.
I am of the following opinion:
1. The Group VEL Account is a separate account of the Company validly existing
pursuant to the Massachusetts Insurance Code and the regulations issued
thereunder.
2. The assets held in the Group VEL Account are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The Policies and Certificates, when issued in accordance with the
Prospectus contained in the initial 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 the initial
Registration Statement of the Group VEL Account filed under the Securities Act
of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
June 6, 1996
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Gentlemen:
This opinion is furnished in connection with the filing by First Allmerica
Financial Life Insurance Company of the Initial Registration Statement on
Form S-6 of its flexible premium variable life insurance policies ("Policies")
allocated to the Group VEL Account under the Securities Act of 1933. The
Prospectus included in the Initial Registration Statement on Form S-6 describes
the Policies. I am familiar with and have provided actuarial advice concerning
the preparation of the Registration Statement, including exhibits.
In my professional opinion, the illustration of death benefits and cash values
included in Appendix C of the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policies has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy for a person age 30 or a person
age 45 than to prospective purchasers of Policies for people at other ages or
underwriting classes.
I hereby consent to the use of this opinion as an exhibit to the amendment of
the Registration Statement.
Sincerely,
/s/ William M. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
Description of Issuance, Transfer
and Redemption Procedures for Policies
Offered by the Group VEL Account of First Allmerica Financial Life Insurance
Company
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
The Group VEL Account of First Allmerica Financial Life Insurance Company
("Company") is registered under the Investment Company Act of 1940 ('1940 Act')
as a unit investment trust. Within the Group VEL Account are 20 Sub-Accounts.
Procedures apply equally to each subaccount and for purposes of this description
are defined in terms of the Group VEL Account, except where a discussion of
both the Group VEL Account and the individual Sub-Accounts is necessary. Each
Sub-Account invests in shares of a corresponding investment portfolio of the
Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund
("Fidelity VIP"), Variable Insurance Products Fund II (Fidelity VIP II), or T.
Rowe Price International Series, Inc. ("T. Rowe Price"), Delaware Group Premium
Fund, Inc. ("DGPF"), or INVESCO Variable Investment Funds, Inc. ("INVESCO VIP"),
each of which is a "series" type of mutual fund registered under the 1940 Act.
The investment experience of a Sub-Account of the Group VEL Account depends on
the market performance of its corresponding investment portfolio of the Trust,
Fidelity VIP, Fidelity VIP II, T. Rowe Price, DGPF, or INVESCO VIP . Although
group flexible premium variable life insurance policies funded through the Group
VEL Account may also provide for fixed benefits supported by the Company's
General Account, this description assumes that net premiums are allocated
exclusively to the Group VEL Account and that all transactions involve only the
Sub-Accounts of the Group VEL Account, except as otherwise explicitly stated
herein.
I. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED TRANSACTIONS -- SECTION
22(d) AND RULE 22c-l
This section outlines Policy provisions and administrative procedures
which might be deemed to constitute, either directly or indirectly, a
"purchase" transaction. Because of the insurance nature of the
policies, the procedures involved necessarily differ in certain
significant respects from the purchase procedures for mutual funds and
annuity plans. The chief differences revolve around the structure of
the cost of insurance charges and the insurance underwriting process.
Certain Policy provisions, such as reinstatement and loan repayment,
do not result in the issuance of a Policy but require certain payments
by the Policyowner and involve a transfer of assets supporting Policy
reserve into the Group VEL Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
Premium payments are not limited as to frequency and number, but
there are limitations as to amount. No premium payment may be
less than $100 without the Company's consent, and the total of
all premiums paid can never exceed the then current maximum
premiums determined by Internal Revenue Service rules. If at any
time a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company
will return the amount in excess of such maximums to the
Policyowner.
The Policy will remain in force so long as the Policy value less
any outstanding debt is sufficient to pay certain monthly charges
imposed in connection with the Policy. Cost of insurance charges
for the policies will not be the same for all Policyowners. The
insurance principle of pooling and distribution of mortality
risks is based upon the assumption that each Policyowner pays a
cost of insurance charge commensurate with the Insured's
mortality risk, which is actuarially determined based upon
factors such as age, health and occupation. In the context of
life insurance, a uniform mortality charge (the "cost of
insurance charge") for all Insured's would discriminate unfairly
in favor of those Insured's representing greater mortality risks
to the disadvantage of those representing lesser risks.
Accordingly, there will be a different "price" for each actuarial
category of Policyowners because
1
<PAGE>
different cost of insurance rates will apply. Accordingly, while
not all Policyowners will be subject to the same cost of
insurance rate, there will be a single "rate" for all
Policyowners in a given actuarial category. The policies will be
offered and sold pursuant to the Company's underwriting standards
and in accordance with state insurance laws. Such laws prohibit
unfair discrimination among Insureds, but recognize that premiums
must be based upon factors such as age, health and occupation.
Tables showing the maximum cost of insurance charges will be
delivered as part of the Policy.
b. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application from a prospective
Policyowner, the Company will follow certain insurance
underwriting procedures designed to determine whether the
proposed Insured is insurable. This process may involve such
verification procedures as medical examinations and may require
that further information be provided by the proposed Policyowner
before a determination can be made. A Policy cannot be issued
until this underwriting procedure has been completed.
