EXHIBIT 7
Description of Issuance, Transfer and Redemption Procedures for Contracts
Offered by the Allmerica Select Account III of
Allmerica Financial Life Insurance and Annuity Company
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
The Allmerica Select Separate Account III ("Separate Account") of Allmerica
Financial Life Insurance and Annuity Company ("Company") is registered under
the Investment Company Act of 1940 ('1940 Act') as a unit investment trust.
Within the Separate Account are fourteen Sub-Accounts. Procedures apply
equally to each subaccount and for purposes of this description are defined
in terms of the Separate Account, except where a discussion of both the
Separate Account and the individual Sub-Accounts is necessary. Each
Sub-Account invests, respectively, in shares of a corresponding investment
division of Allmerica Investment Trust ("Trust"), Fidelity Variable Insurance
Products Fund ("VIP") and T. Rowe Price International Series, Inc. ("T. Rowe
Price"), each of which is a "series" type of mutual fund registered under the
1940 Act. The investment experience of a Sub-Account of the Separate
Account depends on the market performance of its corresponding investment
division. Although modified single payment variable life insurance Contracts
funded through the Separate Account may also provide for fixed benefits
supported by the Company's General Account, this description assumes that net
payments are allocated exclusively to the Separate Account and that all
transactions involve only the Sub-Accounts of the Separate 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 Contract provisions and administrative procedures
which might be deemed to constitute, either directly or indirectly, a
"purchase" transaction. Because of the insurance nature of the Contracts,
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 Contract provisions, such
as reinstatement and loan repayment, do not result in the issuance of a
Contract but require certain payments by the Contract Owner and involve a
transfer of assets supporting Contract reserve into the Separate Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
The Contracts are designed as modified single payment variable life
insurance polices. The total of all payments paid can never exceed the
then current maximum payments determined by Internal Revenue Service
rules. If at any time a payment is paid which would result in total
payments exceeding the current maximum payment limitations, the Company
will return the amount in excess of such maximums to the Contract Owner.
The Contract will remain in force so long as the Contract value less any
outstanding debt is sufficient to pay certain monthly charges imposed in
connection with the Contract. Cost of insurance charges for the Contracts
will not be the same for all Contract Owners. The insurance principle of
pooling and distribution of mortality risks is based upon the assumption
that each Contract Owner pays a cost of insurance charge commensurate with
the Insured's mortality risk, which is actuarially determined based upon
factors such as age and health. 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 Contract Owners because different cost of insurance rates will
apply. Accordingly, while not all Contract Owners will be subject to the
same cost of insurance rate, there will be a single "rate" for all Contract
Owners in a given actuarial category. The Contracts 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 payments 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 Contract.
b. APPLICATION AND INITIAL PAYMENT PROCESSING
Payments are payable only to the Company, and may be mailed to the
Principal Office or paid through an authorized agent of the Company.
All payments are credited to the Separate Account or General Account as
of date of receipt at the Principal Office.
13
The Contract requires a single payment of at least $25,000 on or before the
date of issue. The initial payment is used to determine the face amount
of the Policy, by treating the initial payment as equal to 100% of the
Guideline Single Premium. The Contract owner may indicate the desired
Face Amount on the application. If the Face Amount specified exceeds 100%
of the Guideline Single Premium for the amount of the payment, the
Application will be amended and a Contract with a higher Face Amount will
be issued.
Additional payments of at least $10,000 may be made as long as the total
payments do not exceed the maximum payment specified in the Contract. The
total of all payments can never exceed the then-current maximum payment
limitation determined by Internal Revenue Service rules. Where total
payments would exceed the current maximum payment limits, the Company will
only accept that part of a payment which will make total payments equal the
maximum. The Company will return any part of a payment that is greater
than that amount. However, the Company will accept a payment needed to
prevent Contract lapse during a contract year.
