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As filed with the Securities and Exchange Commission on October 15, 1996
-----------
Registration Nos. 333-1043
811-7543
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. 0 [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [X]
VARIABLE ACCOUNT A
------------------
(Exact name of Registrant)
KEYPORT LIFE INSURANCE COMPANY
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(Name of Depositor)
125 HIGH STREET, BOSTON MASSACHUSETTS 02110
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(Address of Depositor's Principal Executive Offices (Zip Code)
Depositor's Telephone Number, including Area Code: 617-526-1400
Bernard R. Beckerlegge, Esq.
Senior Vice President and General Counsel
Keyport Life Insurance Company
125 High Street, Boston, Massachusetts 02110
(Name and Address of Agent for Service)
copy to:
Joan E. Boros, Esq.
Katten, Muchin & Zavis
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on [date] pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
( ) on [date] pursuant to paragraph (a) of Rule 485
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2 and the
Rule 24f-2 Notice for Registrant's fiscal year 1996 will be filed on or about
February 28, 1997.
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Exhibit Index on Page ___
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This Amendment to the registration statement on Form N-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act") to amend
the Registration Statement with a separate prospectus and statement of
additional information ("SAI"), and related exhibits, describing a particular
form of the Group and Individual Flexible Premium Deferred Annuity Contracts
(the "Contracts") that are generically described in Pre-Effective Amendment
No. 2 to the Registration Statement. This Amendment relates only to the
prospectus, SAS, and exhibits included in this Amendment and will not be
deleted, amended, or superceded by the information contained in any other
amendment subsequently filed pursuant to Rule 485(a) or Rule 485(b), except
to the extent that the Amendment specifies such changes. Registrant will file
post-effective amendments pursuant to Rule 485(a) under the Act and request
expedited review consistent with such amendments' substantial similarity to
the generically described version in Pre-Effective Amendment 2.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
Items 24 - 32
The Signatures
Exhibits
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VARIABLE ACCOUNT A
KEYPORT LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-4
N-4 ITEM CAPTION IN PROSPECTUS
1. . . . . . . . . . . Cover Page
2. . . . . . . . . . . Glossary of Special Terms
3. . . . . . . . . . . Summary of Expenses
4. . . . . . . . . . . Performance Information
5. . . . . . . . . . . Keyport and the Variable Account
Eligible Funds
6. . . . . . . . . . . Deductions
7. . . . . . . . . . . Allocations of Purchase Payments
Transfer of Variable Account Value
Substitution of Eligible Funds and Other
Variable Account Changes
Modification of the Certificate
Death Provisions for Non-Qualified
Certificates
Death Provisions for Qualified
Certificates
Certificate Ownership
Assignment
Partial Withdrawals and Surrender
Annuity Benefits
Suspension of Payments
Inquiries by Certificate Owners
8. . . . . . . . . . . Annuity Provisions
9. . . . . . . . . . . Death Provisions for Non-Qualified
Certificates
Death Provisions for Qualified
Certificates
Settlement Options
10. . . . . . . . . . . Purchase Payments and Applications
Variable Account Value
Valuation Periods
Net Investment Factor
Distribution of the Certificates
11. . . . . . . . . . . Partial Withdrawals and Surrender
Option 1: Income For a Fixed Number of
Years
Right to Revoke
12. . . . . . . . . . . Tax Status
13. . . . . . . . . . . Legal Proceedings
14. . . . . . . . . . . Table of Contents - Statement of
Additional Information
CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
15. . . . . . . . . . . Cover Page
16. . . . . . . . . . . Table of Contents
17. . . . . . . . . . . Keyport Life Insurance Company
18. . . . . . . . . . . Experts
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19. . . . . . . . . . . Not applicable
20. . . . . . . . . . . Principal Underwriter
21. . . . . . . . . . . Investment Performance
22. . . . . . . . . . . Variable Annuity Benefits
23. . . . . . . . . . . Financial Statements
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PART A
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GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Variable Account A
OF
KEYPORT LIFE INSURANCE COMPANY
This Prospectus offers Group Variable Annuity Contracts (the "Contracts") and
the related Certificates (the "Certificates") that are designed to fund benefits
under certain group arrangements including those that qualify for special tax
treatment under the Internal Revenue Code of 1986 (the "Code"). As required by
certain states, the Contracts may be offered as individual contracts. Unless
otherwise noted or the context so requires all references to the Certificates
include the Contracts and the individual Certificates. The Certificates are
offered on a flexible payment basis.
The variable annuity Contract (form number DVA(1)) and the Certificates
described in this prospectus provide for accumulation of Certificate Values and
payments of periodic annuity payments on either a variable basis, on a variable
basis or a fixed basis. The Certificates are designed for use by individuals
for retirement planning purposes.
This prospectus generally describes the variable features of the Certificate.
Purchase Payments will be allocated to a segregated investment account of
Keyport Life Insurance Company ("Keyport"), designated Variable Account A
("Variable Account").
The Variable Account invests in shares of the following Eligible Funds of
Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund") at
their net asset value: Manning & Napier Moderate Growth Portfolio ("MNMGP"),
Manning & Napier Growth Portfolio ("MNGP"), Manning & Napier Maximum Horizon
Portfolio ("MNMHP"), Manning & Napier Small Cap Portfolio ("MNSCP"), Manning &
Napier Equity Portfolio ("MNEP"), and Manning & Napier Bond Portfolio ("MNBP").
The Variable Account also invests in shares of the following Eligible Fund of
SteinRoe Variable Investment Trust ("SteinRoe Trust") at its net asset value:
Cash Income Fund ("CIF").
The Variable Account may offer other forms of the contracts and certificates
with features, and fees and charges which vary from the Certificates, and
provide for investment in other Sub-accounts which may invest in different or
additional mutual funds. Other contracts and certificates will be described in
separate prospectuses and statements of additional information.
A Statement of Additional Information dated the same as this prospectus has been
filed with the Securities and Exchange
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Commission and is herein incorporated by reference. It is available, at no
charge, by writing Keyport at 125 High Street, Boston, MA 02110, by calling
(800) 437-4466, or by returning the postcard on the back cover of this
prospectus. It may also be obtained by writing Manning & Napier Insurance
Fund, Inc. at P.O. Box 40610, Rochester, New York 14604, or calling (800)
466-3868. A table of contents for the Statement of Additional Information is
on Page xx.
THE CONTRACT AND CERTIFICATES: ARE NOT INSURED BY THE FDIC; ARE NOT A DEPOSIT OR
OTHER OBLIGATION OF, OR GUARANTEED BY, THE DEPOSITORY INSTITUTION; AND ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY
KEYPORT TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING, AND IF GIVEN OR
MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON.
The date of this prospectus is _______________,1996
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TABLE OF CONTENTS
Page
Glossary of Special Terms
Summary of Expenses
Synopsis
Performance Information
Keyport and the Variable Account
Purchase Payments and Applications
Investments of the Variable Account
Allocations of Purchase Payments
Eligible Funds
Transfer of Variable Account Value
Substitution of Eligible Funds and
Other Variable Account Changes
Deductions
Deductions for Certificate Maintenance Charge
Deductions for Mortality and Expense Risk Charge
Deductions for Transfers of Variable Account Value
Deductions for Premium Taxes
Deductions for Income Taxes
Total Variable Account Expenses
Other Services
The Certificates
Variable Account Value
Valuation Periods
Net Investment Factor
Modification of the Certificate
Right to Revoke
Death Provisions for Non-Qualified Certificates
Death Provisions for Qualified Certificates
Ownership
Assignment
Surrenders
Annuity Provisions
Annuity Benefits
Income Date and Annuity Option
Change in Income Date and Annuity Option
Annuity Options
Variable Annuity Payment Values
Proof of Age, Sex, and Survival of Annuitant
Suspension of Payments
Tax Status
Introduction
Taxation of Annuities in General
Qualified Plans
Individual Retirement Annuities
Variable Account Voting Privileges
Sales of the Certificates
Legal Proceedings
Inquiries by Certificate Owners
Table of Contents--Statement of Additional Information
Appendix A--Telephone Instructions
3
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT: An accounting unit of measure used to calculate Variable
Account Value.
ANNUITANT: The Annuitant is the natural person to whom any annuity payments will
be made starting on the Income Date. The Annuitant may not be over age 80 on
the Issue Date (age 75 for Qualified Certificates).
CERTIFICATE ANNIVERSARY: The same month and day as the Certificate Date in each
subsequent year of the Certificate.
CERTIFICATE DATE: The effective date of the Certificate; it is shown on Page 3
of the Certificate Schedule.
CERTIFICATE OWNER: The person (or persons in the case of joint ownership) who
possesses all the ownership rights under the Certificate. The primary
Certificate Owner may not be over age 80 on the Issue Date (age 75 for Qualified
Contracts and age 85 for a joint Owner).
CERTIFICATE VALUE: The Variable Account Value.
CERTIFICATE WITHDRAWAL VALUE: The Certificate Value less any premium taxes and
Certificate Maintenance Charge.
CERTIFICATE YEAR: Any period of 12 months commencing with the Certificate Date
and each Certificate Anniversary thereafter shall be a Certificate Year.
DESIGNATED BENEFICIARY: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint Certificate
Owner. The Designated Beneficiary will be the first person among the following
who is alive on the date of death: primary Certificate Owner; joint Certificate
Owner; primary beneficiary; contingent beneficiary; and if none of the above is
alive, the primary Certificate Owner's estate. If the primary Certificate Owner
and joint Certificate Owner are both alive, they will be the Designated
Beneficiary together.
ELIGIBLE FUNDS: The mutual funds that are eligible investments for the Variable
Account under the Certificates.
IN FORCE: The status of the Certificate before the Income Date so long as it is
not totally surrendered, the Certificate Value under a Certificate does not go
to zero, and there has not been a death of the Annuitant or any Certificate
Owner that will cause the Certificate to end within at most five years of the
date of death.
INCOME DATE: The date on which annuity payments are to begin.
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NON-QUALIFIED CERTIFICATE: Any Certificate that is not issued under a Qualified
Plan.
OFFICE: Keyport's executive office, which is 125 High Street, Boston,
Massachusetts 02110.
QUALIFIED CERTIFICATE: Certificates issued under Qualified Plans.
QUALIFIED PLAN: A retirement plan established pursuant to the provisions of
Section 408(b) of the Internal Revenue Code.
VARIABLE ACCOUNT: A separate investment account of Keyport into which Purchase
Payments under the Certificates may be allocated. The Variable Account is
divided into Sub-Accounts ("Sub-Account") that correspond to the Eligible Funds
in which they invest.
VARIABLE ACCOUNT VALUE: The value of all Variable Account amounts accumulated
under the Certificate prior to the Income Date.
WRITTEN REQUEST: A request written on a form satisfactory to Keyport, signed by
the Certificate Owner and a disinterested witness, and filed at Keyport's
Office.
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SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
certificate in understanding the transaction and operating expenses the owner
will directly or indirectly bear under a certificate. The values reflect
expenses of the Variable Account as well as the Eligible Funds under the
Certificates. The expenses shown for the Eligible Funds and the examples should
not be considered a representation of future expenses.
CERTIFICATE OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 0%
Maximum Total Certificate Owner Transaction Expenses(1)
(as a percentage of Purchase Payments): 0%
Certificate Maintenance Charge $35
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Mortality and Expense Risk Charge: .35%
Total Variable Account Annual Expenses: .35%
MANNING & NAPIER FUND AND STEINROE TRUST ANNUAL EXPENSES(2)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES FUND OPERATING
FUND EXPENSES (After
Reimbursement)(3)
<S> <C> <C> <C>
MNMGP 1.00% .20% 1.20%
MNGP 1.00% .20% 1.20%
MNMHP 1.00% .20% 1.20%
MNSCP 1.00% .20% 1.20%
MNEP 1.00% .20% 1.20%
MNBP .50% .35% .85%
CIF .50% .13% .63%
</TABLE>
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY MANNING & NAPIER FUND
AND STEINROE TRUST. KEYPORT HAS NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE
INFORMATION AND DISCLAIM ALL LIABILITY FOR ANY CLAIM, LOSS OR EXPENSE RESULTING
FROM ANY INACCURATE INFORMATION ABOUT THE ELIGIBLE FUNDS.
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Example -- Assuming surrender or annuitization of the Certificate at the end of
the periods shown(4) or that the Certificate stays in force through the periods
shown.
A $1,000 INVESTMENT IN EACH SUB-ACCOUNT LISTED WOULD BE SUBJECT TO THE EXPENSES
SHOWN, ASSUMING 5% ANNUAL RETURN ON ASSETS.
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
MNMGP 13 42 77 190
MNGP 13 42 77 190
MNMHP 13 42 77 190
MNSCP 13 42 77 190
MNEP 13 42 77 190
MNBP 9 31 56 141
CIF 7 24 44 109
(1)Keyport reserves the right to impose a transfer fee after prior notice to
Certificate Owners, but currently does not impose any charge. Premium taxes are
not shown. Keyport deducts the amount of premium taxes, if any, when paid
unless Keyport elects to defer such deduction.
(2)The Manning & Napier Insurance Fund expenses are estimated and reflect the
Manning & Napier Insurance Fund manager's agreement to reimburse expenses above
certain limits (see footnote 3). The SteinRoe Trust expenses are for 1995 and
reflect the SteinRoe Trust manager's agreement to reimburse expenses above
certain limits (see footnote 3).
(3)The managers of Manning & Napier Insurance Fund and SteinRoe Trust have
agreed to reimburse all expenses, including management fees, in excess of the
following percentage of the average annual net assets of each Eligible Fund,
so long as such reimbursement would not result in the Eligible Fund's
inability to qualify as a regulated investment company under the Internal
Revenue Code: MNMGP 1.2%, MNGP 1.2%, MNMHP 1.2%, MNSCP 1.2%, MNEP 1.2%, MNBP
.85%, CIF .65%. The Manning & Napier Insurance Fund manager's fee waiver and
assumption of expenses agreement is voluntary and may be terminated at any
time. The total percentages shown in the table for
MNMHP, MNSCP, MNEP, MNGP, MNMGP, and MNBP are after estimated expense
reimbursement. In the absence of any expense reimbursement, the managers of
the Manning & Napier Insurance Fund estimate Fund expenses to be 2.5% for
MNMGP, MNGP, MNMHP, MNSCP, and MNEP, and 2.15% for MNBP. The SteinRoe Trust
manager's fee waiver and assumption of expenses agreement is effective until
April 30, 1997. The SteinRoe Trust's manager was not required to waive expenses
as of the date of this Prospectus.
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(4)The annuity is designed for retirement planning purposes. Surrenders
prior to the Income Date are not consistent with the long-term purposes of
the Contract and the applicable tax laws.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND CHARGES OF THE SUB-ACCOUNTS. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. SIMILARLY, THE ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE
OR A GUARANTEE OF FUTURE INVESTMENT PERFORMANCE. See "Deductions" in this
prospectus, "Management" in the prospectus for Manning & Napier Fund, and "How
the Funds are Managed" in the prospectus for SteinRoe Trust.
SYNOPSIS
The following Synopsis should be read in conjunction with the detailed
information in this prospectus and the Statement of Additional Information.
Please refer to the Glossary of Special Terms for the meaning of certain defined
terms. Variations from the information appearing in this prospectus due to
individual state requirements are described in supplements which are attached to
this prospectus, or in endorsements to the Certificates, as appropriate.
The Certificate allows Certificate Owners to allocate Purchase Payments to the
Variable Account. The Variable Account is a separate investment account
maintained by Keyport. Certificate Owners may allocate payments to, and receive
annuity payments from the Variable Account. If the Certificate Owner allocates
payments to the Variable Account, the accumulation values and annuity payments
will fluctuate according to the investment experience of the Sub-Accounts
chosen.
The Certificate permits Purchase Payments to be made on a flexible Purchase
Payment basis. The minimum initial payment is $5,000. The minimum amount for
each subsequent payment is $1,000 or such lesser amount as Keyport may permit
from time to time. (See "Purchase Payments and Applications" on Page x.)
There are no deductions made from Purchase Payments for sales charges at the
time of purchase or upon surrender.
Keyport deducts a Mortality and Expense Risk Charge, which is equal on an annual
basis to .35% of the average daily net asset values in the Variable Account
attributable to the Contracts. (See "Deductions for Mortality and Expense Risk
Charge" on Page xx.)
Keyport deducts an annual Contract Maintenance Charge (currently $35.00) from
the Variable Account Value for administrative expenses. Prior to the Income
Date, Keyport reserves the right to
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change this charge for future years but not to exceed $100. (See "Deductions
for Certificate Maintenance Charge" on Page xx.)]
Keyport reserves the right to deduct a charge of $25 for each transfer in excess
of 12 per Certificate Year.
Premium taxes will be charged against the Certificate Value. Currently such
premium taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes" on
Page xx.)
There are no federal income taxes on increases in the value of a Certificate
until a distribution occurs, in the form of a lump sum payment, annuity
payments, or the making of a gift or assignment of the Certificate. A federal
penalty tax (currently 10%) may also apply. (See "Tax Status" on Page xx.)
The Certificate allows the Certificate Owner to revoke the Certificate generally
within 10 days of delivery (see "Right to Revoke" on Page xx). For most states,
Keyport will refund the Certificate Value as of the date the returned
Certificate is received by Keyport, plus any sales charges previously deducted.
The Certificate Owner thus will bear the investment risk during the revocation
period. In other states, Keyport will return Purchase Payments. In such other
states Purchase Payments will be allocated to the CIF Sub-Account during the
"freelook" period.
The full financial statements for Keyport are in the Statement of Additional
Information.
PERFORMANCE INFORMATION
The Variable Account may from time to time advertise certain performance
information concerning its various Sub-Accounts.
This performance information is not intended to indicate either past performance
under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods of
time. Total return performance information is based on the overall percentage
change in value of a hypothetical investment in the specific Sub-Account over a
given period of time.
Average annual total return information shows the average percentage change in
the value of an investment in the Sub-Account from the beginning date of the
measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less all
charges and deductions applied against the Sub-Account and a Certificate.
Average total return does not take into account any premium taxes and would be
lower if these taxes were included.
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In order to calculate average annual total return, Keyport divides the change in
value of a Sub-Account under a Certificate surrendered on a particular date by a
hypothetical $1,000 investment in the Sub-Account made by the Certificate Owner
at the beginning of the period illustrated. The resulting total rate for the
period is then annualized to obtain the average annual percentage change during
the period. Annualization assumes that the application of a single rate of
return each year during the period will produce the ending value, taking into
account the effect of compounding.
The Sub-Accounts may present additional total return information computed on a
different basis.