If at the time of Application a prospective Policyowner makes a
payment equal to at least one monthly deduction for the Policy as
applied for, the Company will provide fixed conditional insurance
in the amount of insurance applied for, up to a maximum of
$500,000, pending underwriting approval. If the application is
approved, the Policy will be issued as of the date the terms of
the Conditional Insurance Agreement were met. If the prospective
Policyowner does not wish to make any payment until the Policy is
issued, upon delivery of the Policy the Company will require
payment of sufficient premium to place the insurance in-force.
Pending completion of insurance underwriting and Policy issuance
procedures, the initial premium will be held in the Company's
General Account. If the application is approved and the Policy
is issued and accepted, the initial premium held in the General
Account will be credited with interest not later than the date of
receipt of the premium at the Company's Principal Office. Not
later than three days of underwriting approval of the Policy, the
amounts held in the Company's General Account will be allocated
to the Sub-Accounts according to Policyowner's instructions, for
that part of the total amount allocated to the Group VEL Account
which is less than $10,000. If the amount allocated to the Group
VEL Account exceeds $10,000 or if the Policy provides for planned
premium payments during the first year of $5,000 semi-annually,
$2,500 quarterly or $1,000 monthly, the entire amount will remain
in the General Account until expiration of the Free Look Period,
as evidenced by a delivery receipt. Amounts remaining in the
General Account will continue to be credited interest from date
of receipt of the premium at the Principal Office.
If a Policy is not issued, the premiums will be returned to the
Applicant without interest.
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed
Policyowner in connection with payment of the initial premium and
will not dilute any benefit it payable to any existing
Policyowner. Although a Policy cannot be issued until the
underwriting process has been completed, the proposed Policyowner
will receive immediate insurance coverage, if he has paid an
initial premium and proves to be insurable. If the initial
premium is not paid with the application, variability of benefits
will commence within three days of underwriting approval, subject
to the restrictions indicated above.
The Company will require that the Policy be delivered within a
specific delivery period to protect itself against anti-selection
by the prospective Policyowner resulting from a deterioration of
the health of the proposed Insured. Generally, the period will
not exceed the shorter of 30 days from the date the Policy is
issued and 75 days from the date of Part 2 of the Application.
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<PAGE>
c. PREMIUM ALLOCATION
"Net premiums" are credited to the Policy as of the date the
premium payments are received by the Company, with the possible
exception of the first net premium. Net premiums are equal to
the gross premiums minus the tax expense charge. The tax expense
charge compensates the Company for applicable state and local
taxes on premiums paid for the Policy and for federal taxes
imposed for deferred acquisition costs ("DAC taxes"). It will be
adjusted to reflect any increase or decrease in the applicable
state or local premium tax rate.
The Policyowner may allocate net premiums among the Company's
General Account and up to seven Sub-Accounts of the Group VEL
Account. The Policyowner may change the allocation of net
premiums without charge at any time by providing written notice
to the Principal Office. The change will be effective as of the
date of receipt of the notice at the Principal Office. The
Policyowner may transfer amounts among all of the Sub-Accounts
and the General Account, subject to certain restrictions, but at
no time may have allocations in more than seven Subaccounts.
d. REPAYMENT OF LOAN
A loan made under this Policy may be repaid with an amount equal
to the original loan plus loan interest.
When a loan is made, the Company will transfer from each
Sub-Account of the Group VEL Account to the General Account an
amount of that Sub-Account's Policy value equal to the loan
amount allocated to the Sub-Account. Since the Company
will-credit such assets with interest at 6%, which is below the
8% interest rate charged on the loan, the Company will retain the
difference between these rates in order to cover certain expenses
and contingencies. Upon repayment of debt, the Company will
reduce the Policy value in the general account attributable to
the loan and transfer assets supporting corresponding reserves to
the Sub-Accounts according to either Policyowner's instruction
or, if none, the premium payment allocation percentages then in
effect. Loan repayments allocated to the Group VEL Account
cannot exceed Policy value previously transferred from the Group
VEL Account to secure the debt.
e. POLICY REINSTATEMENT
If the surrender value is insufficient to cover the next monthly
deduction plus loan interest accrued, or if Policy debt exceeds
the Policy value less surrender charges, the Company will notify
the Policyowner and any assignee of record. The Policyowner will
then have a grace period of 62 days, measured from the date the
notice is mailed, to make sufficient payments to prevent
termination.
Failure to make a sufficient payment within the grace period will
result in termination of the Policy without any Policy value.
The death benefit payable during the grace period will be reduced
by any overdue charges. If the Insured dies during the grace
period, the death proceeds will still be payable, but any monthly
deductions due and unpaid through the Policy month in which the
Insured dies will be deducted from the death proceeds.
If the Policy has not been surrendered and the Insured is alive,
the terminated Policy may be reinstated anytime within three
years after the date of default by submitting the following to
the Company: (1) a written application for reinstatement; (2)
evidence of insurability satisfactory to the Company; and (3) a
premium that, after the deduction of the premium expense charges,
is large enough to cover the minimum amount payable, as described
below.
3
<PAGE>
If reinstatement is requested less than 48 months after the date
of issue or an increase in the face amount, the Policyowner must
pay the lesser of the amount shown in 1 or 2:
1. The minimum amount payable is the minimum monthly factor for
the three-month period beginning on the date of
reinstatement.
2. The minimum amount payable is the sum of the amount by which
the surrender charge as of the date of the reinstatement
exceeds the Policy value on the date of default, plus
mortality deductions for the three-month period beginning on
the date of reinstatement.