Upon receipt of a completed application from a prospective Contract 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 Contract Owner
before a determination can be made. A Contract cannot be issued until this
underwriting procedure has been completed.
If at the time of Application a prospective Contract Owner makes a
payment, 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 Contract will be issued as
of the date of the underwriting approval. If the prospective Contract Owner
does not wish to make any payment until the Contract is issued, upon
delivery of the Contract the Company will require payment of sufficient
payment to place the insurance in-force.
Pending completion of insurance underwriting and Contract issuance
procedures, the initial payment will be held in the Company's General
Account. If the application is approved and the Contract is issued and
accepted, the initial payment held in the General Account will be credited
with interest not later than the date of receipt of the payment at the
Company's Principal Office. Not later than three days of underwriting
approval of the Contract, the amounts held in the Company's General Account
will be allocated to the Sub-Accounts according to Contract Owner's
instructions; provided, however, that if the contract is issued in a "full
refund" state, the Sub-Account investments will initially be allocated to
the Money Market Fund and thereafter transferred according to the Contract
Owner's instructions at the end of the free look period. Amounts remaining
in the General Account will continue to be credited interest from date of
receipt of the payment at the Principal Office. If a Contract is not
issued, the payments will be returned to the Applicant without interest
unless the Contract Owner has elected on the application to instead receive
an Annuity Contract.
These processing procedures are designed to provide insurance, starting
with the date of the application, to the proposed Contract Owner in
connection with payment of the initial payment and will not dilute any
benefit it payable to any existing Contract Owner. Although a Contract
cannot be issued until the underwriting process has been completed, the
proposed Contract Owner will receive immediate insurance coverage, if the
proposed Contract Owner has paid an initial payment and proves to be
insurable. If the initial payment 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 Contract be delivered within a specific delivery period
to protect itself against anti-selection by the prospective Contract
Owner resulting from a deterioration of the health of the proposed Insured.
c. PAYMENT ALLOCATIONS
The Contract Owner may allocate net payments among the Company's General
Account and the Sub-Accounts of the Separate Account. Each Sub-Account of
the Separate Account invests its assets in shares of a corresponding
Underlying Fund. Purchases and redemptions of such shares are made at net
asset value, with no deduction for sales load.
Payments allocated to a Sub-Account, transfers to that Sub-Account, and
reserve adjustment transfers, if any, will be netted as of each valuation
date against amounts withdrawn from the Sub-Account in connection with
Contract surrenders, partial withdrawals, transfers, and death benefits, as
well as the asset charge and amounts paid to the
14
Company in lieu of taxes, if any. A net purchase or sale of Underlying
Fund shares will be made for a Sub-Account at net asset value. All
income, dividends and realized gain distributions of a Underlying Fund
will be reinvested in shares of the respective Underlying Fund at net
asset value. Valuation dates currently occur on each day on which the
New York Stock Exchange is open for trading, and on such other days
where there is a sufficient degree of trading in a Underlying Fund's
securities such that the current net asset value of the Sub-Accounts
may be materially affected.
The Contract Owner may change the allocation of net payments 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 Contract Owner may transfer amounts among all of the
Sub-Accounts and the General Account, subject to certain restrictions.
d. REPAYMENT OF LOAN
The Contract Owner may borrow money secured by Contract Value. The total
amount the Contract Owner may borrow is the Loan Value. The Loan Value is
90% of the Contract Value minus any surrender charges.
The minimum loan is $1,000. The maximum loan is the Loan Value minus any
outstanding loans. The Company will usually pay the loan within seven days
after the Company receives a written request for the loan. The Company
will allocate the loan among the Sub-Accounts and the Fixed Account
according to the Contract Owner's instructions. If the Contract Owner does
not make an allocation, the Company will make a pro-rata allocation among
the Sub-Accounts and Fixed Account. The Company will transfer Contract
Value in each Sub-Account, equal to the Contract loan amount, to the Fixed
Account. The Company will not count this transfer as a transfer subject to
the transfer charge, described below. Contract Value equal to the
outstanding loan amount will earn monthly interest in the Fixed Account at
an annual rate of at least 4.0%.