The Sub-Accounts may present total return information calculated by dividing the
change in a Sub-Account's Accumulation Unit value over a specified time period
by the Accumulation Unit value of that Sub-Account at the beginning of the
period. This computation results in a 12-month change rate or, for longer
periods, a total rate for the period which Keyport annualizes in order to obtain
the average annual percentage change in the Accumulation Unit value for that
period. The change percentages do not take into account the Certificate
Maintenance Charge and premium tax charges. The percentages would be lower if
these charges were included.
The CIF Sub-Account is a money market Sub-Account that also may advertise yield
and effective yield information. The yield of the Sub-Account refers to the
income generated by an investment in the Sub-Account over a specifically
identified 7-day period. This income is annualized by assuming that the amount
of income generated by the investment during that week is generated each week
over a 52-week period and is shown as a percentage. The yield reflects the
deduction of all charges assessed against the Sub-Account and a Certificate but
does not take into account premium tax charges. The yield would be lower if
these charges were included.
The effective yield of the CIF Sub-Account is calculated in a similar manner
but, when annualizing such yield, income earned by the Sub-Account is assumed
to be reinvested. This compounding effect causes effective yield to be
higher than yield.
KEYPORT AND THE VARIABLE ACCOUNT
Keyport Life Insurance Company was incorporated in Rhode Island in 1957 as a
stock life insurance company. Its executive and administrative offices are at
125 High Street, Boston, Massachusetts 02110 and its home office is at 235
Promenade Street, Providence, Rhode Island 02903.
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Keyport writes individual life insurance and individual and group annuity
contracts on a non-participating basis. Keyport is licensed to do business in
all states except New York and is also licensed in the District of Columbia and
the Virgin Islands. Keyport has been rated A+ (Superior) by A.M. Best and
Company, independent analysts of the insurance industry. Keyport has been rated
A+ each year since 1976, the first year Keyport was subject to Best's alphabetic
rating system. Standard & Poor's ("S & P") has rated Keyport AA- for excellent
financial security, Moody's has rated Keyport A1 for good financial strength and
Duff & Phelps has rated Keyport AA- for very high claims paying ability. The
Best's A+ rating is in the highest rating category, which also includes A++. S
& P and Duff & Phelps have one rating category above AA and Moody's has two
rating categories above A. The Moody's "1" modifier signifies that Keyport is
in the higher end of the A category while the S&P and Duff & Phelps "-" modifier
signifies that Keyport is at the lower end of the AA category. These ratings
merely reflect the opinion of the rating company as to the relative financial
strength of Keyport and Keyport's ability to meet its contractual obligations to
its policyholders. Even though assets in the Variable Account are held
separately from Keyport's other assets, ratings of Keyport may still be relevant
to Certificate Owners since not all of Keyport's contractual obligations relate
to payments based on those segregated assets (e.g., see "Death Provisions" for
Keyport's obligation after certain deaths to increase the Certificate Value if
it is less than the guaranteed minimum death value amount.
Keyport is one of the Liberty Financial Companies. Keyport is ultimately
controlled by Liberty Mutual Insurance Company of Boston, Massachusetts, a
multi-line insurance and financial services institution.
The Variable Account was established by Keyport pursuant to the provisions of
Rhode Island Law on January 30, 1996. The Variable Account meets the definition
of "separate account" under the federal securities laws. The Variable Account
is registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Such registration does not
involve supervision of the management of the Variable Account or Keyport by the
Securities and Exchange Commission.
Obligations under the Certificates are the obligations of Keyport. Although the
assets of the Variable Account are the property of Keyport, these assets are
held separately from the other assets of Keyport and are not chargeable with
liabilities arising out of any other business Keyport may conduct. Income,
capital gains and/or capital losses, whether or not realized, from assets
allocated to the Variable Account are credited to or charged against the
Variable Account without regard to the income, capital gains, and/or capital
losses arising out of any other business Keyport may conduct. Thus, Keyport
does not guarantee the investment
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performance of the Variable Account. The Variable Account Value and the
amount of variable annuity payments will vary with the investment performance
of the investments in the Variable Account.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $5,000. Additional Purchase Payments can be made at
the Certificate Owner's option. Each subsequent Purchase Payment must be at
least $1,000 or such lesser amount as Keyport may permit from time to time.
Keyport may reject any Purchase Payment.
When the application for a Certificate is in good order and it calls for amounts
to be allocated to the Variable Account, Keyport will apply the initial Purchase
Payment to the Variable Account and credit the Certificate with Accumulation
Units within two business days of receipt. If the application for a Certificate
is not in good order, Keyport will attempt to get it in good order within five
business days. If it is not complete at the end of this period, Keyport will
inform the applicant of the reason for the delay and that the Purchase Payment
will be returned immediately unless the applicant specifically consents to
Keyport's keeping the Purchase Payment until the application is complete. Once
the application is complete, the Purchase Payment will be applied within two
business days of its completion. Keyport has reserved the right to reject any
application.
Keyport confirms, in writing, to the Certificate Owner the allocation of all
Purchase Payments and the re-allocation of values after any requested transfer.
Keyport must be notified immediately by the Certificate Owner of any processing
error.
Keyport will permit others to act on behalf of an applicant in certain
instances, including the following two examples. First, Keyport will accept an
application for a Certificate that contains a signature signed under a power of
attorney if a copy of that power of attorney is submitted with the application.
Second, Keyport will issue a Certificate that is not replacing an unaffiliated
company's existing life insurance or annuity policy without having previously
received a signed application from the applicant. Certain dealers or other
authorized persons such as employers and Qualified Plan fiduciaries will inform
Keyport of an applicant's answers to the questions in the application by
telephone or by order ticket and cause the initial Purchase Payment to be paid
to Keyport. If the information is in good order, Keyport will issue the
Certificate with a copy of an application completed with that information. The
Certificate will be delivered to the Certificate Owner with a letter from
Keyport that will give the Certificate Owner an opportunity to respond to
Keyport if any
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of the application information is incorrect. Alternatively, Keyport's letter
may request the Certificate Owner to confirm the correctness of the
information by signing either a copy of the application or a Certificate
delivery receipt that ratifies the application in all respects (in either
case, a copy of the signed document would be returned to Keyport for its
permanent records). All purchases are confirmed, in writing, to the
applicant by Keyport. Keyport's liability under a Certificate extends only to
amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
ALLOCATIONS OF PURCHASE PAYMENTS
Purchase Payments applied to the Variable Account will be invested in one or
more of the Eligible Fund Sub-Accounts designated as permissible investments in
accordance with the selection made by the Certificate Owner in the application.
Any selection must specify the percentage of the Purchase Payment that is
allocated to each Sub-Account. The percentage for each Sub-Account, if not
zero, must be at least 10% and must be a whole number. A Certificate Owner may
change the allocation percentages without fee, penalty or other charge.
Allocation changes must be made by Written Request unless the Certificate Owner
has by Written Request authorized Keyport to accept telephone allocation
instructions from the Certificate Owner or from a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney. By
authorizing Keyport to accept telephone changes, a Certificate Owner agrees to
accept and be bound by the conditions and procedures established by Keyport from
time to time. The current conditions and procedures are in Appendix A and
Certificate Owners authorizing telephone allocation instructions will be
notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account contains
the shares of one of the Eligible Funds and such shares are purchased at net
asset value. Eligible Funds and Sub-accounts may be added or withdrawn as
permitted by applicable law. The Sub-Accounts in the Variable Account and the
corresponding Eligible Funds currently are as follows:
ELIGIBLE FUNDS OF MANNING & NAPIER
INSURANCE FUND SUB-ACCOUNTS
Manning & Napier Moderate Growth
Portfolio ("MNMGP") MNMGP Sub-Account
Manning & Napier Growth Portfolio ("MNGP") MNGP Sub-Account
Manning & Napier Maximum Horizon
Portfolio ("MNMHP") MNMHP Sub-Account
Manning & Napier Small Cap Portfolio ("MNSCP") MNSCP Sub-Account
Manning & Napier Equity Portfolio ("MNEP") MNEP Sub-Account
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Manning & Napier Bond Portfolio ("MNBP") MNBP Sub-Account
ELIGIBLE FUNDS OF STEINROE TRUST SUB-ACCOUNTS
Cash Income Fund ("CIF") CIF Sub-Account
ELIGIBLE FUNDS
The Eligible Funds which are the permissible investments of the Variable Account
are the separate funds of Manning & Napier Insurance Fund, the separate funds of
SteinRoe Trust, and any other mutual funds with which Keyport and the Variable
Account may enter into a participation agreement for the purpose of making such
mutual funds available as Eligible Funds under certain Certificates.
Manning & Napier Insurance Fund is an open-end management investment company
that offers separate series or Portfolios. Manning & Napier Advisors, Inc.
("Manning & Napier Advisors"), 1100 Chase Square, Rochester, New York 14604,
acts as Manning & Napier Fund's investment adviser. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. Manning & Napier Advisors also is generally responsible for
supervision of the overall business affairs of Manning & Napier Insurance Fund,
including supervision of service providers to the Fund and direction of Manning
& Napier Advisors' directors, officers or employees who may be elected as
officers of Manning & Napier Insurance Fund to serve as such.
Stein Roe & Farnham Incorporated ("Stein Roe"), One South Wacker Drive, Chicago,
Illinois 60606, is the investment adviser for the Eligible Fund of SteinRoe
Trust. In 1986, Stein Roe was organized and succeeded to the business of Stein
Roe & Farnham, a partnership. Stein Roe is an affiliate of Keyport. Stein Roe
and its predecessor have provided investment advisory and administrative
services since 1932.
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a Sub-Account that invests in an Eligible Fund. The prospectus
is available, at no charge, from a salesperson or by writing Keyport at the
address shown on Page 1 or by calling (800) 437-4466.
ELIGIBLE FUNDS OF MANNING & NAPIER INSURANCE FUND
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
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Manning & Napier Moderate Growth Seeks with equal emphasis long-
Portfolio (MNMGP Sub-Account) term growth and preservation of capital.
Manning & Napier Growth Portfolio Seeks long-term growth of
(MNGP Sub-Account) capital. The secondary objective is the
preservation of capital.
Manning & Napier Maximum Horizon Seeks to achieve the high level
Portfolio (MNMHP Sub-Account) of long-term capital growth typically
associated with the stock market.
Manning & Napier Small Cap Seeks to achieve long-term
Portfolio (MNSCP Sub-Account) growth of capital by investing principally in
the equity securities of small issuers.
Manning & Napier Equity Portfolio Seeks long-term growth of
(MNEP Sub-Account) capital.
Manning & Napier Bond Portfolio Seeks to maximize total return
(MNBP Sub-Account) in the form of both income and capital
appreciation by investing in fixed income
securities without regard to maturity.
ELIGIBLE FUNDS OF STEINROE TRUST
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
Cash Income Fund (CIF Sub-Account) Seeks to provide high current income from
short-term money market instruments while
emphasizing preservation of capital and
maintaining excellent liquidity.
THERE IS NO ASSURANCE THAT THE ELIGIBLE FUNDS WILL ACHIEVE THEIR STATED
OBJECTIVES.
The Manning & Napier Insurance Fund and SteinRoe Trust are funding vehicles for
variable annuity contracts and variable life insurance policies offered by
separate accounts of Keyport and of insurance companies affiliated and
unaffiliated with Keyport. The risks involved in this "mixed and shared
funding" are disclosed in the Manning & Napier Insurance Fund and in the
SteinRoe Trust prospectuses under the captions "Sales And Redemptions" and "The
Trust", respectively.
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TRANSFER OF VARIABLE ACCOUNT VALUE
Certificate Owners may transfer Variable Account Value from one Sub-Account to
another Sub-Account.
The Certificate allows Keyport to charge a transfer fee and to limit the number
of transfers that can be made in a specified time period. Certificate Owners
should be aware that transfer limitations may prevent a Certificate Owner from
making a transfer on the date he or she wants to, with the result that the
Certificate Owner's future Certificate Value may be lower than it would have
been had the transfer been made on the desired date. Currently, Keyport is not
charging a transfer fee, but reserves the right to charge $25 for each transfer
in excess of 12 per Certificate Year. For transfers under different
Certificates that are being requested under powers of attorney with a common
attorney-in-fact or that are, in Keyport's determination, based on the
recommendation of a common investment adviser or broker/dealer, there is a
transfer limitation of one transfer every 30 days.
Keyport is also limiting each transfer to a maximum of $500,000. All transfers
requested for a Certificate on the same day will be treated as a single transfer
and the total combined transfer amount will be subject to the $500,000
limitation. If the $500,000 limitation is exceeded, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation, Keyport may treat as one transfer all
transfers requested by a Certificate Owner for multiple Certificates he or she
owns. If the $500,000 limitation is exceeded for multiple transfers requested
on the same day that are treated as a single transfer, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation to transfers requested by a common attorney-
in-fact or investment adviser, Keyport will treat as one transfer all transfers
requested under different Certificates that are being requested under powers of
attorney with a common attorney-in-fact or that are, in Keyport's determination,
based on the recommendation of a common investment adviser or broker/dealer. If
the $500,000 limitation is exceeded for multiple transfers requested on the same
day that are treated as a single transfer, no amount of the transfer will be
executed by Keyport. If a transfer is executed under one Certificate and,
within the next 30 days, a transfer request for another Certificate is
determined by Keyport to be related to the executed transfer under this
paragraph's rules, the transfer request will not be executed by Keyport. In
order for it to be executed, it would need to be requested again after the 30
day period has expired and it, along with any other transfer requests that are
collectively treated as a single transfer, would need to total less than
$500,000.
Keyport's interest in applying these limitations is to protect the interests of
both Certificate Owners who are not engaging in significant transfer activity
and Certificate Owners who are engaging in such activity. Keyport has
determined that the actions of Certificate Owners engaging in significant
transfer activity among Sub-Accounts may cause an adverse affect on the
performance
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of the Eligible Fund for the Sub-Account involved. The movement of
Sub-Account values from one Sub-Account to another may prevent the
appropriate Eligible Fund from taking advantage of investment opportunities
because it must maintain a liquid position in order to handle redemptions.
Such movement may also cause a substantial increase in Fund transaction costs
which must be indirectly borne by Certificate Owners.
Certificate Owners will be notified, in advance, of the imposition of any
transfer fee or of a change in the limitation on the number of transfers. The
fee will not exceed the lesser of $25 and the cost of effecting a transfer.
Transfers must be made by Written Request unless the Certificate Owner has by
Written Request authorized Keyport to accept telephone transfer requests from
the Certificate Owner or from a person acting for the Certificate Owner as an
attorney-in-fact under a power of attorney. By authorizing Keyport to accept
telephone transfer instructions, a Certificate Owner agrees to accept and be
bound by the conditions and procedures established by Keyport from time to time.
The current conditions and procedures are in Appendix A and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any changes.
Written transfer requests may be made by a person acting for the Certificate
Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be initiated at the
close of business that day. Any requests received later will be initiated at
the close of the next business day. Each request from a Certificate Owner to
transfer value will be executed by both redeeming and acquiring Accumulation
Units on the day Keyport initiates the transfer.
If 100% of any Sub-Account's value is transferred and the allocation formula for
Purchase Payments includes that Sub-Account, then the allocation formula for
future Purchase Payments will automatically change unless the Certificate Owner
instructs otherwise. For example, if the allocation formula is 50% to Sub-
Account A and 50% to Sub-Account B and all of Sub-Account A's value is
transferred to Sub-Account B, the allocation formula will change to 100% to Sub-
Account B unless the Certificate Owner instructs otherwise.
SUBSTITUTION OF ELIGIBLE FUNDS AND OTHER VARIABLE ACCOUNT CHANGES
If the shares of any of the Eligible Funds should no longer be available for
investment by the Variable Account or if in the judgment of Keyport's management
further investment in such fund shares should become inappropriate in view of
the purpose of the Certificate, Keyport may add or substitute shares of another
Eligible Fund or of another mutual fund for Eligible Fund shares already
purchased under the Certificate. No substitution of Fund shares in any Sub-
Account may take place without prior approval of the Securities and Exchange
Commission and notice to Certificate Owners, to the extent required by the
Investment Company Act of 1940.
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Keyport has also reserved the right, subject to compliance with the law as
currently applicable or subsequently changed: (a) to operate the Variable
Account in any form permitted under the Investment Company Act of 1940 or in any
other form permitted by law; (b) to take any action necessary to comply with or
obtain and continue any exemptions from the Investment Company Act of 1940 or to
comply with any other applicable law; (c) to transfer any assets in any Sub-
Account to another Sub-Account, or to one or more separate investment accounts,
or to Keyport's general account; or to add, combine or remove Sub-Accounts in
the Variable Account; and (d) to change the way Keyport assesses charges, so
long as the aggregate amount is not increased beyond that currently charged to
the Variable Account and the Eligible Funds in connection with the Certificates.
DEDUCTIONS
DEDUCTIONS FOR CERTIFICATE MAINTENANCE CHARGE
Keyport has responsibility for all administration of the Certificates and the
Variable Account. This administration includes, but is not limited to,
preparation of the Certificates, maintenance of Certificate Owners' records, and
all accounting, valuation, regulatory and reporting requirements. Keyport
assesses a Certificate Maintenance Charge for such services during the
accumulation and annuity payment periods. At the present time the Certificate
Maintenance Charge is $35 per Certificate Year. PRIOR TO THE INCOME DATE THE
CERTIFICATE MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED BY KEYPORT.
The charge will not exceed the anticipated costs of administering the
Certificate.
Prior to the Income Date, the full amount of the charge will be deducted from
the Variable Account Value on each Certificate Anniversary and on the date of
any total surrender not falling on the Certificate Anniversary. On the Income
Date, a pro-rata portion of the charge due on the next Certificate Anniversary
will be deducted from the Variable Account Value. This pro-rata charge covers
the period from the prior Certificate Anniversary to the Income Date. For
example, if the Income Date occurs 73 days after that prior anniversary, then
one-fifth (i.e., 73 days/365 days) of the annual charge would be deducted on the
Income Date. The charge will be deducted from each Sub-Account in the
proportion that the value of each bears to the Variable Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of the
Certificate Maintenance Charge for a payee's annuity will be the same as the
yearly amount in effect immediately before the annuity payments begin. Keyport
may not later change the amount of the Certificate Maintenance Charge deducted
from the annuity payments. The charge will be deducted on a pro-rata basis from
each annuity payment. For example, if annuity payments are monthly, then one-
twelfth of the annual charge will be deducted from each payment.
DEDUCTIONS FOR MORTALITY AND EXPENSE RISK CHARGE
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Although variable annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of the Variable Account, they
will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. Keyport guarantees the
Death Benefits described below (see "Death Benefit"). Keyport assumes an
expense risk since the Certificate Maintenance Charge after the Income Date will
stay the same and not be affected by variations in expenses.