If reinstatement is requested 48 months or more after the date of
issue or an increase in the face amount, the Policyowner must pay
the amount shown in 2 above. The surrender charge on the date of
reinstatement is the surrender charge which would have been in
effect had the Policy remained in force from the date of issue.
The Policy value less debt on the date of default will be
restored to the Policy to the extent it does not exceed the
surrender charge on the date of reinstatement. Any policy value
less debt as of the date of default which exceeds the surrender
charge on the date of reinstatement will be forfeited to the
Company.
Policy Value on Reinstatement - The Policy value on the date of
reinstatement is:
(a) the net premium paid to reinstate the Policy increased by
interest from the date the payment was received at the
Company's Principal Office; plus
(b) an amount equal to the Policy value less debt on the date of
default to the extent it does not exceed the surrender
charge on the date of reinstatement; minus
(c) the monthly deduction due on the date of reinstatement.
The Policyowner may not repay or reinstate any debt outstanding
on the date of default or foreclosure.
f. CORRECTION OF MISSTATEMENT OF AGE
If the Company discovers that the age of the Insured has been
misstated, the death benefit and any rider benefits will be those
which would be purchased by the most recent deduction for the
cost of insurance and the cost of rider benefits at the correct
age.
g. CONTESTABILITY
A Policy is contestable for two years, measured from the issue
date, for material misrepresentations made in the initial
application for the Policy. Policy changes may be contested for
two years after the effective date of a change, and a
reinstatement may be contested for two years after the effective
date of reinstatement. No statement will be used to contest a
Policy unless it is contained in an application.
h. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By administrative practice, the Company will reduce the cost of
insurance rate classification for an outstanding Policy if new
evidence of insurability demonstrates that the Policyowner
qualifies for a lower classification. After the reduced rating
is determined, the Policyowner will pay a lower monthly cost of
insurance charge each month. If new evidence of insurability
provided in connection with an increase in face amount
demonstrates that the
4
<PAGE>
Policyowner is in a higher risk classification, the higher cost
of insurance rate will apply only to the increase in face amount.
II. "REDEMPTION PROCEDURE"': SURRENDER AND RELATED TRANSACTIONS
The policies provide for the payment of monies to a Policyowner or
beneficiary upon presentation of a Policy. Generally except for the
payments of death proceeds, the imposition of cost of insurance and
administrative charges, and the possible effect of a contingent
surrender charge, the payee will receive a pro rata or proportionate
share of the Group VEL Account's assets, within the meaning of the 1940
Act, in any transaction involving "redemption procedures". The amount
received by the payee will depend-upon the particular benefit for
which the Policy is presented, including, for example, the cash
surrender value or death benefit. There are also certain Policy
provisions (e.g., partial withdrawals or the loan privilege) under
which the Policy will not be presented to the Company but which will
affect the Policyowner's benefits and may involve a transfer of the
assets supporting the Policy reserve out of the Group VEL Account.
Any combined transactions on the same day which counteract the effect
of each other will be allowed. The Company will assume the
Policyowner is aware of the possible conflicting nature of the
transactions and desires their combined result. If a transaction is
requested which the Company will not allow (e.g., a request for a
decrease in face amount which lowers the face amount below the stated
minimum) the Company will reject the whole transaction and not just
the portion which causes the disallowance. The Policyowner will be
informed of the rejection and will have an opportunity to give new
instructions.
a. SURRENDER FOR CASH VALUES
The Company will pay the net cash surrender value within seven
days after receipt, at its Principal Office, of the Policy and a
signed request for surrender. Computations with respect to the
investment experience of each Sub-Account will be made at the
close of trading of the New York Stock Exchange on each day in
which the degree of trading in the corresponding portfolio might
materially affect the net return of the Sub-Account and on which
the Company is open. This will enable the Company to pay a net
cash value on surrender based on the next computed value after
the surrender request is received. For valuation purposes, the
surrender is effective on the date the Company receives the
request at its Principal Office (although insurance coverage ends
the day the request is mailed).
The Policy value (equal to the value of all accumulations in the
Group VEL Account) may increase or decrease from day to day
depending on the investment experience of the Group VEL Account.
Calculation of the Policy value for any given day will reflect
the actual premiums paid, expenses charged and deductions taken.
The Company will deduct a charge for premium taxes and DAC taxes
from each premium payment. The balance (net premium) is
allocated to the Group VEL Account according to Policyowner's
instructions. The Company will also make monthly deductions from
a Policy to cover the cost of insurance and administrative
expenses for the following month. The monthly administration
charge is only $5 and is designed to compensate the Company for
administering and maintaining a Policy. Other possible
deductions from the Policy (which will occur on a Policy-specific
basis) include a charge for partial withdrawals, a charge for
increases in face amount and a charge for certain transfers.
In calculating the cash surrender value, a surrender charge
comprised of a contingent deferred sales load and a contingent
deferred administrative charge will be deducted from the Policy.
The duration of the surrender charge is 15 years for issue ages 0
through 50, grading down to ten years for issue ages 55 and
above.
The Company will make the payment of net cash surrender value out
of its General Account and, at the same time, transfer assets
from the Group VEL Account to the General Account in an amount
equal to the Policy reserves in the Group VEL Account. If the
Policy is surrendered in the first Policy year, any unpaid first
year monthly administrative charges will be deducted at
surrender, in addition to any contingent surrender charges which
may be applicable.