Contract loans will permanently affect the Contract Value and Surrender
Value, and may permanently affect the Death Benefit. The effect could be
favorable or unfavorable, depending on whether the investment performance
of the Sub-Accounts is less than or greater than the interest credited to
the Contract Value in the Fixed Account that secures the loan. A loan made
under the Contract 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 Separate Account to the General Account an amount of that Sub-
Account's Contract value equal to the loan amount allocated to the
Sub-Account. Since the Company will credit such assets with interest at
a rate which is below the interest rate charged on the loan, the
difference will be retained by the Company to cover certain expenses
and contingencies. Upon repayment of debt, the Company will reduce the
Contract value in the general account attributable to the loan and
transfer assets supporting corresponding reserves to the Sub-Accounts
according to either Contract Owner's instruction or, if none, the
payment allocation percentages then in effect. Loan repayments allocated
to the Separate Account cannot exceed Contract value previously
transferred from the Separate Account to secure the debt.
If the surrender value is insufficient to cover the next monthly deduction
plus loan interest accrued, or if Contract debt exceeds the Contract value
less surrender charges, the Company will notify the Contract Owner and any
assignee of record. The Contract Owner 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 Contract without any Contract 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 Contract
month in which the Insured dies will be deducted from the death proceeds.
If the Contract has not been surrendered and the Insured is alive, the
terminated Contract 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 payment that is large enough (a) to cover the cost
of all contract charges that were due and unpaid during the grace period,
(b) to keep the contract in force for three months, and (c) to reinstate
any loan against the Contract that existed at the end of the grace period.
The Contract value on the date of reinstatement is the net payment paid to
reinstate the Contract increased by interest
15
from the date the payment was received at the Company's Principal Office;
plus an amount equal to the Contract 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 was in effect on the date of default.
PREFERRED LOAN OPTION - Any portion of the Outstanding Loan that represents
earnings in the Contract, a loan from an exchanged life insurance policy
that was as carried over to the Contract, or the gain in the exchanged life
insurance policy that was carried over to the Contract may be treated as a
preferred loan. The available percentage of the gain carried over from an
exchanged policy less any policy loan carried over which will be eligible
for preferred loan treatment is as follows:
Beginning of 1 2 3 4 5 6 7 8 9 10 11
Contract Year
- -----------------------------------------------------------------------------------
Unloaned 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Gain
Available
The guaranteed annual interest rate credited to the Contract Value securing a
preferred loan will be at least 5.5%.
Interest accrues daily at the annual rate of 6.0%. Interest is due and
payable in arrears at the end of each Contract year or for as short a
period as the loan may exist. Interest not paid when due will be added to
the Outstanding Loan by transferring Contract Value equal to the interest
due to the Fixed Account. The interest due will bear interest at the same
rate.
e. CORRECTION OF MISSTATEMENT OF AGE
If the Insured's age or sex is not correctly stated in the Contract
application, the Company will adjust benefits under the Contract to reflect
the correct age and sex. The adjustment will be based upon the ratio of
the maximum payment for the Contract to the maximum payment for the
Contract issued for the correct age or sex. The Company will not reduce
the Death Benefit to less than the Guideline Minimum Sum Insured. For a
unisex Contract, there is no adjusted benefit for misstatement of sex.
f. CONTESTABILITY
A Contract is contestable for two years, measured from the issue date, for
material misrepresentations made in the initial application for the
Contract. Contract 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 Contract unless it is contained in an application.
g. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By administrative practice, the Company will reduce the cost of insurance
rate classification for an outstanding Contract if new evidence of
insurability demonstrates that the Contract Owner qualifies for a lower
classification. After the reduced rating is determined, the Contract Owner
will pay a lower monthly cost of insurance charge each month.