To compensate it for assuming these mortality and expense risks, for each
Valuation Period Keyport deducts from each Sub-Account a Mortality and Expense
Risk Charge equal on an annual basis to .35% of the average daily net asset
value of the Sub-Account. The charge is deducted during both the accumulation
and annuity periods (i.e., both before and after the Income Date). Less than
the full charge will be deducted from Sub-Account values attributable to
Certificates issued to employees of Keyport and other persons specified in
"Distribution of the Certificates".
DEDUCTIONS FOR TRANSFERS OF VARIABLE ACCOUNT VALUE
The Certificate allows Keyport to charge a transfer fee. Currently no fee is
being charged. Certificate Owners will be notified, in advance, of the
imposition of any fee. The fee will not exceed the lesser of $25 and the cost
of effecting a transfer.
DEDUCTIONS FOR PREMIUM TAXES
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Keyport elects to defer such deduction. It
is not possible to describe precisely the amount of premium tax payable on any
transaction involving the Certificate offered hereby. Such premium taxes
depend, among other things, on the type of Certificate (Qualified or Non-
Qualified), on the state of residence of the Certificate Owner, the state of
residence of the Annuitant, the status of Keyport within such states, and the
insurance tax laws of such states. Currently such premium taxes range from 0%
to 5.0% of either total Purchase Payments or Certificate Value.
DEDUCTIONS FOR INCOME TAXES
Keyport will deduct from any amount payable under the Certificate any income
taxes that a governmental authority requires Keyport to withhold with respect to
that amount. See "Income Tax Withholding" and "Tax-Sheltered Annuities".
TOTAL VARIABLE ACCOUNT EXPENSES
The Variable Account's total expenses in relation to the Certificate will be the
Certificate Maintenance Charge and the Mortality and Expense Risk Charge.
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The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out of
the assets of the Eligible Funds. These deductions and expenses are described
in the Eligible Fund prospectus.
OTHER SERVICES
THE PROGRAMS. Keyport offers the following investment related program which is
available only prior to the Income Date: Systematic Withdrawal Programs. This
Program has its own requirements, as discussed below. Keyport reserves the
right to terminate the Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. The current conditions and
procedures are described in Appendix A.
SYSTEMATIC WITHDRAWAL PROGRAM. To the extent permitted by law, Keyport will
make monthly, quarterly, semi-annual or annual distributions of a predetermined
dollar amount to a Certificate Owner that has enrolled in the Systematic
Withdrawal Program. Under the Program, all distributions will be made directly
to the Certificate Owner and will be treated for federal tax purposes as any
other withdrawal or distribution of Certificate Value. (See "TAX STATUS".) A
Certificate Owner may specify the amount of each partial withdrawal, subject to
a minimum of $100.
Unless the Certificate Owner specifies the Sub-Account or Sub-Accounts from
which withdrawals of Certificate Value shall be made or if the amount in a
specified Sub-Account is less than the predetermined amount, Keyport will make
withdrawals under the Program from the Sub-Accounts in amounts proportionate to
the amounts in the Sub-Accounts. Withdrawals are subject to the applicable
minimum Sub-Account balances. All withdrawals under the Program will be
effected by canceling the number of Accumulation Units equal in value to the
amount to be distributed to the Certificate Owner.
THE CERTIFICATES
VARIABLE ACCOUNT VALUE
The Variable Account Value for a Certificate is the sum of the value of each
Sub-Account to which values are allocated under a Certificate. The value of
each Sub-Account is determined at any time by multiplying the number of
Accumulation Units attributable to that Sub-Account by the Accumulation Unit
value for that Sub-Account at the time of determination. The Accumulation Unit
value is an accounting unit of measure used to determine the change in an
Accumulation Unit's value from Valuation Period to Valuation Period.
Each Purchase Payment that is made results in additional Accumulation Units
being credited to the Certificate and the appropriate Sub-Account thereunder.
The number of additional units for any Sub-Account will equal the amount
allocated to that Sub-
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Account divided by the Accumulation Unit value for that Sub-Account at the
time of investment.
VALUATION PERIODS
The Variable Account is valued each Valuation Period using the net asset value
of the Eligible Fund shares. A Valuation Period is the period commencing at the
close of trading on the New York Stock Exchange on each Valuation Date and
ending at the close of trading for the next succeeding Valuation Date. A
Valuation Date is each day that the New York Stock Exchange is open for
business. The New York Stock Exchange is currently closed on weekends, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
NET INVESTMENT FACTOR
The Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, Keyport utilizes an Accumulation Unit value. Each
Sub-account has its own Accumulation Units and value per Unit. The Unit value
applicable during any Valuation Period is determined at the end of that period.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Accumulation Unit at $10. The Unit value for each
Sub-Account in any Valuation Period thereafter is determined by multiplying the
value for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. Keyport calculates a net
investment factor for each Sub-Account by dividing (a) by (b) and then
subtracting (c) (i.e., (a DIVIDED BY b)-c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the daily Mortality and
Expense risk Charge; plus
(ii) a charge factor, if any, for any tax provision established by
Keyport as a result of the operations of that Sub-Account.
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MODIFICATION OF THE CERTIFICATE
Only Keyport's President or Secretary may agree to alter the Certificate or
waive any of its terms. Any changes must be made in writing and with the
Certificate Owner's consent, except as may be required by applicable law.
RIGHT TO REVOKE
The Certificate Owner may return the Certificate within 10 days after he or she
receives it by delivering or mailing it to either Keyport's Office or Manning &
Napier Insurance Fund, Inc., P.O. Box 40610, Rochester, New York, 14604. The
return of the Certificate by mail will be effective when the postmark is affixed
to a properly addressed and postage-prepaid envelope. The returned Certificate
will be treated as if Keyport never issued it and Keyport will refund either the
Certificate Value or Purchase Payments, as required by state law. If the
Certificate is delivered in a state that requires the return of Certificate
Value, Certificate Value will immediately be allocated to the Sub-Accounts
selected in the application. If the Certificate is delivered in a state that
requires the return of Purchase Payments, Certificate Value will be allocated to
the CIF Sub-Account (a Money Market Sub-Account) for a period of 20 or 30 days,
if the particular state requires a "free-look" period of 10 or 20 days,
respectively. Thereafter the Certificate Value will be allocated to the Sub-
Accounts selected in the application.
For Certificates delivered in California to a Certificate Owner age 60 or older,
the Certificate Owner may return the Certificate to Keyport's Office, Manning &
Napier Insurance Fund's office, or to the agent from whom the Certificate was
purchased. If the Certificate is received at Keyport's Office, Manning & Napier
Insurance Fund's office or by the agent within 30 days after the Certificate
Owner receives the Certificate, Keyport will refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
DEATH OF PRIMARY OWNER, JOINT OWNER OR CERTAIN NON-OWNER ANNUITANT
These provisions apply if, before the Income Date while the Certificate is In
Force, the primary Certificate Owner or any joint Certificate Owner dies
(whether or not the decedent is also the Annuitant) or the Annuitant dies under
a Certificate with a non-natural Certificate Owner such as a trust. The
Designated Beneficiary will control the Certificate after such a death.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE DESIGNATED BENEFICIARY,
the surviving spouse will automatically become the new sole primary Certificate
Owner as of the decedent's date of the death. And, if the Annuitant is the
decedent, the new Annuitant will be any living contingent annuitant, otherwise
the surviving spouse. The Certificate can stay in force until another death
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occurs (i.e., until the death of the Annuitant, primary Certificate Owner or
joint Certificate Owner). Except for this paragraph, all "Death Provisions"
will apply to that subsequent death.
IN ALL OTHER CASES, the Certificate can continue up to five years from the date
of death. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial surrenders or
the right to totally surrender the Certificate for its Surrender Value. If the
Certificate is still in effect at the end of the five-year period, Keyport will
automatically end it then by paying the Certificate Value to the Designated
Beneficiary. If the Designated Beneficiary is not alive then, Keyport will pay
any person(s) named by the Designated Beneficiary in a Written Request;
otherwise the Designated Beneficiary's estate.
The covered person under this paragraph shall be the primary Certificate Owner
or, if there is a non-natural Certificate Owner such as a trust, the Annuitant
shall be the covered person. If the covered person dies, the Certificate Value
will be increased, as provided below, if it is less than the Death Benefit
Amount ("DBA"). The DBA is:
DEATH BENEFIT. The death benefit at issue is the initial Purchase Payment.
Thereafter, it is the prior death benefit plus any additional Purchase Payments,
less any partial withdrawals, including any applicable surrender charge.
When Keyport receives due proof of the covered person's death, Keyport will
compare, as of the date of death, the Certificate Value to the DBA. If the
Certificate Value was less than the DBA, Keyport will increase the current
Certificate Value by the amount of the difference. Note that while the amount
of the difference is determined as of the date of death, that amount is not
added to the Certificate Value until Keyport receives due proof of death. The
amount to be credited will be allocated to the Variable Account based on the
Purchase Payment allocation selection that is in effect when Keyport receives
due proof of death. If the Certificate is not surrendered, it will continue for
the time period specified above.
PAYMENT OF BENEFITS. Instead of receiving a lump sum, the Certificate Owner or
any Designated Beneficiary may direct by Written Request that Keyport pay any
benefit of $5,000 or more under an annuity payment option that meets the
following: (a) the first payment to the Designated Beneficiary must be made no
later than one year after the date of death; (b) payments must be made over the
life of the Designated Beneficiary or over a period not extending beyond that
person's life expectancy; and (c) any payment option that provides for payments
to continue after the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time over which the remaining payments
are to be made.
DEATH OF CERTAIN NON-CERTIFICATE OWNER ANNUITANT. These provisions apply if,
before the Income Date while the Certificate is In Force, (a) the Annuitant
dies, (b) the Annuitant is not a Certificate
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Owner, and (c) the Certificate Owner is a natural person. The Certificate
will continue in force after the Annuitant's death. The new Annuitant will
be any living contingent annuitant, otherwise the primary Certificate Owner.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
DEATH OF ANNUITANT. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the Certificate
after such a death. The Certificate Value will be increased, as provided below,
if it is less than the Death Benefit Amount ("DBA") as defined above. When
Keyport receives due proof of the Annuitant's death, Keyport will compare, as of
the date of death, the Certificate Value to the DBA. If the Certificate Value
was less than the DBA, Keyport will increase the current Certificate Value by
the amount of the difference. Note that while the amount of the difference is
determined as of the date of death, that amount is not added to the Certificate
Value until Keyport receives due proof of death. The amount to be credited will
be allocated to the Variable Account based on the Purchase Payment allocation
selection that is in effect when Keyport receives due proof of death.
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the particular
Qualified Plan. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial withdrawals
or the right to totally surrender the Certificate for its Certificate Withdrawal
Value. If the Certificate is still in effect at the end of the period, Keyport
will automatically end it then by paying the Certificate Withdrawal Value to the
Designated Beneficiary. If the Designated Beneficiary is not alive then,
Keyport will pay any person(s) named by the Designated Beneficiary in a Written
Request; otherwise the Designated Beneficiary's estate.
PAYMENT OF BENEFITS. Instead of receiving a lump sum, the Certificate Owner or
any Designated Beneficiary may direct by Written Request that Keyport pay any
benefit of $5,000 or more under an annuity payment option that meets the
following: (a) the first payment to the Designated Beneficiary must be made no
later than one year after the date of death; (b) payments must be made over the
life of the Designated Beneficiary or over a period not extending beyond that
person's life expectancy; and (c) any payment option that provides for payments
to continue after the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time over which the remaining payments
are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application. The
Certificate Owner may exercise all the rights of the Certificate. Joint
Certificate Owners are permitted but not contingent Certificate Owners.
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The Certificate Owner may by Written Request change the Certificate Owner,
primary beneficiary, contingent beneficiary or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of such
person.
Because a change of Certificate Owner by means of a gift (i.e., a transfer
without full and adequate consideration) may be a taxable event, a Certificate
Owner should consult a competent tax adviser as to the tax consequences
resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership. A
Certificate Owner should consult the Plan Administrator and a competent tax
adviser as to the tax consequences resulting from such a transfer.
ASSIGNMENT
The Certificate Owner may assign the Certificate at any time. A copy of any
assignment must be filed with Keyport. The Certificate Owner's rights and those
of any revocably-named person will be subject to the assignment. Any Qualified
Certificate may have limitations on assignability.
Because an assignment may be a taxable event, a Certificate Owner should consult
a competent tax adviser as to the tax consequences resulting from any such
assignment.
PARTIAL WITHDRAWALS AND SURRENDER
The Certificate Owner may make partial withdrawals from the Certificate.
Keyport must receive a Written Request and the minimum amount to be withdrawn
must be at least $300 or such lesser amount as Keyport may permit in conjunction
with a periodic withdrawal program. If the Certificate Value after a partial
withdrawal would be below $2,500, Keyport will treat the request as a withdrawal
of only the excess amount over $2,500. Unless the request specifies otherwise,
the total amount withdrawn will be deducted from all Sub-Accounts of the
Variable Account in the ratio that the value in each Sub-Account bears to the
total Variable Account Value.
The Certificate Owner may totally surrender the Certificate by making a Written
Request. Surrendering the Certificate will end it. Upon surrender, the
Certificate Owner will receive the Certificate Withdrawal Value.
Keyport will pay the amount of any surrender within seven days of receipt of
such request. Alternatively, the Certificate Owner may purchase for himself or
herself an annuity payment option with any surrender benefit of at least $5,000.
Keyport's consent is needed to choose an option if the Certificate Owner is not
a natural person.
Annuity Options based on life contingencies cannot be surrendered after annuity
payments have begun. Option A, which is not based on
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life contingencies, may be surrendered if a variable payout has been
selected.
Because of the potential tax consequences of a full or partial surrender, a
Certificate Owner should consult a competent tax adviser regarding a surrender.
ANNUITY PROVISIONS
ANNUITY BENEFITS
If the Annuitant is alive on the Income Date and the Certificate is In Force,
payments will begin under the annuity option or options the Certificate Owner
has chosen. The amount of the payments will be determined by applying the
Certificate Value (less any premium taxes not previously deducted and less any
applicable Certificate Maintenance Charge) on the Income Date in accordance with
the option selected.
INCOME DATE AND SETTLEMENT OPTION
The Certificate Owner may select an Income Date and Annuity Option at the time
of application. If the Certificate Owner does not select a Annuity Option,
Option B will automatically be designated. If the Certificate Owner does not
select an Income Date for the Annuitant, the Income Date will automatically be
the Annuitant's 90th birthday.
CHANGE IN INCOME DATE AND ANNUITY OPTION
The Certificate Owner may choose or change a Annuity Option or the Income Date
by making a Written Request to Keyport at least 30 days prior to the Income
Date. However, any Income Date must be: (a) for fixed annuity options, not
earlier than the first Certificate Anniversary; (b) not later than the
Annuitant's 90th birthday or any maximum date permitted under state law.
ANNUITY OPTIONS
The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available in
two forms--as a variable annuity for use with the Variable Account and as a
fixed annuity for use with Keyport's general account. Variable annuity payments
will fluctuate while fixed annuity payments will not. The dollar amount of each
fixed annuity payment will be determined by deducting from the
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Certificate Value any premium taxes not previously deducted and any
applicable Certificate Maintenance Charge and then dividing the remainder by
$1,000 and multiplying the result by the greater of: (a) the applicable
factor shown in the appropriate table in the Certificate; or (b) the factor
currently offered by Keyport at the time annuity payments begin. This
current factor may be based on the sex of the payee unless to do so would be
prohibited by law.
If no Annuity Option is selected, Option B will automatically be applied.
Unless the Certificate Owner chooses otherwise, Variable Account Value, less any
premium taxes not previously deducted and less any applicable certificate
Maintenance Charge will be applied to a variable annuity Option. Whether
variable or fixed, the same Certificate Value applied to each option will
produce a different initial annuity payment as well as different subsequent
payments.
The payee is the person who will receive the sum payable under a payment option.
Any payment option that provides for payments to continue after the death of the
payee will not allow the successor payee to extend the period of time over which
the remaining payments are to be made.
If the amount available to apply under any variable or fixed option is less than
$5,000, Keyport has reserved the right to pay such amount in one sum to the
payee in lieu of the payment otherwise provided for.
Annuity payments will be made monthly unless quarterly, semi-annual or annual
payments are chosen by Written Request. However, if any payment provided for
would be or becomes less than $100, Keyport has the right to reduce the
frequency of payments to such an interval as will result in each payment being
at least $100.
OPTION A: INCOME FOR A FIXED NUMBER OF YEARS. Keyport will pay an annuity for a
chosen number of years, not fewer than 5 nor over 50 (a period of years over 30
may be chosen only if it does not exceed the difference between age 100 and the
Annuitant's age on the date of the first payment). At any time while variable
annuity payments are being made, the payee may elect to receive the following
amount: (a) the present value of the remaining payments, commuted at the
interest rate used to create the annuity factor for this option (this interest
rate is 6% per year, unless 3% per year is chosen by Written Request at the time
the option is selected). Instead of receiving a lump sum, the payee can elect
another payment option. If, at the death of the payee, Option A payments have
been made for less than the chosen number of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest
rate is 6% per year, unless 3% per year had been chosen by the payee at the
time the option is selected.
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The Mortality and Expense Risk Charge is deducted during the Option A payment
period if a variable payout has been selected, but Keyport has no mortality risk
during this period.
If annual payments are chosen for Option A and a variable payout has been
selected, Keyport has available a "stabilizing" payment option that can be
chosen. Each annual payment will be determined as described in "Variable
Annuity Payment Values". Each annual payment will then be placed in Keyport's
general account, from which it will be paid out in twelve equal monthly
payments. The sum of the twelve monthly payments will exceed the annual payment
amount because of an interest rate factor used by Keyport that will vary from
year to year. The commutation method described above for calculating the
present value of remaining payments applies to the annual payments. Any monthly
payments remaining before the next annual payment will be commuted at the
interest rate used to determine that year's monthly payments.
See "Annuity Payments" for the manner in which Option A may be taxed.
OPTION B: LIFE INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. Keyport will pay an
annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest
rate is 6% per year, unless 3% per year was chosen by payee's Written
Request.
The amount of the annuity payments will depend on the age of the payee on the
Income Date and it may also depend on the payee's sex.
OPTION C: JOINT AND LAST SURVIVOR INCOME. Keyport will pay an annuity for as
long as either the payee or a designated second natural person is alive. The
amount of the annuity payments will depend on the age of both persons on the
Income Date and it may also depend on each person's sex. IT IS POSSIBLE UNDER
THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF BOTH PAYEES DIE AFTER THE
RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE ONLY TWO ANNUITY PAYMENTS IF BOTH
PAYEES DIE AFTER RECEIPT OF THE SECOND PAYMENT AND SO ON.