5
<PAGE>
The maximum surrender charge calculated upon issuance of the
Policy is equal to the sum of $8.50 per thousand dollars of the
initial face amount plus 49% of premiums received up to a maximum
number of the Guideline Annual Premiums subject to the deferred
sales charge that varies by issue age from 1.660714 (for ages 0
through 55) to 0.948980 (for age 80); provided, however, that in
accordance with limitations under state insurance regulations,
the amount of the Surrender Charge will not exceed a specified
amount per one thousand dollars of initial face amount, as
indicated on the Policy in the prospectus. The maximum Surrender
Charge remains level for the first 40 Policy months and reduces
by 0.5% or more per month (depending on usage) thereafter.
During the first two Policy years following the date of issue,
the actual Surrender Charge will be the sum of $8.50 per thousand
dollars of initial face amount plus an amount not to exceed 29%
of premiums received, up to one Guideline Annual Premium, plus 9%
of premiums receive in excess of one Guideline Annual Premium,
but less than the maximum number of Guideline Annual Premiums
subject to the deferred sales charge.
A separate Surrender Charge is imposed for each increase in face
amount. The maximum Surrender Charge for the increase is $8.50
per thousand dollars of increase plus 49% of premiums associated
with the increase, up to a maximum number of Guideline Annual
Premiums (for the increase) subject to the deferred sales charge
that varies by age (at the time of increase) from 1.660714 (for
ages 0 through 55) to 0.948980 (for age 80); provided, however,
that the amount of the Surrender Charge will not exceed a
specified amount per one thousand dollars of increase, as
indicated in the Policy and prospectus. This maximum Surrender
Charge remains level for the first 40 Policy months following the
increase and reduces by 0.5% or more (depending on age at
increase) thereafter. During the first two Policy years
following an increase in Face Amount, the actual Surrender Charge
is the sum of $8.50 per thousand dollars of increase, plus an
amount not to exceed 29% of premiums associated with the
increase, up to one Guideline Annual Premium (for the increase),
plus 9% of premiums associated with the increase in excess of one
Guideline Annual Premium, but less than the maximum number of
Guideline Annual Premiums (for the increase) subject to the
deferred sales charge. For purposes of calculating actual
Surrender Charges, premium and Policy value will be allocated to
the initial face amount and subsequent increases in face amount
according to the ratio of the respective Guideline Annual
Premiums.
A Surrender Charge also will be made on a decrease in the face
amount. In the event of a decrease, the Surrender Charge imposed
is proportional to the charge that would apply to a full
surrender of the Policy. If more than one Surrender Charge is in
effect, (i.e., pursuant to one or more increases in the face
amount of a Policy), partial surrenders will deemed attributable
to that portion of the face amount governed by the most recent
Surrender Charge. Such charges will be the Surrender Charge
applicable to any increased face amount plus a pro rata share of
the Surrender Charge applicable to a partial reduction in the
initial face amount.
b. CHARGES ON PARTIAL WITHDRAWAL
After the first Policy year, partial withdrawals of surrender
value may be made. The minimum withdrawal is $500. Under Option 1,
the face amount is reduced by the amount of the partial
withdrawal, and a partial withdrawal will not be allowed if it
would reduce the face amount below $40,000. A transaction charge
which is the smaller of 2% of the amount withdrawn or $25 will be
assessed on each partial withdrawal.
A Partial Withdrawal Charge will also be deducted from Policy
value when more than 10% of the Policy value is withdrawn in a
Policy year ("excess withdrawal"). Thus, for each partial
withdrawal the Policyowner may withdraw an amount equal to 10% of
the Policy value at that time less the total of any prior
withdrawals in that Policy year which were not subject to the
Partial Withdrawal Charge without incurring a Partial Withdrawal
Charge. Any excess withdrawal will be subject to the Partial
Withdrawal Charge. The Partial Withdrawal Charge is equal to 5
percent of the excess withdrawal up to the amount of the
surrender charge(s) on the date of withdrawal. There will be no
Partial Withdrawal Charge if there is no surrender charge on the
date of withdrawal.
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<PAGE>
This amount is not cumulative from Policy year to Policy year.
In other words, if only 8% of Policy value were withdrawn in
Policy year two, the amount the Policyowner could withdraw in
subsequent Policy years would not be increased by the amount the
Policyowner did not withdraw in the second Policy year.
The Policy's outstanding surrender charge will be reduced by the
amount of the Partial Withdrawal Charge deducted. The Partial
Withdrawal Charge deducted will decrease existing surrender
charges in the following order:
- first, the surrender charge for the most recent increase in
Face Amount;
- second, the surrender charges for the next most recent increase
successively;
- last, the surrender charge for the initial face amount.
c. DEATH BENEFIT
The Company will pay a death benefit to the beneficiary within
seven days after receipt, at its Principal Office, of the Policy,
due proof of death of the Insured, and all other requirements
necessary to make payment.
The death proceeds payable will depend on the option in effect at
the time of death. Under Option 1, the death benefit is the
greater of either the face amount of insurance or the guideline
minimum sum Insured. Under Option 2, the death benefit is the
greater of either the face amount of insurance PLUS Policy value
or the guideline minimum sum Insured. The guideline minimum sum
Insured is calculated by multiplying the applicable percentage
from the following table for the Insured person's age (nearest
birthday) at the beginning of the Policy year of determination to
the-policy value.