II. "REDEMPTION PROCEDURE": SURRENDER AND RELATED TRANSACTIONS
The Contracts provide for the payment of monies to a Contract Owner or
beneficiary upon presentation of a Contract. 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
Separate 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 Contract is
presented, including, for example, the cash surrender value or death
benefit. There are also certain Contract provisions (e.g., partial
withdrawals or the loan privilege) under which the Contract will not be
presented to the Company but which will affect the Contract Owner's
benefits and may involve a transfer of the assets supporting the Contract
reserve out of the Separate Account. Any combined transactions on the
same day which counteract the effect of each other will be allowed. The
Company will assume the Contract Owner is aware of the possible conflicting
16
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) the Company will reject the whole
transaction and not just the portion which causes the disallowance. The
Contract Owner will be informed of the rejection and will have an
opportunity to give new instructions.
a. FREE LOOK PRIVILEGE - The Contract provides for a free look period
under the Right to Cancel provision. The Contract Owner has the
right to examine and cancel the Contract by returning it to the
Company or one of its representatives on or before the tenth day
(or such later date as may be required by state law) after the
Contract owner receives the Contract.
If the Contract provides for a full refund under its "Right to
Cancel" provision (as may be required by state law), the refund
will be the entire Payment. If the Contract does not provide for
a full refund (as provided by state law), the Contract Owner will
receive amounts allocated to the Fixed Account, plus the value of
the Units in the Variable Account, plus all fees, charges and taxes
which have been imposed.
b. CONVERSION PRIVILEGE - During the first 24 Contract months after the
date of issue, subject to certain restrictions, the Contract Owner may
convert the Contract to a flexible payment fixed Contract by
transferring all Contract value in the Sub-Accounts to the General
Account and by simultaneously changing the allocation of future
payments to the General Account.
c. CHARGES AND DEDUCTIONS -- The following charges will apply to the
Contract under the circumstances described. Some of these charges
apply throughout the Contract's duration.
MONTHLY DEDUCTIONS - On the Monthly Processing Date, the Company will
deduct an amount to cover charges and expenses incurred in connection
with the Contract. This Monthly Deduction will be deducted by
subtracting values from the Fixed Account accumulation and/or
canceling Units from each applicable Sub-Account in the ratio that the
Contract Value in the Sub-Account bears to the Contract Value. The
amount of the Monthly Deduction will vary from month to month. If the
Contract Value is not sufficient to cover the Monthly Deduction which
is due, the Contract may lapse. The Monthly Deduction is comprised of
the following charges:
- Maintenance Fee: The Company will make a deduction of $2.50 from
any Contract with less than $100 in Contract Value to cover
charges and expenses incurred in connection with the Contract.
This charge is to reimburse the Company for expenses related to
issuance and maintenance of the Contract. The Company does not
intend to profit from this charge.
- Administration Charge: The Company imposes a monthly charge at
an annual rate of 0.20% of the Contract Value. This charge is to
reimburse us for administrative expenses incurred in the
administration of the Contract. It is not expected to be a
source of profit.
- Monthly Insurance Protection Charge: Immediately after the
Contract is issued, the Death Benefit will be greater than the
Payment. While the Contract is in force, prior to the Final
Payment Date, the Death Benefit will generally be greater than
the Contract Value. To enable the Company us to pay this excess
of the Death Benefit over the Contract Value, a monthly cost of
insurance charge is deducted. This charge varies depending on
the type of Contract and the Underwriting Class. In no event
will the current deduction for the cost of insurance exceed the
guaranteed maximum insurance protection rates set forth in the
Contract. These guaranteed rates are based on the Commissioners
1980 Standard Ordinary Mortality Tables, Tobacco User or
Non-Tobacco User (Mortality Table B for unisex Contracts and
Mortality Table D for second-to-die Contracts) and the Insured=s
sex and age. The Tables used for this purpose set forth different
mortality estimates for males and females and for tobacco user
and non-tobacco user. Any change in the insurance protection
rates will apply to all Insured of the same age, sex and
Underwriting Class whose Contracts have been in force for the
same period.