VARIABLE ANNUITY PAYMENT VALUES
The amount of the first variable annuity payment is determined by Keyport using
an annuity purchase rate that is based on an assumed annual investment return of
6% per year, unless 3% is chosen by Written Request. Subsequent variable
annuity payments will
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fluctuate in amount and reflect whether the actual investment return of the
selected Sub-Account(s) (after deducting the Mortality and Expense Risk
Charge) is better or worse than the assumed investment return. The total
dollar amount of each variable annuity payment will be equal to: (a) the sum
of all Sub-Account payments; less (b) the pro-rata amount of the annual
Certificate Maintenance Charge. Currently, a payee can instruct Keyport to
change the Sub-Account(s) used to determine the amount of the variable
annuity payments once every 6 months.
PROOF OF AGE, SEX, AND SURVIVAL OF ANNUITANT
Keyport may require proof of age, sex or survival of any payee upon whose age,
sex or survival payments depend. If the age or sex has been misstated, Keyport
will compute the amount payable based on the correct age and sex. If income
payments have begun, any underpayments Keyport may have made will be paid in
full with the next annuity payment. Any overpayments, unless repaid in one sum,
will be deducted from future annuity payments until Keyport is repaid in full.
SUSPENSION OF PAYMENTS
Keyport reserves the right to suspend or postpone any type of payment from the
Variable Account for any period when: (a) the New York Stock Exchange is closed
other than customary weekend or holiday closings; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or determine
their value; or (d) the Securities and Exchange Commission permits delay for the
protection of security holders. The applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
described in (b) and (c) exist.
TAX STATUS
INTRODUCTION
The Certificate is designed for use by individuals in retirement plans which may
or may not be Qualified Plans under the provisions of the Internal Revenue Code
(the "Code"). The ultimate effect of federal income taxes on the Certificate
Value, on annuity payments, and on the economic benefit to the Certificate
Owner, Annuitant or Designated Beneficiary depends on the type of retirement
plan for which the Certificate is purchased and upon the tax and employment
status of the individual concerned. The discussion contained herein is general
in nature and is not intended as tax advice. EACH PERSON CONCERNED SHOULD
CONSULT A COMPETENT TAX ADVISER. No attempt is made to consider any applicable
state or other tax laws. Moreover, the discussion herein is based upon
Keyport's understanding of current federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of continuation
of those current federal income tax laws
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or of the current interpretations by the Internal Revenue Service.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities in general. There are no
income taxes on increases in the value of a Certificate until a distribution
occurs, in the form of a full surrender, a partial surrender, an assignment or
gift of the Certificate, or annuity payments.
SURRENDERS, ASSIGNMENTS AND GIFTS. A Certificate Owner who fully surrenders his
or her Certificate is taxed on the portion of the payment that exceeds his or
her cost basis in the Certificate. For Non-Qualified Certificates, the cost
basis is generally the amount of the Purchase Payments made for the Certificate
and the taxable portion of the surrender payment is taxed as ordinary income.
For Qualified Certificates, the cost basis is generally zero and the taxable
portion of the surrender payment is generally taxed as ordinary income subject
to special 5-year income averaging. A Designated Beneficiary receiving a lump
sum surrender benefit after the death of the Annuitant or Certificate Owner is
taxed on the portion of the amount that exceeds the Certificate Owner's cost
basis in the Certificate. If the Designated Beneficiary elects to receive
annuity payments within 60 days of the decedent's death, different tax rules
apply. See "Annuity Payments" below. For Non-Qualified Certificates, the tax
treatment applicable to Designated Beneficiaries may be contrasted with the
income-tax-free treatment applicable to persons inheriting and then selling
mutual fund shares with a date-of-death value in excess of their basis.
Partial withdrawals received under Non-Qualified Certificates prior to
annuitization are first included in gross income to the extent Certificate Value
exceeds Purchase Payments. Then, to the extent the Certificate Value does not
exceed Purchase Payments, such withdrawals are treated as a non-taxable return
of principal to the Certificate Owner. For partial withdrawals under a
Qualified Certificate, payments are treated first as a non-taxable return of
principal up to the cost basis and then a taxable return of income. Since the
cost basis of Qualified Certificates is generally zero, partial surrender
amounts will generally be fully taxed as ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount assigned or pledged and thus is
subject to taxation under the rules applicable to partial withdrawals or
surrenders. A Certificate Owner who gives away the Certificate (i.e., transfers
it without full and adequate consideration) to anyone other than his or her
spouse is treated for income tax purposes as if he or she had fully surrendered
the Certificate.
A special computational rule applies if Keyport issues to the Certificate Owner,
during any calendar year, (a) two or more Certificates or (b) one or more
Certificates and one or more of Keyport's other annuity contracts. Under this
rule, the amount of any distribution includable in the Certificate Owner's gross
income
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is to be determined under Section 72(e) of the Code by treating all the
Keyport contracts as one contract. Keyport believes that this means the
amount of any distribution under one Certificate will be includable in gross
income to the extent that at the time of distribution the sum of the values
for all the Certificates or contracts exceeds the sum of the cost bases for
all the contracts.
ANNUITY PAYMENTS. The non-taxable portion of each variable annuity payment is
determined by dividing the cost basis of the Certificate by the total number of
expected payments while the non-taxable portion of each fixed annuity payment is
determined by an "exclusion ratio" formula which establishes the ratio that the
cost basis of the Certificate bears to the total expected value of annuity
payments for the term of the annuity. The remaining portion of each payment is
taxable. Such taxable portion is taxed at ordinary income rates. For Qualified
Certificates, the cost basis is generally zero. With annuity payments based on
life contingencies, the payments will become fully taxable once the payee lives
longer than the life expectancy used to calculate the non-taxable portion of the
prior payments. Because variable annuity payments can increase over time and
because certain payment options provide for a lump sum right of commutation, it
is possible that the IRS could determine that variable annuity payments should
not be taxed as described above but instead should be taxed as if they were
received under an agreement to pay interest. This determination would result in
a higher amount (up to 100%) of certain payments being taxable.
With respect to the "stabilizing" payment option available under Settlement
Option 1, pursuant to which each annual payment is placed in Keyport's general
account and paid out with interest in twelve equal monthly payments, it is
possible the IRS could determine that receipt of the first monthly payout of
each annual payment is constructive receipt of the entire annual payment. Thus,
the total taxable amount for each annual payment would be accelerated to the
time of the first monthly payout and reported in the tax year in which the first
monthly payout is received.
PENALTY TAX. Payments received by Certificate Owners, Annuitants, and
Designated Beneficiaries under Certificates may be subject to both ordinary
income taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on amounts received: (a)
after the taxpayer attains age 59-1/2; (b) in a series of substantially equal
payments made for life or life expectancy; (c) after the death of the
Certificate Owner (or, where the Certificate Owner is not a human being, after
the death of the Annuitant); (d) if the taxpayer becomes totally and permanently
disabled; or (e) under a Non-Qualified Certificate's annuity payment option that
provides for a series of substantially equal payments, provided only one
Purchase Payment is made to the Certificate, the Certificate is not issued as a
result of a Section 1035 exchange, and the first annuity payment begins in the
first Certificate Year.
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INCOME TAX WITHHOLDING. Keyport is required to withhold federal income taxes on
taxable amounts paid under Certificates unless the recipient elects not to have
withholding apply. Keyport will notify recipients of their right to elect not
to have withholding apply.
SECTION 1035 EXCHANGES. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a transaction
may qualify as a tax-free exchange pursuant to Section 1035 of the Code. It is
Keyport's understanding that in such an event: (a) the new Certificate will be
subject to the distribution-at-death rules described in "Death Provisions for
Non-Qualified Certificates"; (b) Purchase Payments made between August 14, 1982
and January 18, 1985 and the income allocable to them will, following an
exchange, no longer be covered by a "grandfathered" exception to the penalty tax
for a distribution of income that is allocable to an investment made over ten
years prior to the distribution; and (c) Purchase Payments made before August
14, 1982 and the income allocable to them will, following an exchange, continue
to receive the following "grandfathered" tax treatment under prior law: (i) the
penalty tax does not apply to any distribution; (ii) partial withdrawals are
treated first as a non-taxable return of principal and then a taxable return of
income; and (iii) assignments are not treated as surrenders subject to taxation.
Keyport's understanding of the above is principally based on legislative reports
prepared by the Staff of the Congressional Joint Committee on Taxation.
DIVERSIFICATION STANDARDS. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments underlying
variable annuity contracts (other than pension plan contracts). The Eligible
Funds are designed to be managed to meet the diversification requirements for
the Certificate as those requirements may change from time to time. If the
diversification requirements are not satisfied, the Certificate would not be
treated as an annuity contract. As a consequence to the Certificate Owner,
income earned on a Certificate would be taxable to the Certificate Owner in the
year in which diversification requirements were not satisfied, including
previously non-taxable income earned in prior years. As a further consequence,
Keyport would be subjected to federal income taxes on assets in the Variable
Account.
The Secretary of the Treasury announced in September 1986 that he expects to
issue regulations which will prescribe the circumstances in which a Certificate
Owner's control of the investments of a segregated asset account may cause the
Certificate Owner, rather than the insurance company, to be treated as the owner
of the assets of the account. The regulations could impose requirements that
are not reflected in the Certificate. Keyport, however, has reserved certain
rights to alter the Certificate and investment alternatives so as to comply with
such regulations. Since the regulations have not been issued, there can be no
assurance as to the content of such regulations or even whether application of
the regulations will be prospective. For these reasons, Certificate Owners are
urged to consult with their own tax advisers.
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QUALIFIED PLANS
The Certificate is designed for use with Qualified Plans. The tax rules
applicable to participants in Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, no attempt is
made herein to provide more than general information about the use of the
Certificate with Qualified Plans. Participants under a Qualified Plan as well
as Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned
that the rights of any person to any benefits under Qualified Plan may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Certificate issued in connection therewith. Following is a
brief description of the type of Qualified Plans and of the use of the
Certificate in connection therewith. Purchasers of the Certificate should seek
competent advice concerning the terms and conditions of the particular Qualified
Plan and use of the Certificate with that Plan.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity." These
Individual Retirement Annuities are subject to limitations on the amount which
may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, distributions from certain types of
Qualified Plans may be placed on a tax-deferred basis into an Individual
Retirement Annuity.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with its view of present applicable law, Keyport will vote the
shares of the Eligible Funds held in the Variable Account at regular and special
meetings of the shareholders of the Eligible Funds in accordance with
instructions received from persons having the voting interest in the Variable
Account. Keyport will vote shares for which it has not received instructions in
the same proportion as it votes shares for which it has received instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation thereof should change, and as
a result Keyport determines that it is permitted to vote the shares of the
Eligible Funds in its own right, it may elect to do so.
The person having the voting interest under a Certificate prior to the Income
Date shall be the Certificate Owner. The number of shares held in each Sub-
Account which are attributable to each Certificate Owner is determined by
dividing the Certificate Owner's Variable Account Value in each Sub-Account by
the net asset value of the applicable share of the Eligible Fund. The person
having the voting interest after the Income Date under an annuity payment option
shall be the payee. The number of shares held in the
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Variable Account which are attributable to each payee is determined by
dividing the reserve for the annuity payments by the net asset value of one
share. During the annuity payment period, the votes attributable to a payee
decrease as the reserves underlying the payments decrease.
The number of shares in which a person has a voting interest will be determined
as of the date coincident with the date established by the respective Eligible
Fund for determining shareholders eligible to vote at the meeting of the Fund
and voting instructions will be solicited by written communication prior to such
meeting in accordance with the procedures established by the Eligible Fund.
Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting instructions
with respect to the proportion of the Eligible Fund shares held in the Variable
Account corresponding to his or her interest in the Variable Account.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC") serves as the Principal Underwriter
for the Certificate described in this prospectus. The Certificate will be sold
by salespersons who represent Keyport Life Insurance Company (KFSC's corporate
parent) as variable annuity agents and who are registered representatives of
broker/dealers who have entered into distribution agreements with KFSC. KFSC is
registered under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. It is located at 125 High
Street, Boston, Massachusetts 02110.
Different Certificates may be sold (1) to a person who is an officer, director,
or employee of Keyport, or an affiliate of Keyport, a trustee or officer of an
Eligible Fund, or an employee or associated person of an entity which has
entered into a sales agreement with the Principal Underwriter for the
distribution of Certificates, or (2) to any Qualified Plan established for such
a person. Such Certificates may be different from the Certificates sold to
others in that they are not subject to the deduction for the Certificate
Maintenance Charge.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Principal
Underwriter are a party. Keyport is engaged in various kinds of routine
litigation which in its judgment is not of material importance in relation to
the total capital and surplus of Keyport.
INQUIRIES BY CERTIFICATE OWNERS
Certificate Owners with questions about their Certificates may either write
Keyport Life Insurance Company, 125 High Street, Boston, MA 02110, or call (800)
367-3653 or write Manning & Napier
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Insurance Fund, Inc. at P.O. Box 40610
Rochester, New York 14604 or call (800) 466-3863.
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TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
PAGE
Keyport Life Insurance Company
Variable Annuity Benefits
Variable Annuity Payment Values
Re-Allocating Sub-Account Payments
Principal Underwriter
Experts
Investment Performance
Yields for CIF Sub-Account
Financial Statements
Keyport Life Insurance Company
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APPENDIX A
TELEPHONE INSTRUCTIONS
TELEPHONE TRANSFERS OF CERTIFICATE VALUES
1. If there are joint Certificate Owners, both must authorize Keyport and
Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund") to
accept telephone instructions but either Certificate Owner can give telephone
instructions.
2. All callers will be required to identify themselves. Keyport reserves the
right to refuse to act upon any telephone instructions in cases where the caller
has not sufficiently identified himself/herself to Keyport's or Manning &
Napier's Insurance Fund satisfaction.
3. Neither Keyport, Manning & Napier Insurance Fund, nor any person acting on
its behalf shall be subject to any claim, loss, liability, cost or expense if it
or such person acted in good faith upon a telephone instruction, including one
that is unauthorized or fraudulent; however, Keyport and/or Manning & Napier
Insurance Fund will employ reasonable procedures to confirm that a telephone
instruction is genuine and, if Keyport and/or Manning & Napier Insurance Fund
does not, Keyport and/or Manning & Napier Insurance Fund may be liable for
losses due to an unauthorized or fraudulent instruction. The Certificate Owner
thus bears the risk that an unauthorized or fraudulent instruction that is
executed may cause the Certificate Value to be lower than it would be had no
instruction been executed.
4. All conversations will be recorded with disclosure at the time of the call.
5. The application for the Certificate may allow a Certificate Owner to create
a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as
durable in nature and shall not be affected by the subsequent incapacity,
disability or incompetency of the Certificate Owner. Either Keyport, Manning &
Napier Insurance Fund or the authorized person may cease to honor the power by
sending written notice to the Certificate Owner at the Certificate Owner's last
known address. Neither Keyport, Manning & Napier Insurance Fund nor any person
acting on its behalf shall be subject to liability for any act executed in good
faith reliance upon a power of attorney.
6. Telephone authorization shall continue in force until (a) Keyport and/or
Manning & Napier Insurance Fund receives the Certificate Owner's written
revocation, (b) Keyport and/or Manning & Napier Insurance Fund discontinues the
privilege, or (c) Keyport and/or Manning & Napier Insurance Fund receives
written evidence that the Certificate Owner has entered into a market timing or
asset allocation agreement with an investment adviser or with a broker/dealer.
7. Telephone transfer instructions received by Keyport at 800-367-3653 and/or
Manning & Napier Insurance Fund at (800) 466-3863
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before the close of trading on the New York Stock Exchange (currently 4:00
P.M. Eastern Time) will be initiated that day based on the unit value prices
calculated at the close of that day. Instructions received after the close of
trading on the NYSE will be initiated the following business day.
8. Once instructions are accepted by Keyport and/or Manning & Napier Insurance
Fund, they may not be canceled.
9. All transfers must be made in accordance with the terms of the Certificate
and current prospectus. If the transfer instructions are not in good order,
Keyport and/or Manning & Napier Insurance Fund will not execute the transfer and
will notify the caller within 48 hours.
10. If 100% of any Sub-Account's value is transferred and the allocation
formula for Purchase Payments includes that Sub-Account, then the allocation
formula for future Purchase Payments will change accordingly unless Keyport
receives telephone instructions to the contrary. For example, if the allocation
formula is 50% to Sub-Account A and 50% to Sub-Account B and all of Sub-Account
A's value is transferred to Sub-Account B, the allocation formula will change to
100% to Sub-Account B unless Keyport is instructed otherwise.
TELEPHONE CHANGES TO PURCHASE PAYMENT ALLOCATION PERCENTAGES
Numbers 1-6 above are applicable.
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PROSPECTUS
[DATE]
39
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Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
Issued by:
Keyport Life Insurance Company
125 High Street, Boston, MA 02110-2712
Offered by:
Manning & Napier Advisors, Inc.
1100 Chase Square
Rochester, NY 14604-1999
Sales/Service Hotline (800) 466-3863
Keyport Life Insurance Company's ultimate parent is
Liberty Mutual Insurance Company
Keyport Logo is a registered service mark of Keyport Life Insurance Company.
Yes. I would like to receive the Keyport [NAME OF ANNUITY] Statement of
Additional Information.
Yes. I would like to receive the Manning & Napier Insurance Fund, Inc.
Statement of Additional Information.
Yes. I would like to receive the SteinRoe Variable Investment Trust Statement
of Additional Information.
Name
Address
City, State Zip
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BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
KEYPORT LIFE INSURANCE CO
125 HIGH STREET
BOSTON, MA 02110-9773
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
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PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT A
OF
KEYPORT LIFE INSURANCE COMPANY ("Keyport")
This Statement of Additional Information is not a prospectus but it relates
to, and should be read in conjunction with, the variable annuity prospectus
dated ___________, 1996. The prospectus is available, at no charge, by
writing Keyport at 125 High Street, Boston, MA 02110 or by calling (800)
437-4466. It may also be obtained by writing Manning & Napier Insurance Fund,
Inc. at P.O. Box 40610, Rochester, New York 14604, or calling (800) 466-3868.
TABLE OF CONTENTS
Page
Keyport Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payment Values. . . . . . . . . . . . . . . . . . . . . . . .
Re-Allocating Sub-Account Payments . . . . . . . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yields for CIF Sub-Account
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Keyport Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . .
The date of this statement of additional information is , 1996.
S-1
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Liberty Mutual Insurance Company ("Liberty Mutual"), a multi-line
insurance and financial services institution, is the ultimate corporate
parent of Keyport. Liberty Mutual ultimately controls Keyport through the
following intervening holding company subsidiaries: Liberty Mutual Equity
Corporation, Liberty Financial Companies, Inc. ("LFC") and SteinRoe Services,
Inc. Liberty Mutual, as of March 31, 1995, owned, indirectly, approximately
81.9% of the combined voting power of the outstanding stock of LFC (with the
balance being publicly held). For additional information about Keyport, see
page ___ of the prospectus.