GUIDELINE MINIMUM SUM INSURED
TABLE
<TABLE>
<CAPTION>
Age of
Insured on Percentage of
Date of Death Policy Value
------------- ------------
<S> <C>
40 and less 250%
45:. . . . . . . . . . . . . . . . . . . . . 215%
50:. . . . . . . . . . . . . . . . . . . . . 185%
55:. . . . . . . . . . . . . . . . . . . . . 150%
60:. . . . . . . . . . . . . . . . . . . . . 130%
65:. . . . . . . . . . . . . . . . . . . . . 120%
70:. . . . . . . . . . . . . . . . . . . . . 115%
75:. . . . . . . . . . . . . . . . . . . . . 105%
80:. . . . . . . . . . . . . . . . . . . . . 105%
85:. . . . . . . . . . . . . . . . . . . . . 105%
90:. . . . . . . . . . . . . . . . . . . . . 105%
95:. . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
For the ages not listed, the progression between the listed ages
is linear.
The Company will make payment of the death proceeds out of its
general account, and will transfer assets from the Group VEL
Account to the general account in an amount equal to the reserve
in the Group VEL Account attributable to the Policy. The
excess, if any, of the death proceeds over
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<PAGE>
the amount transferred will be paid out of the general account
reserve maintained for that purpose.
d. DEFAULT AND OPTIONS ON LAPSE
The duration of insurance coverage depends upon the Policy value
being sufficient to cover the monthly deductions plus loan
interest accrued. If the surrender value at the beginning of a
month is less than the deductions for that month plus loan
interest accrued, a grace period of 62 days will begin. Written
notice will be sent to the Policyowner and any assignee on the
Company's records stating that such a grace period has begun and
giving the amount of premium payment necessary to prevent
termination.
If sufficient payment is not received during the grace period,
the Policy will terminate without value. Notice of such
termination will be sent to the owner and any assignee. If the
Insured should die during the grace period, an amount sufficient
to cover the overdue monthly deductions and other charges will be
deducted from the death proceeds.
e. POLICY LOAN
The policies provide that in the first Policy year, a Policyowner
may take a loan of up to 75% of "a minus b", where "a" is Policy
value less surrender charges and "b" is monthly deductions plus
interest on loans accrued to the end of the Policy year.
Thereafter, 90% of an amount equal to Policy value less surrender
charges may be borrowed. The Policy value for this purpose will
be that next computed after receipt, at the Principal Office, of
a loan request. Payment of the loan amount will be made to the
Policyowner within seven days after such receipt.
The amount of any outstanding loan plus accrued interest is
called "debt". When a loan is made, the portion of the assets in
the Group VEL Account (which is a portion of the surrender value
and which also constitutes a portion of the reserves for the
death benefit) equal to the debt created thereby is transferred
by the Company from the Group VEL Account to the general
account. Allocation of the loan among Sub-Accounts will be
according to the Policyowner's request. If this allocation is
not specified or not possible, the loan will be allocated based
on the proportion the Policy value in the General Account, less
debt, and the Policy value in each Sub-Account bears to the total
Policy value, less debt. Policy value in each Sub-Account equal
to the Policy loan allocated to such Subaccount will be
transferred to the General Account, and the number of
Accumulation Units equal to the Policy value so transferred will
be cancelled. Because of the transfer, a portion of the Policy
is not variable during the loan period and, therefore, the death
benefit and the surrender value are permanently affected by any
debt, whether or not repaid in whole or in part. The Company
credits the Policy value in the General Account attributable to
the loan with a rate of return equal to an effective annual yield
of 6%, which is 2% lower than the fixed interest rate charged on
the loan.
Interest is payable in arrears at the annual rate of 8%.
Interest is payable at the end of each Policy year or on a pro
rata basis for such shorter period as the loan may exist. Loan
interest is due on each Policy anniversary. If not paid when
due, it is added to the loan principal and bears interest at the
same rate of interest. If the resulting loan principal exceeds
the Policy value in the General Account the Company will transfer
Policy value equal to the excess debt from the Policy value in
each Sub-Account to the General Account; as security for the
excess debt. The Company will allocate the amount transferred
among the Sub-Accounts in the same proportion that the Policy
value in each Sub-Account bears to the total Policy values in all
Sub-Accounts.
Failure to repay a loan will not necessarily terminate the
Policy. If the surrender value is not
8
<PAGE>
sufficient to cover the monthly deductions for the cost of
insurance and administrative expenses, the Policy will go into a
62 day grace period as described above.
f. TRANSFERS AMONG SUBACCOUNTS
Amounts may be transferred, upon request, at any time from any
Sub-Account of the Group VEL Account to one or more other
Sub-Accounts. Transfers from a Sub-Account of the Group VEL
Account will take effect as of the receipt of a written request
at the Principal Office. The minimum amount allowed for a
transfer is the lesser of $500 or the total value in the
Sub-Account. The first six transfers are free of charge;
however, the Company will make an administrative charge not to
exceed $25 for additional transfers in a Policy year. Transfers
resulting from Policy loans, the exercise of conversion rights,
and reallocation of Policy value within 20 days of issue, will
not be subject to a transfer charge, and will not be counted for
purposes of the limitation on the number of 'free' transfers
allowed in each Policy year. ff a Policyowner elects to have
automatic transfers made each month, the first automatic transfer
counts as one transfer towards the six free transfers allowed in
each Policy year; each subsequent automatic transfer does not
reduce the remaining number of transfers which may be made
without charge.