The Underwriting Class of an Insured will affect the insurance
protection rate. The Company currently place Insureds into
standard Underwriting Classes and non-standard Underwriting
Classes. The Underwriting Classes are also divided into two
categories: tobacco user and non-tobacco user. The Company will
place Insureds under the age of 18 at the Date of Issue in a
standard or non-standard Underwriting Class. The
17
Company will then classify the Insured as a non-tobacco user.
- Distribution Expense: During the first ten Contract years, the
Company makes a monthly deduction to compensate for a portion of
the sales expense which are incurred by us with respect to the
Contracts. This charge is equal to 0.90% of the Contract Value.
- Federal & State Payment Tax Charge: During the first Contract
year, the Company makes a monthly deduction equal to 1.50% on
an annual basis to partially compensate the Company for the
increase in federal tax liability from the application of
Section 848 of the Internal Revenue Code and to offset a
portion of the average payment tax the Company is expected to
pay to various state and local jurisdictions. The Company
expects to pay an average payment tax of approximately 2.5% of
payments in all states, although such rates can generally
range from 0% to 4%. The Company does not intend to profit
from the payment tax portion of this charge.
DAILY DEDUCTIONS - The Company assesses each Sub-Account with a
charge for mortality and expense risks. Fund expenses are also
reflected in the Variable Account.
- Mortality and Expense Risk Charge: The Company imposes a daily
charge at a current annual rate of 0.90% of the average daily net
asset value of each Sub-Account.
- Fund Expenses - The value of the Units of the Sub-Accounts will
reflect the investment advisory fee and other expenses of the
Funds whose shares the Sub-Accounts purchase.
No charges are currently made against the Sub-Accounts for
federal or state income taxes. Should income taxes be imposed,
the Company may make deductions from the Sub-Accounts to pay the
taxes.
SURRENDER CHARGE - The Contract's contingent surrender charge is a
deferred sales charge and an unrecovered payment tax charge. The
deferred sales charge compensates us for distribution expenses,
including commissions to our representatives, advertising and the
printing of prospectuses and sales literature. The unrecovered payment
tax charge is designed to reimburse us for the unrecovered federal and
state taxes the Company has paid.
Contract 1 2 3 4 5 6 7 8 9 10+
Year*
Surrender 10.00% 9.25% 8.50% 7.75% 7.00% 6.25% 4.75% 3.25% 1.50% 0%
Charge
- -----------------------------------------------------------------------------------------------------
PARTIAL WITHDRAWAL COSTS - For each partial withdrawal, the Company
deducts a transaction fee of 2.0% of the amount withdrawn, not to
exceed $25. This fee reimburses the Company for the cost of
processing the withdrawal. A partial withdrawal charge may also be
deducted from Contract Value. However, in any Contract year, you may
withdraw, without a partial withdrawal charge, up to 10% of the
Contract Value minus the total of any prior free withdrawals in the
same Contract year ("Free 10% Withdrawal.")
The right to make the Free 10% Withdrawal is not cumulative from
Contract year to Contract year. For example, if only 8% of Contract
Value were withdrawn in the second Contract year, the amount which
could be withdrawn in future Contract years would not be increased by
the amount the Contract Owner did not withdraw in the second Contract
year.