VARIABLE ANNUITY BENEFITS
VARIABLE ANNUITY PAYMENT VALUES
For each variable payment option, the total dollar amount of each periodic
payment will be equal to the sum of all Sub-account payments.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium taxes
and then dividing the remaining value of that Sub-Account by $1,000 and
multiplying the result by the greater of: (a) the applicable factor from the
Certificate's annuity table for the particular payment option; or (b) the factor
currently offered by Keyport at the time annuity payments begin. This current
factor may be based on the sex of the payee unless to do so would be prohibited
by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number of
Annuity Units remains fixed for the annuity payment period. Each Sub-Account
payment after the first one will be determined by multiplying (a) by (b), where:
(a) is the number of Sub-Account Annuity Units; and (b) is the Sub-Account
Annuity Unit value for the Valuation Period that includes the date of the
particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Keyport uses an Annuity Unit value. Each
Sub-Account has its own Annuity Units and value per Unit. The Annuity Unit
value applicable during any Valuation Period is determined at the end of such
period.
When Keyport first purchased the Eligible Fund shares of Manning & Napier
Insurance Fund and SteinRoe Trust on behalf of the Variable Account, Keyport
valued each Annuity Unit for each Sub-Account at $10. The Unit value for each
Sub-Account in any Valuation Period thereafter is determined by multiplying the
value for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Annuity Unit may increase or decrease
from Valuation Period to Valuation Period. For each assumed annual investment
rate (AIR), Keyport calculates a net investment factor for each Sub-Account by
dividing (a) by (b), where:
S-2
<PAGE>
(a) is equal to the net investment factor as defined in the prospectus;
and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed annual investment rate (AIR). The AIR for Annuity Units based
on the Contract's annuity tables is 6% per year. An AIR of 3% per year
is also currently available upon Written Request.
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized investment
return of the selected Sub-Account(s) (after deducting the Mortality and Expense
Risk Charge) is better or worse than the assumed AIR percentage. If a given
amount of Sub-Account value is applied to a particular payment option, the
initial payment will be smaller if a 3% AIR is selected instead of a 6% AIR but,
all other things being equal, the subsequent 3% AIR payments have the potential
for increasing in amount by a larger percentage and for decreasing in amount by
a smaller percentage. For example, consider what would happen if the actual
annualized investment return (see the first sentence of this paragraph) is 9%,
6%, 3%, or 0% between the time of the first and second payments. With an actual
9% return, the 3% AIR and 6% AIR payments would both increase in amount but the
3% AIR payment would increase by a larger percentage. With an actual 6% return,
the 3% AIR payment would increase in amount while the 6% AIR payment would stay
the same. With an actual return of 3%, the 3% AIR payment would stay the same
while the 6% AIR payment would decrease in amount. Finally, with an actual
return of 0%, the 3% AIR and 6% AIR payments would both decrease in amount but
the 3% AIR payment would decrease by a smaller percentage. Note that the
changes in payment amounts described above are on a percentage basis and thus do
not illustrate when, if ever, the 3% AIR payment amount might become larger than
the 6% AIR payment amount. Note though that if Option 1 (Income for a Fixed
Number of Years) is selected and payments continue for the entire period, the 3%
AIR payment amount will start out being smaller than the 6% AIR payment amount
but eventually the 3% AIR payment amount will become larger than the 6% AIR
payment amount.
RE-ALLOCATING SUB-ACCOUNT PAYMENTS
The number of Annuity Units for each Sub-Account under any variable
annuity option will remain fixed during the entire annuity payment period
unless the payee makes a written request for a change. Currently, a payee
can instruct Keyport to change the Sub-Account(s) used to determine the
amount of the variable annuity payments 1 time every six months. The payee's
request must specify the percentage of the annuity payment that is to be
based on the investment performance of each Sub-Account. The percentage for
each Sub-Account, if not zero, must be at least 10% and must be a whole
number. At the end of the Valuation Period during which Keyport receives the
request, Keyport will: (a) value the Annuity Units for each Sub-Account to
create a total annuity value; (b) apply the new percentages the payee has
selected to this total value; and (c) recompute the number of Annuity Units
S-3
<PAGE>
for each Sub-Account. This new number of units will remain fixed for the
remainder of the payment period unless the payee requests another change.
CUSTODIAN
The custodian of the assets of the Variable Account is State Street Bank
and Trust Company, a state chartered trust company. Its principal office is at
225 Franklin Street, Boston, Massachusetts.
PRINCIPAL UNDERWRITER
The Certificates, which are offered continuously, are distributed by
Keyport Financial Services Corp. ("KFSC"), a wholly-owned subsidiary of Keyport.
EXPERTS
The consolidated financial statements of Keyport as of December 31, 1995
and 1994 and for each of the years in the three-year period ended December
31, 1995 included herein, have been included herein in reliance on the report
of KPMG Peat Marwick LLP, independent certified public accountants, and upon
authority of said firm as experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also be
compared to the performance of sub-accounts used with variable annuities offered
by other insurance companies. This comparative information may be expressed as
a ranking prepared by Financial Planning Resources, Inc. of Miami, FL (The VARDS
Report), Lipper Analytical Services, Inc., or by Morningstar, Inc. of Chicago,
IL (Morningstar's Variable Annuity Performance Report), which are independent
services that compare the performance of variable annuity sub-accounts. The
rankings are done on the basis of changes in accumulation unit values over time
and do not take into account any charges (such as sales charges or
administrative charges) that are deducted directly from contract values.
Ibbotson Associates of Chicago, IL provides historical returns from 1926
on capital markets in the United States. The Variable Account may quote the
performance of its Sub-Accounts in conjunction with the long-term performance
of capital markets in order to illustrate general long-term risk versus
reward investment scenarios. Capital markets tracked by Ibbotson Associates
include common stocks, small company stocks, long-term corporate bonds,
long-term government bonds, U.S. Treasury Bills, and the U.S. inflation rate.
Historical total returns are determined by Ibbotson Associates for: COMMON
STOCKS, represented by the Standard and Poor's Composite Price Index (an
unmanaged weighted index of 90 stocks prior to March 1957 and 500 stocks
thereafter of industrial, transportation, utility and financial companies
widely regarded by investors as representative of the stock market); SMALL
COMPANY STOCKS, represented by the fifth capitalization quintile (i.e., the
ninth and tenth deciles) of stocks on the New York Stock Exchange for
1926-1981 and by the performance of the Dimensional Fund Advisors Small
Company 9/10 (for ninth and tenth deciles) Fund thereafter; LONG TERM
CORPORATE BONDS, represented beginning in 1969 by the Salomon Brothers
Long-Term High-Grade Corporate Bond Index, which is an unmanaged index of
nearly all Aaa and
S-4
<PAGE>
Aa rated bonds, represented for 1946-1968 by backdating the Salomon Brothers
Index using Salomon Brothers' monthly yield data with a methodology similar
to that used by Salomon Brothers in computing its Index, and represented for
1925-1945 through the use of the Standard and Poor's monthly High-Grade
Corporate Composite yield data, assuming a 4% coupon and a 20-year maturity.
LONG-TERM GOVERNMENT BONDS, measured each year using a portfolio containing
one U.S. government bond with a term of approximately twenty years and a
reasonably current coupon; U.S. TREASURY BILLS, measured by rolling over each
month a one-bill portfolio containing, at the beginning of each month, the
shortest-term bill having not less than one month to maturity; INFLATION,
measured by the Consumer Price Index for all Urban Consumers, not seasonably
adjusted, since January, 1978 and by the Consumer Price Index before then.
The stock capital markets may be contrasted with the corporate bond and U.S.
government securities capital markets. Unlike an investment in stock, an
investment in a bond that is held to maturity provides a fixed rate of
return. Bonds have a senior priority to common stocks in the event the
issuer is liquidated and interest on bonds is generally paid by the issuer
before it makes any distributions to common stock owners. Bonds rated in the
two highest rating categories are considered high quality and present minimal
risk of default. An additional advantage of investing in U.S. government
bonds and Treasury bills is that they are backed by the full faith and credit
of the U.S. government and thus have virtually no risk of default. Although
government securities fluctuate in price, they are highly liquid.
YIELDS FOR CIF SUB-ACCOUNT
Yield and effective yield percentages for the CIF Sub-Account are calculated
using the method prescribed by the Securities and Exchange Commission. Both
yields reflect the deduction of the annual .35% asset-based Certificate charges.
Both yields also reflect, on an allocated basis, the Certificate's annual $35
Certificate Maintenance Charge. Both yields do not reflect premium tax charges.
The yields would be lower if these charges were included. The following are the
standardized formulas:
Yield equals: A - B 365
(----- - 1) X ---
C 7
365/7 - 1
Effective Yield Equals: (A - B)
-----
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day period. The
assumed annual CIF Sub-Account charge is equal to the $35 Certificate
charge multiplied by a fraction equal to the average number of
Certificates with CIF Sub-Account value during the 7-day period
divided by the average total number of Certificates during the 7-day
period. This annual amount is converted to a 7-day charge by
multiplying it by 7/365. It is then equated to an Accumulation Unit
size basis by multiplying it by a fraction equal to the average value
of one CIF Sub-Account Accumulation Unit during the 7-day period
divided by the average Certificate Value in CIF Sub-Account during the
7-day period.
C = the Accumulation Unit value at the beginning of the 7-day period.
S-5
<PAGE>
The yield formula assumes that the weekly net income generated by an
investment in the CIF Sub-Account will continue over an entire year. The
effective yield formula also annualizes seven days of net income but it assumes
that the net income is reinvested over the year. This compounding effect causes
effective yield to be higher than the yield.
FINANCIAL STATEMENT
The Variable Account has not yet commenced operations and therefore no
financial statements are included. The Financial Statements of Keyport are
provided as relevant to its ability to meet its financial obligations under the
Certificates.
S-6
<PAGE>
Independent Auditors' Report
The Board of Directors
Keyport Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 2(b) to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, effective January 1, 1994.
February 16, 1996 /s/KPMG Peat Marwick LLP
------------------------
S-7
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Assets December 31,
------ 1995 1994
---- ----
<S> <C> <C>
Cash and investments:
Fixed maturities available for sale (amortized
cost: 1995 - $9,227,834; 1994 - $6,795,065) $ 9,535,948 $ 6,509,815
Fixed maturities held to maturity (fair value:
1995 - 0; 1994 - $1,442,665) - 1,448,680
Equity securities (cost: 1995-$17,521; 1994-$13,627) 25,214 12,941
Mortgage loans 74,505 129,452
Policy loans 498,326 477,293
Other invested assets 10,748 11,994
Cash and cash equivalents 777,384 684,618
Total cash and investments 10,922,125 9,274,793
Accrued investment income 132,856 111,936
Deferred policy acquisition costs 179,672 439,232
Value of insurance in force 43,939 139,221
Deferred federal income taxes - 42,361
Intangible assets 20,314 21,444
Federal income taxes recoverable 9,205 4,911
Other assets 11,859 10,772
Separate account assets 959,224 828,934
Total assets $12,279,194 $10,873,604
Liabilities and Stockholder's Equity
Policy liabilities:
Policyholder account balances $10,073,806 $ 9,333,755
Other policyholders' funds 10,586 10,289
Total policy liabilities 10,084,392 9,344,044
Current federal income taxes 7,666 -
Deferred federal income taxes 32,823 -
Payable for investments purchased and loaned 317,715 -
Guaranty association fees 21,940 24,688
Other liabilities 23,221 57,978
Separate account liabilities 889,106 764,409
Total liabilities 11,376,863 10,191,119
Stockholder's equity:
Common stock, $1.25 par value; authorized 8,000
shares; issued and outstanding 2,412 shares 3,015 3,015
Additional paid-in capital 505,933 505,933
Net unrealized investment gains (losses) 85,772 (64,464)
Retained earnings 307,611 238,001
Total stockholder's equity 902,331 682,485
Total liabilities and stockholder's equity $12,279,194 $10,873,604
</TABLE>
See accompanying notes to consolidated financial statements.
S-8
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income $757,361 $689,575 $669,667
Insurance revenues 29,767 25,273 18,158
Net realized investment gains (losses) (3,958) (8,220) 11,403
Total revenues 783,170 706,628 699,228
Benefits and expenses:
Interest credited to policyholders 557,156 481,926 504,205
Policy benefits 4,448 4,838 3,113
Operating expenses 42,475 47,095 36,983
Guaranty association expenses 2,000 7,200 3,714
Amortization of deferred policy acquisition costs 58,541 52,174 41,003
Amortization of value of insurance in force 9,479 16,989 22,375
Amortization of intangible assets 1,130 1,130 1,130
Total benefits and expenses 675,229 611,352 612,523
Income before federal income taxes 107,941 95,276 86,705
Federal income tax expense 38,331 32,051 28,710
Net income $ 69,610 $ 63,225 $ 57,995
</TABLE>
See accompanying notes to consolidated financial statements.
S-9
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Stockholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,508 $430,933 $ 5,687 $118,288 $556,416
Net income 57,995 57,995
Capital contribution by parent 75,000 75,000
Change in net unrealized
investment gains (losses) (5,141) (5,141)
Balance, December 31, 1993 1,508 505,933 546 176,283 684,270
Net income 63,225 63,225
Common stock dividend 1,507 (1,507) -
(1,206 shares)
Change in net unrealized
investment gains (losses) (65,010) (65,010)
Balance, December 31, 1994 3,015 505,933 (64,464) 238,001 682,485
Net income 69,610 69,610
Change in net unrealized
investment gains (losses) 150,236 150,236
Balance, December 31, 1995 $3,015 $ 505,933 $ 85,772 $307,611 $902,331
</TABLE>
See accompanying notes to consolidated financial statements.
S-10
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 69,610 $ 63,225 $ 57,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to policyholders 557,156 478,797 501,073
Net realized investment losses (gains) 3,958 8,220 (11,403)
Amortization of value of insurance in force
and intangible assets 10,609 18,120 23,505
Net amortization (accretion) on investments 9,688 12,215 (3,132)
Change in deferred policy acquisition costs (24,630) (38,852) (50,531)
Change in current and deferred federal
income taxes 1,953 7,731 10,988
Change in guaranty association fees (2,748) 140 (3,669)
Net change in other assets and liabilities (61,058) (13,729) (102)
Total adjustments 494,928 472,642 466,729
Net cash provided by operating
activities 564,538 535,867 524,724
Cash flows from investing activities:
Investments purchased - held to maturity - (277,626) (2,674,315)
Investments purchased - available for sale (2,851,013) (2,624,493) -
Investments sold - held to maturity 14,930 10,637 97,816
Investments sold - available for sale 605,197 950,885 387,305
Investments matured - held to maturity 317,773 576,021 1,195,083
Investments matured - available for sale 906,522 854,441 758,279
Increase in policy loans (21,033) (35,143) (38,661)
Decrease in mortgage loans 54,947 26,520 3,416
Acquisition of subsidiary, net of cash acquired - (961) (24,831)
Net cash used in investing activities (972,677) (519,719) (295,908)
Cash flows from financing activities:
Withdrawals from policyholder accounts (933,785) (1,034,464) (1,295,617)
Deposits to policyholder accounts 1,116,975 1,202,076 856,339
Capital contribution by parent - - 75,000
Securities lending 317,715 - -
Net cash provided by (used in)
financing activities 500,905 167,612 (364,278)
Change in cash and cash equivalents 92,766 183,760 (135,462)
Cash and cash equivalents at beginning of year 684,618 500,858 636,320
Cash and cash equivalents at end of year $ 777,384 $ 684,618 $ 500,858
</TABLE>
See accompanying notes to consolidated financial statements.
S-11
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(in thousands)
(1) Organization
Keyport Life Insurance Company offers a diversified line of fixed and
variable annuity products designed to serve the growing retirement savings
market. These annuity products primarily consist of single premium deferred
and variable annuities that are sold through a wide ranging network of banks,
agents, and securities dealers.
The consolidated financial statements include Keyport Life Insurance Company
and its wholly owned subsidiaries, Independence Life and Annuity Company
("Independence Life"), Keyport Advisory Services Corporation, and Keyport
Financial Services Corporation (collectively, the "Company"). The Company is
a wholly owned subsidiary of Stein Roe Services Incorporated ("Stein Roe").
Stein Roe is a wholly owned subsidiary of Liberty Financial Companies,
Incorporated ("Liberty Financial") which is a majority-owned indirect subsidiary
of Liberty Mutual Insurance Company ("Liberty Mutual").
(2) Summary of Significant Accounting Policies
(a) Basis of Reporting and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could subsequently differ from
such estimates. All significant intercompany transactions and balances have
been eliminated.
(b) Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 , "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). SFAS 115 segregates fixed maturity
investments into three classifications: "held to maturity", "trading" and
"available for sale." Securities may be designated as held to maturity only
if there is the positive intent and ability to hold these securities to
maturity. Held to maturity securities are carried at amortized cost. Securities
purchased for short-term resale are classified as trading and are carried at
fair value. Unrealized gains and losses on trading account securities are
recognized in income. Fixed maturity investments are classified as available for
sale if they might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, general liquidity needs, or other
factors. Available for sale securities are carried at fair value and unrealized
gains and losses (net of related adjustments to deferred policy acquisition
costs, value of insurance in force and deferred income taxes) are recorded
directly to stockholder's equity. Equity
S-12
<PAGE>
securities are classified as available for sale and are carried at fair value.
Unrealized gains and losses on equity securities are credited or charged
directly to stockholder's equity net of applicable deferred income taxes.
Accordingly, as of January 1, 1994, the Company reclassified certain fixed
maturity investments from the held to maturity to the available for sale
category to conform to the classification criteria prescribed in SFAS 115.
This had the effect of recording a net unrealized gain of $41,614 directly
to stockholder's equity.
As of December 31, 1995, pursuant to a Guide to Implementation of SFAS 115
issued by the Financial Accounting Standards Board in November 1995, the
Company made a one-time reclassification from fixed maturities held to
maturity to fixed maturities available for sale. This had the effect of
recording a net unrealized gain of $13,867 directly to stockholder's equity.
The Company enters into dollar roll transactions to enhance the yield of its
mortgage backed portfolio. Dollar roll transactions represent a one month
reverse repurchase agreement involving mortgage backed securities, frequently
those issued by a U.S. Government Agency. Dollar roll transactions under
which substantially the same securities are received at the end of the
repurchase period are accounted for as financing arrangements. Accordingly,
both the collateral and repurchase liability are reflected on the balance sheet
and the transaction fee is recorded over the period of the agreement. As of
December 31, 1995, the Company was engaged in one dollar roll agreement
classified as a financing arrangement involving a FNMA mortgage backed security
with market value of $87,198. The Company did not enter into dollar roll
agreements during 1994.