Transfer charges, if any, are allocated by Policyowner request to
one Sub-Account. If an allocation is not specified or not
possible the allocations will be based on the proportion that the
values in each of the Sub-Accounts of the Group VEL Account
bears to the total unloaded Policy value.
g. RIGHT OF WITHDRAWAL PROCEDURES
The Policy provides that the Policyowner may cancel it by
returning the Policy along with a written request for
cancellation to the Principal Office by the latest of 1) 45 days
after Part I of the application was signed, 2) 10 days after the
Policyowner receives the Policy, or 3) 10 days after the Company
mails or personally delivers a written Notice of Withdrawal
Right. Upon returning the Policy, the Policyowner will receive
within seven days a refund equal to the sum of (1) the difference
between the premium, including fees, paid and any amount
allocated to the Group VEL Account, and (2) the value of the
amounts allocated to the Group VEL Account, and (3) any fees or
charges imposed on the amounts allocated to the Group VEL
Account. Where required by State law, the Policyowner will
receive a refund equal to the sum of the premium payments made
under the Policy. The postmark date on the envelope containing
the Policy will determine whether the Policy has been surrendered
within the Company's withdrawal period.
A free look privilege also applies after a requested increase in
Face Amount. After an increase, the Company will mail or deliver
notice of the "Free Look" with respect to the increase. The
Policyowner will have the right to cancel the increase within 10
days, and receive a credit for charges which would not have been
deducted but for the increase. Such charges with respect to the
increase will be added to Policy value, unless the Policyowner
requests a refund of such charges.
9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this initial
Registration Statement on Form S-6 of our report dated February 5, 1996,
relating to the financial statements of First Allmerica Financial Life
Insurance Company which appears in such Prospectus. We also consent to the
reference to us under the heading "Independent Accountants" in such
Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
June 5, 1996
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE ENROLLMENT FORM FOR GROUP FLEXIBLE
INSURANCE COMPANY PREMIUM LIFE INSURANCE CERTIFICATE-PART I
440 Lincoln Street - Worcester, MA 01653
Print clearly in black ink
1. THE PROPOSED INSURED
/ / Employee/Member
/ / Dependent-relationship to Employee/Member_____________________
First Middle Initial Last
- ------------------------------------------------------------------
Residence
- ------------------------------------------------------------------
City or Town State Zip
- ------------------------------------------------------------------
Social Security Number Date of Birth
/ /
- ------------------------------------------------------------------
Duties/Title
- ------------------------------------------------------------------
Sex / / M / / F Employee ID No._________________________
2. THE / / EMPLOYER / /ASSOCIATION
Name Identification Number
- ----------------------------------------- ------------------------
Street Address
- ------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------
3. LIFE INSURANCE BENEFIT
3a. Benefit applied for $_______________________
Consisting of
$__________________ Simplified Underwriting
$__________________ Modified Underwriting\
(also complete Part IA)
$__________________ Regular Underwriting
(also complete Part IA and
Regular Part II)
3b. Death Benefit Option
/ / Option 1 / / Option 2
4. ADDITIONAL INSURANCE BENEFITS
/ / Waiver of Insurance Charges / / Living Benefits Rider
/ / Waiver of Premium / / Other
/ / Accidental Death Benefit $____________________________
5. DEPENDENT INSURANCE BENEFITS
<TABLE>
<CAPTION>
Other Proposed Insured
/ / Other Insured Rider Sex Date of Height/ Relationship Benefit Answer to Question
Name M F Birth Weight to Insured Amount 10a. 10b.
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/ / / / Yes / / No / / Yes / / No
-----------------------------------------------------------------------------------------------------------------------
/ / / / Yes / / No / / Yes / / No
-----------------------------------------------------------------------------------------------------------------------
/ / / / Yes / / No / / Yes / / No
-----------------------------------------------------------------------------------------------------------------------
/ / / / Yes / / No / / Yes / / No
-----------------------------------------------------------------------------------------------------------------------
/ / / / Yes / / No / / Yes / / No
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
6. BENEFICIARY
6a. Primary Relationship
------------------------------------------------------------------------
6b. Contingent
------------------------------------------------------------------------
6c. / / _______ day Common Disaster Clause
7. PREMIUM
7a. List Bill/MAP Case Number ________________________
7b. Billing Amount ___________________________________
8. OWNER (IF OTHER THAN PROPOSED INSURED)
Name ____________________________________________________
Address ________________________________________________
_________________________________________________________
Relationship to Insured _________________________________
9. ELIGIBILITY
9a. Date of Hire or Date Joined Association ____/_____/____
Complete Part 1A for EACH proposed insured in Sections 1
and 5 who answers "Yes" to either 9b, 9c, or 9d.
9b. During the last 6 months, has ANY proposed insured been
absent from work on any workday, except for absences of
not more than 5 consecutive days which were due to illness
or injury? / / Yes / / No
9c. Has ANY proposed insured ever had any of the following
conditions:
Kidney Disorder / / Yes / / No
Heart Disease or Stroke / / Yes / / No
Cancer / / Yes / / No
Diabetes / / Yes / / No
9d. In the past 10 years has a member of the medical profession
diagnosed or treated any proposed insured for immune
system disorder, including acquired immune deficiency syn-
drome (AIDS) or AIDS-related complex (ARC)?