TRANSFER CHARGES - The first 12 transfers in a Contract year are
free. After that, the Company may deduct a transfer charge not to
exceed $25 from amounts transferred in that Contract year. If the
Contract Owner applies for automatic transfers, the first automatic
transfer counts as one transfer. Each future automatic transfer is
without charge and does not reduce the remaining number of transfers
that may be made without charge. Each of the following transfers of
Contract Value from the Sub-Accounts to the Fixed Account is free
and does not count as one of the 12 free transfers in a Contract year:
18
- A conversion within the first 24 months from Date of Issue;
- A transfer to the Fixed Account to secure a loan; and
- A transfer from the Fixed Account as a result of a loan
repayment.
d. DEATH BENEFIT
The death benefit is the greater of the face amount or Guideline
Minimum Sum Insured. The Company will pay a net death benefit to the
beneficiary within seven days after receipt at its Principal Office of
the Contract, due proof of death of the Insured, and all other
requirements necessary to make payment. For second-to-die Contracts,
the net death benefit is payable on the death of the last surviving
Insured; there is no net death benefit payable on the death of the
first Insured to die. The Company will normally pay the net death
benefit within seven days of receiving due proof of the Insured's
death, but the Company may delay payment of net death benefits. The
Beneficiary may receive the net death benefit in a lump sum or under a
payment option, unless the payment option has been restricted by the
Contractowner.
Before the final payment date, the net death benefit is the death
benefit minus any outstanding loan, rider charges and monthly
deductions due and unpaid through the Contract month in which the
Insured dies, as well as any partial withdrawals and surrender
charges. After the final payment date, the net death benefit is the
Contract value minus any outstanding loan. In most states, the
Company will compute the net death benefit on the date it receives due
proof of the insured's death.
Guaranteed Death Benefit Rider - If at the time of issue the Contract
Owner has made purchase payments equal to 100% of the Guideline Single
Premium, a Guaranteed Death Benefit Rider will be added to the
Contract at no additional charge. If the Guaranteed Death Benefit
Rider is in effect on the Final Payment Date, a guaranteed Net Death
Benefit will be provided thereafter unless the Guaranteed Death
Benefit Rider is terminated, as described below. The guaranteed Net
Death Benefit will be:
- the GREATER of (a) the Face Amount as of the Final Payment Date
or (b) the Contract Value as of the date due proof of death is
received by the Company,
- REDUCED by the Outstanding Loan, if any, through the contract
month in which the Insured dies.
The Guaranteed Death Benefit Rider will terminate (and may not be
reinstated) on the first to occur of the following:
- Foreclosure of the Outstanding Loan, if any; or
- A request for a partial withdrawal or preferred loan after the
Final Payment Date; or
- Upon your written request.
GUIDELINE MINIMUM SUM INSURED - The guideline minimum sum insured is a
percentage of the Contract Value. The guideline minimum sum insured is
computed based on federal tax regulations to ensure that the Contract
qualifies as a life insurance contract and that the insurance proceeds
will be excluded from the gross income of the Beneficiary.
GUIDELINE MINIMUM SUM INSURED
-----------------------------
Age of Insured Percentage of
on Date of Death Contract Value
---------------- --------------
40 and under............................... 265%
45 ........................................ 230%
50 ........................................ 200%
55 ........................................ 165%
60 ........................................ 145%
65 ........................................ 135%
70 ........................................ 130%
75 ........................................ 120%
80 ........................................ 120%
85 ........................................ 120%
90 ........................................ 110%
91 ........................................ 108%
92 ........................................ 106%
93 ........................................ 105%
94 ........................................ 105%
19
95 ........................................ 105%
96 ........................................ 104%
97 ........................................ 103%
98 ........................................ 102%
99 and above .............................. 100%
For the ages not listed, the progression between the listed
ages is linear.
The Company will make payment of the death proceeds out of its
general account, and will transfer assets from the Separate Account
to the general account in an amount equal to the reserve in the
Separate Account attributable to the Contract. The excess, if any,
of the death proceeds over the amount transferred will be paid out
of the general account reserve maintained for that purpose.
e. TRANSFERS AMONG SUBACCOUNTS
The Contracts permit net payments to be allocated either to the
Company's General Account or to the Sub-Accounts of the Separate
Account. Each Sub-Account invests exclusively in a corresponding
investment portfolio ("Underlying Fund") of AIT, Fidelity VIP or T.