The Company from time to time engages in securities lending under which it
lends certain U.S. Government and corporate bonds to approved counterparties
to enhance the yield of its bond portfolio. The carrying values of the loaned
securities are unaffected by the transaction, and the lending fee is recorded
during the period the securities are loaned. The Company records the
collateral received for the security lending transaction as an asset and its
obligation to return the collateral at the end of the transaction as a
liability. As of December 31, 1995, the Company had recorded an asset, and a
corresponding liability of $230,517 for cash pledged as collateral. The
Company did not enter into any securities lending transactions in 1994.
Fixed maturities and mortgage loans with premiums and discounts are amortized
using the interest method. Unamortized premiums and discounts on mortgage
backed securities are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments.
Policy loans are carried at the unpaid principal balance plus accrued
interest. Cash and cash equivalents are carried at cost, which approximates
market.
Realized investment gains and losses are calculated on a first-in, first-out
basis. For each investment security where a decline in value is determined to
be other than temporary, the Company's policy is to write down the investment
security to fair value with the charge to realized investment losses. Sales
S-13
<PAGE>
of securities supporting the Company's single premium deferred annuities and
single premium whole life products result in adjustments to the amortization
of the deferred policy acquisition costs and the value of insurance in force.
The increase or decrease in amortization relating to such adjustments is
included in realized investment gains and losses to reflect the acceleration or
delay in the incidence of the estimated gross profits.
(c) Derivative Financial Instruments
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" ("SFAS 119"). SFAS 119
requires specific disclosures about derivative financial instruments such as
forward, swap and option contracts and requires distinguishing between
financial instruments held or issued for trading purposes and financial
instruments held or issued for purposes other than trading.
As part of the Company's overall risk management policy, the Company uses
interest rate swaps and interest rate caps. Interest rate swaps are used to
reduce the risk in a rising interest rate environment by providing additional
investment income to cover higher competitive credited rates to policy-
holders to reduce the invested asset duration, and to better match the
interest rates earned on invested assets with those interest rates credited
to policyholders. Interest rate swaps are considered synthetic alterations
since the objective of the swaps is to change the characteristics of the
underlying invested assets to reduce the impact of rising interest rates. Since
interest rate swaps are designated as synthetic alterations of securities
available for sale, interest rate swaps are carried at fair value for those
securities, and the unrealized gain or loss is included in stockholder's equity.
The net differential to be paid or received on interest rate swaps is
recorded monthly in investment income as interest rates change. From time to
time, swap positions may be terminated. If the terminated swap was accounted
for as a hedge, realized gains or losses are amortized over the remaining
life of the swap. Conversely, if the terminated swap was not accounted for as
a hedge, or the assets and liabilities that were altered no longer exist, the
swap position is marked to market, and realized gains or losses are immediately
recognized in income. The Company is exposed to potential credit loss in the
event of nonperformance by the counterparty to the interest rate swap agreements
with respect to only the net differential payments.
Interest rate caps are used to minimize exposure to rising interest rates.
The Company receives payments when the indexed rate exceeds the stated strike
rate. The cost of interest rate caps is amortized on a straight-line basis
over the period to maturity. Since interest rate caps are designed as
synthetic alterations of securities available for sale, interest rate caps
are carried at fair value and the unrealized gain or loss is included in
stockholder's equity.
The Company also utilizes derivative financial instruments to replicate
positions in a trading portfolio of pass-through mortgage backed securities.
As a result, these derivative financial instruments are classified as trading
instruments and are recorded at fair value. Realized and unrealized changes
in fair value are recognized in realized investment gains and losses.
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Interest income arising from these trading instruments is included in net
investment income.
(d) Recognition of Insurance Revenues and Policy Benefits
Revenues from single premium whole life policies and single premium deferred
annuities include mortality charges, surrender charges, policy fees and
contract fees and are recognized when assessed. Policyholder account balances
consist of deposits received plus credited interest, less accumulated policy-
holder charges, assessments, and withdrawals. Policy benefits that are
charged to expenses include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates ranged from 3.60%
to 8.35%, 3.75% to 8.50%, and 3.75% to 8.90% at December 31, 1995, 1994, and
1993, respectively.
(e) Deferred Policy Acquisition Costs and Value of Insurance in Force
Policy acquisition costs are the costs of acquiring new business which vary
with, and are primarily related to, the production of new business. These
costs are deferred to the extent they are deemed recoverable from future
gross profits. Such costs include commissions, costs of policy issuance and
underwriting, and variable agency expenses. Costs deferred are amortized in
relation to the present value of estimated gross profits from mortality,
investment and expense margins. Amortization of such cost is adjusted to
reflect the effect of differences between original assumptions and actual
experience.
Value of insurance in force represents the actuarially-determined present
value of projected future profits from policies in force at the date of their
acquisition. This amount is amortized in proportion to the projected
emergence of profits over periods not exceeding fifteen years for annuities
and twenty-five years for life insurance.
Deferred policy acquisition costs and value of insurance in force are
adjusted to reflect the amounts associated with realized and unrealized
investment gains and losses pertaining to single premium deferred annuities
and single premium whole life products.
(f) Intangible Assets
Intangible assets consist primarily of goodwill. Goodwill is the excess of
the purchase price over the fair value of the net assets acquired by Liberty
Mutual and is amortized on a straight-line basis over twenty-five years.
(g) Separate Account
Separate account assets, which are carried at fair value, consist principally
of investments in mutual funds and are included as a separate caption in the
consolidated balance sheets. Investment income and changes in asset values
are fully allocated to variable annuity and variable life policyholders and,
therefore, do not affect the operating results of the Company. The Company
provides administrative services and bears the mortality risk related to
these contracts. Fees earned by the Company related to these contracts were
$14,646, $13,694 and $8,489, for the years ended December 31, 1995, 1994 and
1993, respectively. As of December 31, 1995 and 1994, the Company also
classified $72,533 and $64,962, respectively, of its investments in certain
mutual funds sponsored by the Company and its affiliates as separate account
assets.
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(h) Federal Income Taxes
Beginning in 1994, the Company is included in Liberty Mutual's consolidated
tax return. The Company calculates its consolidated income tax liability as
if it filed its own consolidated federal income tax return.
(i) Cash and Cash Equivalents
Cash and cash equivalents include short-term investments which have an
original maturity of three months or less from the time of purchase.
(j) Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statement amounts to conform to the current year presentation.
(3) Acquisition
On October 1, 1993, the Company acquired the common stock of Crown America
Life Insurance Company (Crown America), a Michigan insurance company, for
$27,877. The acquisition was accounted for as a purchase and, accordingly,
operating results are included in the accompanying consolidated financial
statements from date of acquisition. In connection with the acquisition, the
Company acquired assets with a fair value of $185,735 and assumed liabilities
of $157,858.
On February 22, 1994, the acquisition was completed with the contingent
purchase price payment of $1,479, which increased the value of insurance in
force.
On December 29, 1993, Crown America was redomesticated to the state of Rhode
Island and, on January 10, 1994, the name was changed to Keyport America Life
Insurance Company. On July 19, 1995, the name was changed to Independence
Life and Annuity Company.
(4) Investments
(a) Fixed Maturities
Fair values of publicly-traded securities are determined using values
reported by an independent pricing service. Fair values of conventional
mortgage backed securities not actively traded in a liquid market are
obtained through broker-dealer quotations. Fair values of private placement
bonds are determined by obtaining market indications from various
broker-dealers. The amortized cost and fair values of investments in fixed
maturities at December 31, 1995 and 1994 were as follows:
December 31,1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury securities $ 360,157 $ 9,020 $ (209) $ 368,968
Mortgage backed securities of
U.S. government
corporations and agencies 1,585,538 58,795 (5,250) 1,639,083
Obligations of states and
political subdivisions 26,688 1,324 - 28,012
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Debt securities issued by
foreign governments 57,446 4,258 - 61,704
Corporate securities 3,479,584 224,332 (7,309) 3,696,607
Other mortgage backed securities 1,951,480 66,530 (71,754) 1,946,256
Asset backed securities 1,543,891 29,823 (1,446) 1,572,268
Senior secured loans 223,050 - - 223,050
Total fixed maturities
available for sale $9,227,834 $394,082 $(85,968) $9,535,948
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Mortgaged backed securities of
U.S. Government
corporations and agencies $ 206,569 $ 8,683 $ (18) $ 215,234
Obligations of states and
political subdivisions 21,452 277 (28) 21,701
Corporate Securities 843,669 14,564 (17,005) 841,228
Other mortgage backed securities 79,164 44 (3,385) 75,823
Asset backed securities 297,826 88 (9,235) 288,679
Total fixed maturities
held to maturity $1,448,680 $23,656 $ (29,671) $1,442,665
Available for sale:
U.S. Treasury securities $ 271,700 $ 2 $ (8,390) $ 263,312
Mortgaged backed securities of
U.S. Government
corporations and agencies 1,238,925 1,244 (76,651) 1,163,518
Obligations of states and
political subdivisions 37,718 433 - 38,151
Debt securities issued by
foreign governments 82,608 1,049 (4,079) 79,578
Corporate securities 2,607,712 17,951 (116,077) 2,509,586
Other mortgage backed securities 1,186,515 14,577 (70,250) 1,130,842
Asset backed securities 1,123,803 654 (45,713) 1,078,744
Senior secured loans 246,084 - - 246,084
Total fixed maturities
available for sale $6,795,065 $35,910 $(321,160) $6,509,815
At December 31, 1995 and 1994, bonds with an amortized cost of $7,710 and
$7,657, respectively, were on deposit with regulatory authorities.
(b) Contractual Maturities
The amortized cost and fair value of fixed maturities for the various
categories at December 31, 1995, by contractual maturity, are set forth
below. Expected maturities may differ from contractual maturities as
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borrowers have the right to call or prepay certain obligations with or
without call or prepayment penalties.
December 31, 1995
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 254,299 $ 256,055
Due after one year through five years 1,503,507 1,564,132
Due after five years through ten years 1,838,679 1,953,542
Due after ten years 550,440 604,612
4,146,925 4,378,341
Mortgage and asset
backed securities 5,080,909 5,157,607
Total fixed maturities
available for sale $9,227,834 $9,535,948
(c) Net Unrealized Investment Gains (Losses)
Net unrealized investment gains (losses) as of December 31, 1995 and 1994
were as follows:
December 31
1995 1994
Fixed maturities available for sale:
Gross unrealized gains $ 394,082 $ 35,910
Gross unrealized losses (85,968) (321,160)
308,114 (285,250)
Adjustments for:
Deferred acquisition costs (151,351) 135,059
Value of insurance in force (32,459) 53,344
Total fixed maturities 124,304 (96,847)
Equity securities and investments in separate account:
Gross unrealized gains 16,927 1,932
Gross unrealized losses (1,980) (4,261)
Total equity securities 14,947 (2,329)
Interest rate caps (7,294) -
131,957 (99,176)
Deferred federal income taxes (46,185) 34,712
Net unrealized investment gains (losses) $ 85,772 $ (64,464)
(d) Net Investment Income
Net investment income is summarized as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities $683,429 $635,947 $619,847
Equity securities 4,807 2,132 2,368
Mortgage loans 12,444 15,416 17,252
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Policy loans 28,485 26,295 22,766
Cash and cash equivalents 41,643 20,727 18,551
Gross investment income 770,808 700,517 680,784
Investment expenses (13,447) (10,942) (11,117)
Net investment income $757,361 $689,575 $669,667
As of December 31, 1994, the carrying value of fixed maturity investments
that were non-income producing for the preceding twelve months was $4,967.
There were no non-income producing fixed maturity investments as of December
31, 1995.
(e) Net Realized Investment Gains (Losses)
Net realized investment gains (losses) are summarized as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities - held to maturity
Gross gains $ 1,306 $ 3,493 $ 31,594
Gross losses (64) (755) (3,070)
Other than temporary declines - (7,904) -
Provisions for possible investment losses - - (16,609)
Fixed maturities - available for sale
Gross gains 8,156 26,043 7,097
Gross losses (15,982) (26,831) (6,311)
Other than temporary declines - (3,610) -
Provisions for possible investment losses - - 7,487
Equity securities 1,279 (845) 11,228
Interest rate swaps (860) (28) (16,193)
Interest rate caps - - (6,082)
Other (13) (809) 1,412
Gross realized investment gains (losses) (6,178) (11,246) 10,553
Amortization adjustments:
Deferred policy acquisition costs 2,220 2,675 785
Value of insurance in force - 351 65
Net realized gains (losses) $ (3,958) $ (8,220) $11,403
Proceeds from sales of fixed maturities were as follows:
Year Ended December 31,
1995 1994 1993
Fixed maturities - available for sale $565,366 $927,779 $313,568
Fixed maturities - held to maturity 14,930 10,637 97,816
Total proceeds $580,296 $938,416 $411,384
The sale of fixed maturities held to maturity during 1995 and 1994 relate to
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certain securities, with an amortized cost of $14,994 and $10,630, respectively,
which were sold specifically due to a significant deterioration in the issuer's
creditworthiness.
(f) Concentration of Investments
Investments in a single entity (all of which are fully collateralized and
guaranteed by an agency or agencies of the U.S. Government) in excess of ten
percent of total stockholder's equity as of December 31, 1995 and 1994 were
as follows:
Carrying Value at
December 31,
1995 1994
Mortgage backed securities
FNMA Pool #303075 $134,884 $125,212
Morgan Stanley CMO (33-5) 108,051 101,832
FNMA Pool #303074 105,832 98,470
Investments in fixed maturities are diversified among more than one hundred
industries. Significant concentrations of credit risk are classified as
follows:
Carrying Value at
December 31,
1995 1994
Financial services $547,872 $539,537
Telecommunications 324,029 276,559
Banks 323,579 247,514
Electrical services 271,822 437,339
Oil and gas 261,161 274,026
Paper products 205,889 146,472
Retail 197,064 247,874
Transportation equipment 168,588 146,593
Credit institutions - 173,565
Food and beverage - 151,758
(g) Quality Ratings
The carrying values of publicly traded and privately placed fixed maturities
at December 31, 1995 represented by each quality ratings category were as
follows:
Carrying Value at December 31, 1995
Publicly Privately
Traded Placed Total
Investment grade:
U.S. government $ 368,969 - $ 368,969
Class 1 4,996,275 $1,480,089 6,476,364
Class 2 982,096 896,673 1,878,769
Total investment grade 6,347,340 2,376,762 8,724,102
Below investment grade:
Class 3 317,131 147,517 464,648
Class 4 201,718 123,032 324,750
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Class 5 - 22,448 22,448
Total below investment grade 518,849 292,997 811,846
Total fixed maturities $6,866,189 $2,669,759 $9,535,948
The Company held no securities rated Class 6 at December 31, 1995.
Securities that are rated class 1 or 2 by the Securities Valuation Office of
the National Association of Insurance Commissioners (NAIC), or, if not so rated,
securities that are rated "BBB-" or above by S&P, or "Baa3" or above by Moody's
(using the lower of the S&P or Moody's rating) are considered "investment grade"
securities. Securities included in the U.S. government category in the preceding
table are those as defined by the NAIC.
The distribution of fixed maturities quality ratings were as follows:
December 31,
1995 1994
Class 1 (including U.S. government) 71.8% 72.3%
Class 2 19.7% 19.9%
Class 3 4.9% 5.6%
Class 4 3.4% 2.0%
Class 5 0.2% 0.2%
(h) Derivative Financial Instruments
The Company's primary objective in acquiring certain derivative financial
instruments is the management of interest rate risk. Interest rate risk results
from a mismatch in the timing and amount of invested asset and policyholder
liability cash flows. The Company seeks to manage this risk through various
asset/liability management strategies such as the setting of renewal rates and
by investment portfolio actions designed to address the interest rate
sensitivity of asset cash flows in relation to liability cash flows. Portfolio
actions used to manage interest rate risk include managing the effective
duration of portfolio securities and utilizing interest rate swaps and caps.
Interest rate swaps
The Company uses a combination of three distinct classes of interest rate swaps
to reduce interest rate risk. The following table summarizes the categories of
swaps used, their notional amounts, their weighted average interest rates as of
the reporting period date, and their effects on the consolidated balance sheets
and statements of income. The majority of swaps mature beginning in 1999
through 2001. The fair values of the interest rate swaps are primarily obtained
from dealer quotes. These values represent the estimated amounts the Company
would receive or pay to terminate the contracts, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties.
December 31,
1995 1994
Interest rate swaps:
(1) Pay fixed, receive variable rate - notional amount $1,975,000 $775,000
Average pay rate 6.79% 7.19%
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Average receive rate 5.88% 7.61%
Amount included in net investment income $ (2,751) $ (1,213)
Fair value $ (64,124) $ 27,587
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale $ (64,124) $ 27,587
Deferred loss - included in fixed maturities
available for sale $ (3,662) -
(2) Pay variable, receive variable rate - notional amount - $300,000
Average pay rate - 5.85%
Average receive rate - 6.42%
Amount included in net investment income $ (1,251) $ 6,781
Fair value - $(14,550)
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $(14,550)
Deferred loss - included in fixed maturities
available for sale $ (6,952) -
(3) Spread lock swap - notional amount - $150,000
Seven year swap spread - 0.34%
Amount included in net investment income $ 746 -
Fair value - $ 731
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $ 731
1) The Company had thirty-six interest rate swap contracts with a notional
amount $1,975,000 and twenty contracts with a notional amount of $775,000 as of
December 31, 1995 and 1994, respectively, on which it pays a fixed rate of
interest and receives variable rates based on the two, five, and ten year
"constant maturity" treasury or swap rate. The variable rates are reset to
current market levels at six month intervals. The objective of holding this
class of derivatives is to reduce invested asset duration and better match the
interest rates earned on medium to long-term (greater than two year maturity)
fixed rate assets with the interest rates credited to policyholders. The Company
has medium to long-term invested assets of approximately $8,624,000 and
$5,600,000 in 1995 and 1994, respectively. For the majority of new and existing
single premium deferred annuities, credited rates are reset annually. In
addition, rates credited on annuity policies are closely correlated with longer
term interest rates, e.g., five or ten year market interest rates. This
derivative class allows the Company to swap the fixed interest rates received on
the medium to long-term fixed rate invested assets for a variable rate which is
better correlated with rates credited to policyholders. This reduces the
Company's risk in rising interest rate environments by providing investment
income to cover higher competitive credited rates.
2) In 1994, the Company had six interest rate swaps contracts with a notional
amount of $300,000 on which it paid a variable rate of interest based on the six
month LIBOR and received a variable rate based on the ten year swap rate minus
1.50%. The objective of holding this class of derivatives is to better match
the interest rates earned on short term and floating rate assets with the
interest credited to policyholders. The Company had approximately $850,000 of
invested assets where the Company received interest income based on interest
rates closely correlated with
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short-term LIBOR. This derivative class allowed the Company to swap variable
interest income received on short term and floating rate assets for a variable
rate which was better correlated with rates credited to policyholders.