/ / Yes / / No
10. SMOKING STATUS
10a. Has the proposed insured smoked one or more cigarettes in
the last 12 months? / / Yes / / No
10b. Is the proposed insured currently using any other form of
tobacco? / / Yes / / No
SML-1375-95 NY Rev. 2/96
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE ENROLLMENT FORM FOR GROUP FLEXIBLE
INSURANCE COMPANY PREMIUM LIFE INSURANCE CERTIFICATE-PART I
440 Lincoln Street - Worcester, MA 01653
Print clearly in black ink
11. REPLACEMENT
Will the proposed certificate replace any existing annuity or
life insurance policy? / / Yes / / No
(If yes, list company, name, plan and year of issue).
______________________________________________________________________________
12. IMPORTANT INFORMATION
All statements made in this application are true to the best of my knowledge
and belief. [I understand that this application consists of Part I, and if
applicable, Parts IA and II.]
If the answer to questions 9b, 9c and 9d is "no," the simplified underwriting
benefit begins on the date of this Part I if the proposed insured is
eligible. [In all other instances, insurance benefits begin on the date of the
latter of Parts I, IA or II if the proposed insured is insurable on a
standard basis. If the proposed insured is not insurable on a standard
basis, insurance benefits will be provided only if: (1) the Company approves
the application; (2) a certificate is delivered and accepted; and (3) the
first premium is paid. No enrollment counselor is authorized to modify or
alter the terms of this application or any policy.]
For employer/employee groups, check here / / I authorize payroll deduction
of the premiums in the amount of $_________________ per pay period. I direct
that the premium notice be sent to my employer.
13. EMPLOYEE/MEMBER SIGNATURE
Signature of Proposed Insured (Employee/Member)
- ---------------------------------------------------------------------------
Date Signed
- ---------------------------------------------------------------------------
Signature of Owner, if different than proposed insured.
- ---------------------------------------------------------------------------
at (City and State)
- ---------------------------------------------------------------------------
14. HOME OFFICE AMENDMENTS AND CORRECTIONS/ADMINISTRATIVE PURPOSE
14a. Home Office Use Only
14b. Field Comments
15. FOR ENROLLMENT COUNSELOR USE ONLY
15a. Have you reviewed the Annuity and Life Insurance
Replacement Regulation of the state in which this business
was written and do you understand the definition of
Replacement as set forth therein?
/ / Yes / / No
15b. To the best of your knowledge, will the certificate being
applied for replace life insurance or annuity policies in this
or any other company? If yes, list policies in Section 11.
/ / Yes / / No
It is hereby stated that (We) (I) personally solicited this application. It
is certified that the information supplied by the proposed insured has been
truly and accurately recorded.
Signature ___________________________________________
Status / / Agent / / Other_________________________
Agency Name: _________________________#_____________
Agent Name: ___________________________#_____________
- -----------------------------------------------------------------------------
SML-1375-95 NY (Rev. 2/96)
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE ENROLLMENT FORM FOR GROUP FLEXIBLE
COMPANY PREMIUM LIFE INSURANCE CERTIFICATE-
PART IA
440 Lincoln Street - Worcester, MA 01653
Print clearly in black ink
1. INFORMATION ABOUT PROPOSED INSURED
1a. Name of Proposed Insured
First Middle Initial Last
____________________________________________________________________________
1b. / / Employee/Member / / Dependent
2. INSURED'S HEALTH AND ACTIVITIES
2a. Has the proposed insured been attended by or consulted any physician during
the past 5 years?
/ / Yes / / No
2b. Within the last 3 years, has the proposed insured had his/her motor vehicle
license suspended or revoked?
/ / Yes / / No
2c. Does the proposed insured intend to travel or reside outside the United
States or Canada?
/ / Yes / / No
2d. Within the last 2 years, has the proposed insured participated in or
intended to participate in scuba diving, parachuting, any form of motor
racing or other similar activities?
/ / Yes / / No
2e. Within the last 2 years, has the proposed insured flown as a trainee,
pilot, or crew member or contemplate such flights in the future? If "Yes"
complete Aviation Supplement
/ / Yes / / No
3. EXPLANATION OF "YES" ANSWERS IN SECTION 2
Please provide the names and addresses of all health care providers (e.g.,
physicians, hospitals, etc.) Indicate dates of treatment and describe any
diagnosis, treatment and recommendations.
4. AUTHORIZATION TO OBTAIN INFORMATION
To all physicians, medical professionals, hospitals, clinics, other health care
providers, insurers, employers, group policyholders, Medical Information
Bureau, Inc. (MIB), and consumer reporting agencies: I authorize you to give
First Allmerica Financial Life Insurance Company or its legal agent: (a) all
information you have as to illness, injury, medical history, psychiatric, drug
or alcohol abuse treatment of the proposed insured; and (b) any non-medical
information which First Allmerica Financial Life Insurance Company believes it
needs to perform the business functions described below. The information
obtained will be used to determine if the proposed insured is insurable. It
also will be used for any other business or legal purpose which relates to the
contract. I know and agree that First Allmerica Financial Life Insurance
Company may disclose all or part of the information to: its affiliated
companies, any reinsurer, any party which performs business or legal functions
for First Allmerica Financial Life Insurance Company, MIB, or other companies to
which I may apply for information or with which I may have insurance.
This form will be valid for 30 months, I know that I may request a copy of it.