Rowe. Subject to the consent of the Company, the Contract Owner may
transfer amounts among all of the Sub-Accounts and between the
Sub-Accounts and the General Account, subject to certain restrictions.
The Contract Owner may apply for automatic transfers from the Money
Market Sub-Account to one or more of the other Sub-Accounts.
Automatic transfers may be made at intervals of one, three, six or
twelve months. Each automatic transfer must be at least $100. If the
the Sub-Account from which the automatic transfer is to be made is
reduced to $0 (zero), the automatic transfer will cease. The Contract
Owner must then reapply for any future automatic transfers. The
Contract Owner may also apply for automatic account rebalancing, in
order to reallocate Contract Value among the Sub-Accounts at intervals
of one, two, three, six or twelve months. The Fixed Account is not
included in the automatic account rebalancing.
The first 12 transfers in a Contract year are free. Thereafter, the
Company will deduct a transfer charge not to exceed $25 from amounts
transferred in that Contract year. The first automatic transfer
counts as one transfer toward the 12 free transfers allowed in each
Contract year. Each subsequent automatic transfer is free and does
not reduce the remaining number of transfers that are free in a
Contract year. Any transfers made for a conversion privilege,
Contract loan or material change in investment Contract will not
count toward the 12 free transfers.
The transfer privilege is subject to the Company's consent. The
Company reserves the right to impose limits on transfers including,
but not limited to, the:
- Minimum amount that may be transferred;
- Minimum amount that may remain in a Sub-Account following a
transfer from that Sub-Account;
- Minimum period between transfers involving the Fixed Account; and
- Maximum amounts that may be transferred from the Fixed Account.
f. SURRENDER FOR CASH VALUES
The Company will generally pay the net cash surrender value from the
Sub-Accounts within seven days after receipt, at its Principal Office,
of the Contract and a signed request for surrender (amounts payable
form Fixed Account allocations may be postponed for no more than 6
months). 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).
20
The Contract value (equal to the value of all accumulations in the
Separate Account) may increase or decrease from day to day depending
on the investment experience of the Separate Account. Calculation
of the Contract value for any given day will reflect the actual
payments, expenses charged and deductions taken.
g. DEFAULT AND OPTIONS ON LAPSE
The duration of insurance coverage depends upon the Contract 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
Contract Owner and any assignee on the Company's records stating that
such a grace period has begun and giving the amount of payment
necessary to prevent termination.
If sufficient payment is not received during the grace period, the
Contract 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.
21
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 Initial Undersigned, in the City
or Worcester, Commonwealth of Massachusetts, on the 25th day of June, 1998.
ALLMERICA SELECT SEPARATE ACCOUNT III
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Abigail M. Armstrong
---------------------------------
Abigail M. Armstrong, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John F. O'Brien Director and Chairman
- ------------------------------- of the Board
John F. O'Brien
/s/ Bruce C. Anderson Director and Vice President
- ------------------------------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief Information Officer
- ----------------------------
Robert E. Bruce
/s/ John P. Kavanaugh Director and Vice President
- ----------------------------
John P. Kavanaugh
/s/ John F. Kelly Director, Senior Vice President June 25, 1998
- ----------------------------- and General Counsel
John F. Kelly
/s/ J. Barry May Director
- -----------------------------
J. Barry May
/s/ James R. McAuliffe Director
- -----------------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President and
- --------------------------- Chief Financial Officer
Edward J. Parry III
/s/ Richard M. Reilly Director, President and
- ----------------------------- Chief Executive Officer
Richard M. Reilly
/s/ Robert P. Restropo, Jr. Director
- -------------------------
Robert P. Restropo, Jr.
/s/ Eric A. Simonsen Director and Vice President
- ----------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director and Vice President
- -------------------------
Phillip E. Soule
22