During 1995, certain swaps were sold as part of the Company's overall tax
planning strategy. The Company unwound one pay fixed and six pay variable
interest rate swap contracts with a notional amount of $350,000. In 1992 the
Company unwound 3 contracts with a notional amount of $300,000. The resulting
loss of $10,691 in 1995 and the gain of $16,230 in 1992 were deferred and
amortized over the original remaining terms of the contracts, in accordance with
hedge accounting. The following table summarizes the deferred gain (loss)
amounts included in the consolidated balance sheet and the expected recognition
of income by year:
December 31,
1995 1994
Amounts expected to be includes in net
invested income:
Within one year $ (1,861) $ 4,720
Within one to five years (7,862) 891
Total $ (9,723) $ 5,611
During 1993, the Company unwound interest rate swap contracts with a notional
amount of $200,000. The swaps were unwound when the associated liabilities no
longer existed, resulting in a loss of $16,193, which was recognized
immediately.
3) In 1993, the Company entered into a $150,000 notional "spread lock" that
terminated in 1995. The Company received/(paid) the present value of the
seven year swap if corporate spreads widened/(compressed) above/(below) the
seven year swap spread of 26 basis points based on the 7.5% U.S. Treasury note
maturing November 15, 2001. As the result of the termination, the Company
recognized income of $746 during 1995. The objective of this derivative was to
reduce the exposure of the Company's fixed maturity investments to widening
corporate spreads. The value of the Company's corporate bond portfolio decreased
as corporate spreads widened. The Company's spread lock swap increased in value
as spreads widened and thus reduced the Company's risk.
Interest rate caps
The Company had seven interest rate caps with a $450,000 notional amount and
six interest rate caps with a $400,000 notional amount as of December 31, 1995
and 1994, respectively. These contracts are indexed to either the three month
LIBOR, or to the two or five year constant maturity swap (CMS) rates. Under
these contracts, the Company has paid a premium for the right to receive
payments when the index rises above a predetermined level, i.e., the strike
rate. The objective of holding these derivatives is to reduce the Company's
risk in rising interest rate environments by providing additional investment
income to cover higher competitive interest credited rates on policy
liabilities.
The following table summarizes the interest rate caps, their notional amounts,
their weighted average strike and index rates as of the reporting
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period date, and their effects on the consolidated balance sheets and income
statements. The majority of caps mature in 1997 and 1999. The fair values of the
interest rate caps are obtained from dealer quotes. These values represent the
estimated amounts the Company would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the current
credit-worthiness of the counterparties.
December 31,
1995 1994
Interest rate caps:
Index: three month LIBOR - notional amount $ 200,000 $200,000
Weighted average strike rate 8.50% 8.50%
Weighted average current index 5.63% 6.44%
Amortization expense included in net investment income $ (648) $ (649)
Fair value $ 46 $ 2,698
Carrying value $ 1,254 $ 1,903
Unrealized gain (loss) included in fixed maturities AFS $ (1,208) $ 795
Index: two year CMS - notional amount $ 150,000 $100,000
Weighted average strike rate 7.60% 7.25%
Weighted average current index 5.28% 7.91%
Amortization expense included in net investment income $ (1,305) $ (144)
Fair Value $ 1,001 $ 4,930
Carrying value $ 5,269 $ 5,001
Unrealized gain (loss) included in fixed maturities AFS $ (4,268) $ (71)
Index: five year CMS - notional amount $ 100,000 $100,000
Weighted average strike rate 8.26% 7.93%
Weighted average current index 5.66% 7.83%
Amortization expense included in net investment income $ (564) $ (38)
Fair value $ 414 $ 2,806
Carrying value $ 2,232 $ 2,800
Unrealized gain (loss) included in fixed maturities AFS $ (1,818) $ 6
During 1993, the Company sold interest rate caps with notional amounts of
$300,000, resulting in realized losses of $4,082. In 1993, due to an other than
temporary decline in value, the Company reduced the carrying value of the
remaining interest rate caps by $2,000 resulting in a realized loss.
Trading Instruments
During 1995, a $50,000 notional current coupon mortgage swap matured. The
Company paid a total return of a seven year swap to receive the total return of
a current coupon, thirty year FNMA pass-through mortgage backed security plus
.40%. The swap reset to market levels at two month intervals. The objective of
the strategy was to replicate a position in FNMA pass-throughs with an enhanced
return.
The following table summarizes the current coupon mortgage swap and the effects
on the consolidated balance sheets and income statements. The swap matured in
1995. The fair value represents the estimated amount the Company had paid to
terminate the contracts in 1994, taking into account current interest rates and,
when appropriate, the current creditworthiness of the counterparties.
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December 31,
1995 1994
Current coupon mortgage swap:
Notional amount - $ 50,000
Pay rate at reporting date - 8.05%
Receive rate at reporting date - 8.90%
Amount included in net investment income - $ 455
Amount included in net realized investment gains (losses) $ (860) $ (28)
Fair value - $ 153
(5) Fair Value of Financial Instruments
Estimated fair values of the Company's investments in fixed maturities, equity
securities and derivative financial instruments are set forth in Note 4.
Estimated fair values, methods and assumptions of the Company's other financial
instruments are set forth below.
(a) Mortgage loans
For purposes of estimating fair value, mortgage loans are segregated into
commercial real estate loans and residential mortgages. The fair value of
commercial real estate loans is calculated by discounting scheduled cash flows
through the stated maturity using estimated market rates. The estimated market
rate is based on the five year prime mortgage rate. The fair value of
residential mortgages is estimated by discounting contractual cash flows
adjusted for expected prepayments using an estimated discount rate. The discount
rate is an estimated market rate adjusted to reflect differences in servicing
costs, and the expected prepayments are estimated based upon Company experience.
Mortgage loans are summarized as follows:
December 31, 1995
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 39,500 9.4% 7.5% $ 40,351
Residential mortgages 35,005 13.6% 7.5% 39,346
December 31, 1994
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 87,000 9.4% 8.3% $ 89,795
Residential mortgages 42,452 13.7% 8.3% 49,003
The weighted average maturities (which may be different from the stated
maturities) for the cash flows used in deriving the estimated fair values for
commercial real estate loans and residential mortgages are 0.3 years and 2.3
years, respectively, at December 31, 1995, and 1.3 years and 2.7 years,
respectively, at December 31, 1994.
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(b) Policy Loans
The carrying value of policy loans approximates fair value at December 31, 1995
and 1994.
(c) Policy Liabilities
The fair value of deposit liabilities with no stated maturity is equal to the
amount payable on demand. The Company considers its policy liabilities to be
similar to deposit liabilities.
The carrying value and estimated fair value of the policy liabilities at
December 31, 1995 were $10,084,392 and $9,650,113, respectively. The carrying
value and estimated fair value of the policy liabilities at December 31, 1994
were $9,344,044 and $8,961,971, respectively.
(6) Employee Benefit Plans
Keyport employees and certain employees of Liberty Financial are eligible to
participate in the Liberty Financial Companies, Inc. Pension Plan (the "Plan").
Under the Plan, all employees are vested after five years of service. Benefits
are based on years of service, the employee's average pay for the highest five
consecutive years during the last ten years of employment, and the employee's
estimated social security retirement benefit. The Company's funding policy is to
contribute the minimum required employer contribution under the Employee
Retirement Income Security Act of 1974. The Company may, from time to time,
increase its employer contributions beyond the minimum amount, but within IRS
guidelines.
Changes in prior service costs are amortized over the expected future service
periods of active participants expected to receive benefits under the Plan as of
the date such costs are first recognized. Cumulative net actuarial gains and
losses in excess of a corridor amount are amortized over the expected future
service periods of active participants expected to receive benefits under the
Plan.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheets. Substantially all of the Plans'
assets are invested in mutual funds sponsored by an affiliated company.
December 31,
1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $6,082 and $4,197 $ 6,915 $ 5,025
Projected benefit obligation for service to date $ 9,185 $ 6,523
Plan assets at fair value (5,703) (4,459)
Projected benefit obligation in excess of Plan assets 3,482 2,064
Unrecognized net actuarial loss (1,740) (227)
Prior service cost not yet recognized in net periodic
pension cost (206) (660)
Accrued pension cost $ 1,536 $ 1,177
Year Ended December 31,
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1995 1994 1993
Pension cost includes the following components:
Service cost benefits earned during the period $ 541 $ 532 $ 392
Interest cost on projected benefit obligation 603 534 423
Actual return on Plan assets (999) 63 (185)
Net amortization and deferred amounts 600 (338) (88)
Net periodic pension cost $ 745 $ 791 $ 542
The assumptions used to develop the actuarial present value of the projected
benefit obligation, and the expected long-term rate of return on Plan assets are
as follows:
Years Ended December 31,
1995 1994 1993
Discount rate 7.25% 8.25% 7.25%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Rate of increase in compensation levels 5.25% 5.25% 5.25%
The Company also provides a savings and investment plan with a matching savings
program containing several investment options for which substantially all
employees are eligible. In addition, the Company has a non-qualified deferred
compensation plan for certain employees.
(7) Deferred Policy Acquisition Costs and Value of Insurance In Force
The amounts of policy acquisition costs deferred and amortized are summarized
below:
Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 439,232 $ 262,646 $ 211,330
Additions:
Policy acquisition costs deferred during period:
Commissions 70,484 82,626 81,515
Other expenses 12,687 8,400 10,019
Total deferrals 83,171 91,026 91,534
Adjustments for unrealized investment losses - 135,059 -
Adjustments for realized investment losses 2,220 2,675 785
Total additions 85,391 228,760 92,319
Deductions:
Amortization expense (58,541) (52,174) (41,003)
Adjustments for unrealized investment gains (286,410) - -
Total deductions (344,951) (52,174) (41,003)
Balance, end of year $ 179,672 $ 439,232 $ 262,646
The value of insurance in force is summarized below:
S-27
<PAGE>
Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 139,221 $ 101,036 $ 115,824
Additions:
Value of insurance purchased - 1,479 7,522
Interest accrued on unamortized balance 4,578 4,994 6,124
Adjustments for unrealized investment losses - 53,344 -
Adjustments for realized investment losses - 351 65
Total additions 4,578 60,168 13,711
Deductions:
Amortization expense (14,057) (21,983) (28,499)
Adjustments for unrealized investment gains (85,803) - -
Total deductions (99,860) (21,983) (28,499)
Balance, end of year $ 43,939 $ 139,221 $ 101,036
Interest is accrued on the unamortized value of insurance in force balance at
the contract rate of 5.58%, 5.49% and 6.01% for the years ended December 31,
1995, 1994 and 1993, respectively.
Estimated net amortization expense of the value of insurance in force as of
December 31, 1995, is as follows: 1996 - $7,747; 1997 - $8,169; 1998 - $7,218;
1999 - $6,648; 2000 - $6,199; and thereafter - $40,417.
(8) Federal Income Taxes
The provision for federal income taxes, computed under the asset and liability
method, is summarized as follows:
Year Ended December 31,
1995 1994 1993
Current $37,746 $18,118 $24,878
Deferred 585 13,933 3,832
Federal income tax expense $38,331 $32,051 $28,710
A reconciliation of federal income tax expense as recorded in the accompanying
consolidated statements of operations with expected federal income tax expense
computed at the applicable federal tax rate of 35% is as follows:
Year Ended December 31,
1995 1994 1993
Expected income tax expense $37,779 $33,347 $30,347
Increase (decrease) in income taxes resulting from:
Nontaxable investment income (1,737) (2,099) (2,189)
Amortization of goodwill 396 396 396
Other, net 1,893 407 156
Actual federal income tax expense $38,331 $32,051 $28,710
S-28
<PAGE>
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted. This
law increased the Company's top marginal tax rate to 35% from 34% retroactive to
January 1, 1993. The effect of this change in tax rates on the Company's
consolidated financial statements was not material.
The components of deferred federal income taxes are as follows:
December 31,
1995 1994
Deferred tax assets:
Policy liabilities $ (140,971) $ (127,558)
Excess of tax over book bases - investments - (69,039)
Guaranty association fees (7,679) (8,642)
Net operating loss carryforward (3,041) (3,573)
Deferred gain on interest rate swap agreements (312) (1,964)
Other (1,039) (3,914)
Total deferred tax assets (153,042) (214,690)
Deferred tax liabilities:
Excess book over tax basis - investments 130,530 -
Deferred policy acquisition costs 44,468 137,909
Value of insurance inforce and intangibles 7,152 34,420
Deferred loss on interest rate swap agreements 3,715 -
Total deferred tax liabilities 185,865 172,329
Net deferred federal income tax liability (asset) $ 32,823 $ (42,361)
The Company believes that is more likely than not that the Company will realize
the benefits of the total deferred tax assets and, accordingly, believes that a
valuation allowance with respect to the realization of the total deferred tax
assets is not necessary. While there are no assurances that this benefit will be
realized, the Company expects that the net deductible amounts will be
recoverable through the reversal of taxable temporary differences, taxes paid in
the carryback period, tax planning strategies, and future expectations of
taxable income.
As of December 31, 1995 and 1994, the Company had approximately $8,688 and
$10,208 respectively, of net operating loss carryforwards relating to
Independence Life's operations prior to the acquisition by the Company. These
operating loss carryforwards are limited to use against future taxable profits
of Independence Life and expire through 2006.
Income taxes paid were $44,694, $28,811, and $17,722 for the years ended
December 31, 1995, 1994 and 1993, respectively.
(9) Statutory Information and Dividend Restrictions
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. In
converting to GAAP, adjustments to the Company's statutory amounts include: the
deferral and amortization of the costs of acquiring new policies, such as
commissions and other issue costs; the deferral of federal income taxes; the
S-29
<PAGE>
recognition as revenues of premiums for investment-type products for statutory
purposes but as deposits to policyholders' accounts under GAAP. In addition,
different assumptions are used in calculating policyholder liabilities,
different methods are used for calculating valuation allowances for statutory
and GAAP purposes, and the Company's realized gains and losses on fixed income
investments due to interest rate changes are not deferred for GAAP. Statutory
surplus and statutory net income are presented below:
Year Ended December 31,
1995 1994 1993
Statutory surplus $ 535,179 $ 546,440 $ 517,181
Statutory net income 25,689 24,871 65,315
The maximum amount of dividends which can be paid by the Company without prior
approval of the Insurance Commissioner of the State of Rhode Island is subject
to restrictions related to statutory surplus and statutory net gains from
operations. As of December 31, 1995, such restriction would limit dividends to
approximately $34,604. The Company has not paid dividends since the acquisition
by Liberty Mutual.
(10) Transactions with Affiliated Companies
As of December 31, 1995 and 1994, the Company had $39,500 and $87,000,
respectively, of commercial real estate loans of affiliated investment
partnerships. These mortgages are unconditionally guaranteed by Liberty Mutual.
The Company reimbursed Liberty Financial and certain affiliates for expenses
incurred on its behalf for the years ended December 31, 1995, 1994 and 1993.
These reimbursements included corporate general and administrative expenses,
corporate overhead, such as executive and legal support, and investment
management services. The total amounts reimbursed were $7,626, $7,345 and
$7,444 for the years ended December 31, 1995, 1994 and 1993, respectively.
During 1993 the Company received a $75,000 capital contribution from Liberty
Financial.
(11) Commitments and Contingencies
The Company leases data processing equipment, furniture and certain office
facilities from others under operating leases expiring in various years through
2001. Rental expense amounted to $3,221, $3,011 and $3,042 for the years ended
December 31, 1995, 1994 and 1993, respectively. For each of the next five years,
and in the aggregate, as of December 31, 1995, the following are the minimum
future rental payments under noncancelable operating leases having remaining
terms in excess of one year:
1996 $ 3,211
1997 2,641
1998 2,491
1999 2,347
2000 2,310
Thereafter 2,308
S-30
<PAGE>
Total minimum future rental payments $15,308
Under existing guaranty fund laws in all states, insurers licensed to do
business in those states can be assessed for certain obligations of insolvent
insurance companies to policyholders and claimants. The actual amount of such
assessments will depend upon the final outcome of rehabilitation proceedings and
will be paid over several years. In 1995, 1994 and 1993, the Company was
assessed $8,143, $7,674 and $7,314, respectively. During 1995, 1994 and 1993,
the Company recorded $2,000, $7,200, and $3,714, respectively, of provisions for
state guaranty fund association expenses.
Based on information recently provided by the industry association with respect
to aggregate assessments related to known insolvencies, the range of future
assessments with respect to known insolvencies is estimated by the Company to be
between $16,500 and $25,500, taking into account the industry association
information as well as the Company's own estimate of its potential share of such
aggregate assessments. At December 31, 1995 and 1994, the reserve for such
assessments was $21,940 and $24,688, respectively.
The Company is contingently liable for certain structured settlements written by
a subsidiary of Liberty Mutual and assigned to Keyport Life. The Company
guarantees to the policyholder payment in the event of nonperformance. The loss
contingency related to the structured settlements is approximately $160,000. In
the opinion of management, the likelihood of loss is remote.
The Company is involved, from time to time, in litigation incidental to its
business. In the opinion of management, the resolution of such litigation is not
expected to have a material adverse effect on the Company's financial condition.
S-31
<PAGE>
PART C
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Keyport Life Insurance Company:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing Variable
Account A
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and Dealer
(3c) Manning & Napier Broker/Dealer's Agreement
* (4a) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company (MON)
* (4b) Specimen Variable Annuity Certificate of Keyport Life Insurance
Company (MON)
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
(4f) Specimen Group Variable Annuity
Contract of Keyport Life Insurance Company (M&N)
(4g) Specimen Variable Annuity
Certificate of Keyport Life Insurance Company
(M&N)
* (5a) Form of Application for a Group Variable Annuity Contract
* (5b) Form of Application for a Group Variable Annuity Certificate
* (6a) Articles of Incorporation of Keyport Life Insurance Company
* (6b) By-Laws of Keyport Life Insurance Company
C-1
<PAGE>
(7) Not applicable
** (8) (a) Form of Participation Agreement
(b) Participation Agreement Among Manning & Napier Insurance
Fund, Inc., Manning & Napier Investor Services, Inc.,
Manning & Napier Advisors, Inc., and Keyport Life Insurance
Company
(9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
(11) Not applicable
(12) Not applicable
*** (13) Schedule for Computations of Performance Quotations
** (15) Chart of Affiliations
** (16) Powers of Attorney
** (27) Financial Data Schedule
* Incorporated by reference to Registration Statement (File No. 333-1043)
filed on or about February 16, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement (File No. 333-1043) filed on or about August 22, 1996.
*** To be filed by amendment
Item 25. Directors and Officers of the Depositor.
Name and Principal Positions and Offices
Business Address* with Depositor
- ------------------ ---------------------
Kenneth R. Leibler, President Director and Chairman of the Board
Liberty Financial Companies Inc.