I agree that a photocopy is as valid as the original. I HAVE RECEIVED
"DISCLOSURE NOTICE TO PERSONS REQUESTING INSURANCE."
Signature of Proposed Insured Print Name of Proposed Insured
_________________________________ _____________________________________
Signed at (City and State) Date
_________________________________ _____________________________________
________________________________________________________________________________
<PAGE>
SUPPLEMENT TO ENROLLMENT FORM
FIRST ALLMERICA FINANCIAL LIFE FOR GROUP FLEXIBLE PREMIUM
INSURANCE COMPANY
440 Lincoln Street
Worcester, MA 01653
Proposed Insured _________________________________________
1. ALLOCATION OF NET PREMIUM
The Payor Option is elected if the Payor's name and address are listed
below:
________________________________________________
________________________________________________
________________________________________________
I direct that the Company mail all premium notices to the Payor while the
Payor Option is in effect. The premium notices will include the insurance
charges and administrative charges to be paid by me and the Payor. The net
premiums paid for administrative charges and insurance charges shall be
allocated to a portion of the Allmerica Investment Trust Money Market Fund
(called the "monthly deduction sub-account") while the Payor Option is in
effect.
(NOTE: Please indicate below how the net premium not allocated to the
"monthly deduction sub-account" will be allocated to the General Account and
appropriate sub-accounts of the Variable Account. This allocation shall
apply to the entire net premium if the Payor Option is not elected. WHOLE
PERCENTAGES MUST TOTAL 100%. Please refer to the Prospectuses for a
definition of "net premium" and for information about the General Account
and other sub-accounts of the Variable Account.)
_________ % Allmerica Select International Growth
_________ % Delaware International Equity Series
_________ % Fidelity Overseas Portfolio
_________ % Allmerica Select Aggressive Growth
_________ % Allmerica Small Cap Value
_________ % Allmerica Select Growth
_________ % Allmerica Growth
_________ % Fidelity Growth Portfolio
_________ % Allmerica Equity Index
_________ % Allmerica Select Growth and Income
_________ % Fidelity Equity Income Portfolio
_________ % Fidelity Asset Manager Portfolio
_________ % Fidelity High Income Portfolio
_________ % Allmerica Investment Grade Income
_________ % Allmerica Government Bond
_________ % Allmerica Money Market
_________ % Fixed Interest - General Account
_________ % ________________________________________
_________ % ________________________________________
_________ % ________________________________________
1 0 0 % Total (Whole percentages. Must total 100%.)
I understand that funds may be deposited to a maximum of seven sub-accounts
(six sub-accounts if I elect the Payor Option). All net payments will be
allocated to the General Account unless I specify otherwise.
(Continued on back. Complete Registered Representative's Report on back of
this form for NASD required information)
<PAGE>
2. MONTHLY INSURANCE AND ADMINISTRATIVE CHARGES
Monthly insurance and administrative charges will be deducted from that
portion of the Allmerica Investment Trust Money Market Fund into which payor
premiums are allocated while the Payor Option is in effect; otherwise these
charges will be deducted pro-rata from all sub-accounts noted on the front
of this form unless otherwise indicated by written request.
I acknowledge receipt of the Prospectuses for First Allmerica Financial Life
InsuranceCompany Flexible Premium Variable Life Insurance, Allmerica
Investment Trust, Variable Insurance Products Fund and Variable Insurance
Products Fund II, and Delaware Group Premium Fund, Inc.
I UNDERSTAND THAT THE DEATH BENEFIT AND DURATION OF COVERAGE FOR THE GROUP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CERTIFICATE APPLIED FOR MAY
INCREASE OR DECREASE TO REFLECT THE INVESTMENT EXPERIENCE OF THE SUB-
ACCOUNTS OF THE STATE MUTUAL VARIABLE ACCOUNT.
I UNDERSTAND THAT THE CERTIFICATE VALUE FOR THE GROUP FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE CERTIFICATE APPLIED FOR MAY INCREASE OR DECREASE TO
REFLECT THE INVESTMENT EXPERIENCE OF THE SUB-ACCOUNTS OF THE STATE MUTUAL
VARIABLE ACCOUNT, AND IS NOT GUARANTEED AS TO DOLLAR AMOUNT. THERE IS NO
GUARANTEED MINIMUM CERTIFICATE VALUE.
I believe that a Group Flexible Premium Variable Life Insurance certificate
is consistent with my investment objectives and financial needs.
Signature of Proposed Insured Signature of Owner (if other than Proposed
Insured)
_________________________________ __________________________________________
Signed at (City and State) Date
_________________________________ __________________________________________
3. SPECIAL REQUESTS
____________________________________________________________________________
____________________________________________________________________________
REGISTERED REPRESENTATIVE'S REPORT
1. The Owner / / is / / is not an associated person of another
broker/dealer.
2. Based on information furnished by the Owner, I believe that a Group Flexible
Premium Variable Life Insurance certificate is consistent with the Owner's
investment objectives for (state objectives):
____________________________________________________________________________
____________________________________________________________________________
3. The Owner's tax status is (indicate tax bracket and any other pertinent tax
information):
____________________________________________________________________________
4. I certify that reasonable effort was made to obtain and record information
pertaining to the suitability of this application.
5. I further certify that the Prospectuses were delivered, and that no written
sales materials were used other than those furnished or approved by the
Principal Office.
Signature Underwriting Approval
_______________________________ ____________________________________
Registered Representative (Completed in Principal Office)