Federal Reserve Plaza, 24th Floor
600 Atlantic Avenue
Boston, MA 02110
F. Remington Ballou Director
B. A. Ballou & Company, Inc.
800 Waterman Avenue
East Providence, RI 02914
Frederick Lippitt Director
The Providence Plan
740 Hospital Trust Building
C-2
<PAGE>
15 Westminster Street
Providence, RI 02903
Mr. Robert C. Nyman Director
Chairman and CEO
Nyman Mfg. Co.
275 Ferris Avenue
E. Providence, RI 02910-1001
John W. Rosensteel President, Chief Executive Officer and
Director
John E. Arant, III Senior Vice President and Chief Sales
Officer
Bernard R. Beckerlegge Senior Vice President and General
Counsel
Paul H. LeFevre, Jr. Senior Vice President and Chief
Financial Officer
Francis E. Reinhart Senior Vice President and Chief
Administrative Officer
Bruce J. Crozier Vice President and Chief Actuary
William L. Dixon Vice President, Compliance and Assistant
Secretary
Jacob M. Herschler Vice President, Strategic Marketing
Kenneth M. Hughes Vice President, National Director of
Bank Sales
James J. Klopper Vice President, Counsel and Assistant
Secretary
Leslie J. Laputz Vice President, Information Systems
Suzanne E. Lyons Vice President, Human Resources
Stewart R. Morrison Vice President and Chief Investment
Officer
C-3
<PAGE>
Deborah A. Re Vice President, Administrative
Operations
Lee R. Roberts Vice President, Planning and Corporate
Affairs
Mark R. Tully Vice President, National Director of
Traditional Sales
Jeffrey J. Whitehead Vice President, Treasurer and Controller
Peter E. Berkeley Assistant Vice President, Human Resource
Development
John G. Bonvouloir Assistant Vice President & Assistant
Treasurer
Judith A. Brookins Assistant Vice President, Sales
Promotion
Clifford O. Calderwood Assistant Vice President, Network
Systems
Paul R. Coady Assistant Vice President, Marketing
Systems
Alan R. Downey Assistant Vice President
Gregory L. Lapsley Assistant Vice President, Administrative
Services (Rhode Island Operations)
Jeffrey J. Lobo Vice President, Risk Management
Scott E. Morin Assistant Vice President and Controller
Teresa M. Shumila Assistant Vice President, Administrative
Operations
Ellen L. Wike Assistant Vice President, Systems
Quality Assurance
Daniel Yin Assistant Vice President, Investments
Frederick Lippitt Assistant Secretary
C-4
<PAGE>
*125 High Street, Boston, Massachusetts 02110, unless noted otherwise.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor controls the Registrant, KMA Variable Account, Keyport 401
Variable Account, Keyport Variable Account I, and Keyport Variable Account II,
under the provisions of Rhode Island law governing the establishment of these
separate accounts of the Company.
The Depositor controls Keyport Financial Services Corp. (KFSC), a
Massachusetts corporation functioning as a broker-dealer of securities, through
100% stock ownership. KFSC files separate financial statements.
The Depositor controls Keyport Advisory Services Corp. (KASC), a
Massachusetts corporation functioning as an investment adviser, through 100%
stock ownership. KASC files separate financial statements.
The Depositor controls Independence Life and Annuity Company ("Independence
Life")(formerly Keyport America Life Insurance Company), a Rhode Island
corporation functioning as a life insurance company, through 100% stock
ownership. Independence Life files separate financial statements.
The chart for the affiliations of the Depositor is Exhibit 15.
Item 27. Number of Contract Owners.
None
Item 28. Indemnification.
Directors and officers of the Depositor and the principal underwriter are
covered persons under Directors and Officers/Errors and Omissions liability
insurance policies issued by ICI Mutual Insurance Company, Federal Insurance
Company, Firemen's Fund Insurance Company, CNA and Lumberman's Mutual Casualty
Company. Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors and officers under such insurance
policies, or otherwise, the Depositor 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 Depositor of expenses incurred or paid by a director or officer
in the successful defense of any action, suit or proceeding) is asserted by such
director or officer
C-5
<PAGE>
in connection with the variable annuity contracts, the Depositor 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.
Item 29. Principal Underwriters.
Keyport Financial Services Corp. is also principal underwriter of the
SteinRoe Variable Investment Trust and Keyport Variable Investment Trust, which
offer eligible funds for variable annuity and variable life insurance contracts.
The directors and officers are:
Name and Principal Position and Offices
Business Address* with Underwriter
- ------------------ --------------------
John W. Rosensteel President, Director and Chairman of the
Board
Francis E. Reinhart Director and Vice President,
Administration
Lee R. Roberts Director
John E. Arant, III Vice President, Chief Sales Officer
William L. Dixon Vice President, Compliance Officer
Rogelio P. Japlit Treasurer
James J. Klopper Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
Keyport Life Insurance Company, 125 High Street, Boston, Massachusetts 02110.
Item 31. Management Services.
Not applicable.
C-6
<PAGE>
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted;
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information; and
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
C-7
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on
its behalf, in the City of Boston and State of Massachusetts, on this 11th
day of October, 1996.
VARIABLE ACCOUNT A
------------------------------------------------
(Registrant)
BY: Keyport Life Insurance Company
-------------------------------------------
(Depositor)
BY: /s/ John W. Rosensteel*
-------------------------------------------
John W. Rosensteel
President
*BY: /s/ James J. Klopper October 11, 1996
-------------------- -------------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of Mr. Rosensteel pursuant to power of attorney duly executed by him and
included as part of Exhibit 16 in Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 filed on or about August 22, 1996
(File No. 333-1043; 811-7543).
C-8
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
/s/ Kenneth R. Leibler* /s/ John W. Rosensteel*
- ---------------------- ----------------------
Kenneth R. Leibler John W. Rosensteel
Director and Chairman of the Board President
(Principal Executive Officer)
/s/ F. Remington Ballou* /s/ Paul H. LeFevre, Jr.*
- ----------------------- ------------------------
F. Remington Ballou Paul H. LeFevre, Jr.
Director Senior Vice President
(Chief Financial Officer)
/s/ Frederick Lippitt*
- ---------------------
Frederick Lippitt
Director
/s/ Robert C. Nyman*
- -------------------
Robert C. Nyman
Director
/s/ John W. Rosensteel*
- ----------------------
John W. Rosensteel
Director
*BY: /s/ James J. Klopper October 11, 1996
----------------------- ------------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of each of the above Directors and Officers of the Depositor pursuant to
powers of attorney duly executed by such persons and included as part of
Exhibit 16 in Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-4 filed on or about August 22, 1996 (File No. 333-1043;
811-7543).
C-9
<PAGE>
EXHIBIT INDEX
Item Page
- ---- ----
(3c) Manning & Napier Broker/Dealer's Agreement
(4f) Specimen Group Variable Annuity
Contract of Keyport Life Insurance Company (M&N)
(4g) Specimen Variable Annuity Certificate of
Keyport Life Insurance Company (M&N)
(8b) Participation Agreement Among Manning & Napier Insurance Fund, Inc.,
Manning & Napier Investor Services, Inc., Manning & Napier Advisors,
Inc., and Keyport Life Insurance Company
(9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
C-10
<PAGE>
EXHIBIT (3c)
<PAGE>
MANNING & NAPIER
BROKER/DEALER'S
AGREEMENT
Keyport Life Insurance Company ("Keyport"), Keyport Financial Services Corp.
("KFSC") and Manning & Napier Investor Services, Inc. ("M&N") hereby agree as
follows:
1. KFSC is a principal underwriter for variable annuity contracts issued by
Keyport pursuant to separate accounts of Keyport and for other contracts
issued by Keyport that are subject to registration under the Securities Act
of 1933.
2. M&N desires to enter into a distribution agreement with KFSC and to have
its registered representatives appointed as agents of Keyport for the
purpose of selling the contract(s) (hereafter "Contracts").
3. M&N certifies that it is a registered broker-dealer under the Securities
Exchange Act of 1934 and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"). M&N agrees to abide
by all rules and regulations of the NASD and to comply with all applicable
state and federal laws and the rules and regulations of authorized
regulatory agencies affecting the sale of the Contracts.
4. M&N will select persons associated with it who are to be appointed as
agents of Keyport to solicit applications for the Contracts in conformance
with applicable state and federal laws. No agent will be permitted to
solicit for sales of the Contracts in New York or in any other state where
Keyport is not authorized to sell such Contracts and Keyport so notifies
M&N. Keyport will notify M&N in writing of all jurisdictions in which the
Contracts may be sold.
5. All solicitations for the Contracts will be made only by and compensation,
if any, for the solicitation of the Contracts shall be paid only to duly
authorized agents who possess the required licenses and appointments.
Continued solicitation for the Contracts shall be contingent upon the
continued qualification of such agents by possession of the required
licenses and appointments.
6. M&N shall have the responsibility to supervise all agents appointed under
this Agreement and shall indemnify and hold harmless the separate accounts,
the eligible mutual funds and their directors and trustees, KFSC, and
Keyport from any damage or expenses on account of any wrongful act by M&N,
its representatives, and agents in connection with the solicitation of
Contracts. Keyport and KFSC shall indemnify and hold harmless M&N from any
damages or expenses on account of any wrongful act by Keyport or KFSC.
7. M&N shall review all applications for the Contracts, accept them on M&N's
behalf, and promptly forward them to Keyport
<PAGE>
(at the address shown on the then current prospectus for the Contracts)
together with any purchase payments received with such applications
without deduction for any compensation. Keyport has the right to reject
any application for a Contract and return any purchase payment made in
connection therewith. M&N shall be free to exercise its own judgment in
selling Contracts, including the choice of time, place and manner of
sale, and shall have no obligation to sell Contracts and failure to
sell Contracts shall not be a breach of this Agreement.
8. M&N will offer and sell the Contracts only in accordance with the terms and
conditions of the then current prospectuses applicable to the Contracts
and the eligible mutual funds and will make no representations not
included in the prospectuses or in any authorized supplemental material
approved by KFSC and Keyport. M&N shall not use or permit to be used
supplemental material or advertising media with regard to the Contracts
other than with the prior written approval of KFSC and Keyport.
9. M&N is performing the acts covered by this Agreement in the capacity of
independent contractor and not as an agent or employee of either KFSC or
Keyport. Neither KFSC nor Keyport shall be liable for any obligation, act
or omission of M&N.
10. M&N shall be paid by Keyport (on behalf of KFSC) compensation for the sale
of Contracts as set forth in the attached Compensation Schedule(s). Keyport
has the right to charge back any such compensation under the conditions
stated in such Schedule(s). Any Compensation Schedule can be changed by
KFSC and Keyport as of a specified date, provided such date is at least 10
days after the date the change is mailed to M&N's last known address. Any
such change will apply only to purchase payments received by Keyport after
the effective date of the change.
11. This Agreement shall take effect as of the date it is signed by Keyport,
which date is shown below. It shall continue in force from year to year
unless it is terminated. This Agreement may be terminated for any reason by
any party; such termination will become effective 60 days after the mailing
of a notice of termination to the other parties last known address. This
Agreement may be terminated by KFSC or Keyport for cause (i.e. M&N's
violation of any of the terms of this Agreement); such termination will
become effective on the 10th day after the mailing of a notice of
termination to the M&N's last known address if M&N has not cured the cause
by such day. Failure of KFSC or Keyport to terminate this Agreement upon
knowledge of a cause shall not constitute a waiver of the right to
terminate at a later time for such cause provided such cause has not been
cured in the interim. This Agreement shall immediately terminate
automatically if M&N shall cease to be a member of the NASD or to possess
the requisite licenses and appointments, and M&N agrees to immediately
notify KFSC and Keyport of such an occurrence. No provisions
<PAGE>
of this Agreement other than numbers 6, 9, 10 and 12 shall continue in
force after any termination.
12. This Agreement may not be assigned by either party except with the written
consent of the non-assigning party. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
KEYPORT FINANCIAL SERVICES CORP. MANNING & NAPIER INVESTOR SERVICES, INC.
(NAME OF BROKER/DEALER)
BY: BY:
----------------------------------- ------------------------------------
(SIGNATURE OF AUTHORIZED PERSON)
TITLE: TITLE:
-------------------------------- ---------------------------------
DATE: DATE:
--------------------------------- ----------------------------------
KEYPORT LIFE INSURANCE COMPANY
BY:
-----------------------------------
TITLE:
--------------------------------
DATE:
---------------------------------
<PAGE>
EXHIBIT (4f)
<PAGE>
Keyport Logo Keyport
Life Insurance Company
A Stock Company
---------------------------------------
This Group Contract, as issued to the Group Contract Owner by Us with any
riders or endorsements, alone makes up the agreement under which benefits are
paid. The Group Contract may be inspected at the office of the Group Contract
Owner. In consideration of any application for a Certificate and the payment
of purchase payments, We agree, subject to the terms and conditions of the
Group Contract, to provide the benefits described in the Certificate to the
Certificate Owner.
If a Certificate is In Force on the Income Date, We will begin making income
payments to the Annuitant. We will make such payments according to the terms
of the Certificate and Group Contract.
RIGHT TO EXAMINE CERTIFICATE: A Certificate Owner may return a Certificate
to Us or the agent through whom it was purchased within 10 days of receipt.
If so returned, We will treat the Certificate as though it were never issued.
Upon receipt We will promptly refund the Certificate Value as of the date
the returned Certificate is received by Us plus any charges We may have
previously deducted.
READ THIS CONTRACT CAREFULLY.
/S/ JAMES J. KLOPPER /S/ JOHN W. ROSENSTEEL
- -------------------------------- --------------------------------
Secretary President
GROUP VARIABLE ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
ANNUITY PAYMENTS AND OTHER VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A
SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
THIS IS EXPLAINED FURTHER ON
PAGES 11 AND 18.
<PAGE>
TABLE OF CONTENTS
Page
Right to Examine Certificate . . . . . . . . . . . . . . . . . . . . . . . .1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Contract Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3A
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Variable Account Provisions. . . . . . . . . . . . . . . . . . . . . . . . 10
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partial Withdrawals and Total Surrender. . . . . . . . . . . . . . . . . . 14
Death Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Endorsements (if any) are before page. . . . . . . . . . . . . . . . . . . 22
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Income Date during which
Purchase Payments may be made by a Certificate Owner.
ACCUMULATION UNIT: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
ADJUSTED CERTIFICATE VALUE: The Certificate Value less any applicable taxes
relating to a Certificate and Certificate Maintenance Charge. This amount is
applied to the applicable Annuity Tables to determine Annuity Payments.
ANNUITANT: The natural person on whose life Annuity Payments are based, and
to whom any Annuity Payments will be made starting on the Income Date.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Annuitant, starting on
the Income Date, under the Annuity Option selected.
ANNUITY PERIOD: The period after the Income Date during which Annuity
Payments are made.
ANNUITY UNIT: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who controls the Certificate if
any Certificate Owner dies before the Income Date.
(Definitions continue on page 4)
KEYPORT LIFE INSURANCE COMPANY
125 High Street, Boston, MA 02110
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CONTRACT SCHEDULE
GROUP CONTRACT OWNER [Keyport Insurance Trust]
GROUP CONTRACT NUMBER [678999]
GROUP CONTRACT ISSUE DATE [1/30/96]
MINIMUM INITIAL PAYMENT [$5,000]
MINIMUM ADDITIONAL PAYMENT [$1,000]
CHARGES
DISTRIBUTION CHARGE - None
ADMINISTRATIVE CHARGE - None
MORTALITY AND EXPENSE RISK CHARGE - We deduct [0.000957%] of the assets in each
Variable Account Sub-account on a daily basis (equivalent to an annual rate of
[.35%]) for Our mortality and expense risks.
CERTIFICATE MAINTENANCE CHARGE - We charge $35 to cover a portion of Our ongoing
Certificate maintenance expenses. The charge is incurred at the beginning of
the Certificate Year and is deducted on each Certificate Anniversary and at the
time of total surrender.
TRANSFER CHARGE - Currently none, however, We reserve the right to charge $25
for a transfer if a Certificate Owner makes more than 12 transfers per
Certificate Year.
SURRENDER CHARGE - None
INITIAL PURCHASE PAYMENT ALLOCATION
Currently, Certificate Owners can select 7 Sub-accounts. We reserve the right
to increase or decrease the number of available Sub-accounts. The minimum a
Certificate Owner may allocate to any Sub-account is 10% of any Purchase
Payment. An initial Purchase Payment may be invested as follows:
Manning & Napier Moderate Growth
Manning & Napier Growth
Manning & Napier Maximum Horizon
Manning & Napier Equity
Manning & Napier Small Cap
Manning & Napier Bond
SteinRoe Cash Income Fund
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TRANSFER GUIDELINES
NUMBER OF TRANSFERS AND TRANSFER CHARGE: Currently, Certificate Owners are
permitted 12 transfers per Certificate Year during the Accumulation Period
and 1 transfer every 6 months during the Annuity Period. We reserve the
right to change, upon notice, the frequency of transfers a Certificate Owner
can make. We also reserve the right to impose a charge for any transfer in
excess of 12 per Certificate Year. The transfer charge is shown in the
Charges section of the Schedule.
MINIMUM AMOUNT TO BE TRANSFERRED: None
MINIMUM AMOUNT WHICH MUST REMAIN IN A SUB-ACCOUNT AFTER TRANSFER: None
PARTIAL WITHDRAWALS
A Certificate Owner may make partial withdrawals during the Accumulation Period
without incurring a Surrender Charge.
MINIMUM WITHDRAWAL AMOUNT: $300, unless the withdrawal is made pursuant to Our
systematic withdrawal program, in which case the minimum withdrawal is $100.
MINIMUM CERTIFICATE VALUE WHICH MUST REMAIN AFTER A PARTIAL WITHDRAWAL: $2,500.
DEATH BENEFITS
ADJUSTMENT OF CERTIFICATE VALUE
When We receive due proof of death of the Certificate Owner, or the Annuitant
if the Certificate Owner is a non-natural Person, We will compare, as of the
date of death, the Certificate Value to the Death Benefit amount defined in
the Certificate Schedule. If the Certificate Value is less than the Death
Benefit, We will increase the current Certificate Value by the amount of the
difference. Any amount credited will be allocated to the Variable Account
based on the Purchase Payment allocation selection that is in effect when We
receive due proof of death.
DEATH BENEFIT AMOUNT
A Certificate Schedule will contain one [or more] of the following Death Benefit
provisions.
PURCHASE PAYMENT DEATH BENEFIT
On the Certificate Date the Death Benefit is the initial Purchase Payment.
On subsequent Valuation Dates, the Death Benefit is calculated as follows:
(1) Start with the Death Benefit from the prior Valuation Date;
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(2) Add to (1) any additional Purchase Payments paid during the current
Valuation Period and subtract from (1) any partial withdrawals
(including any associated Surrender Charge incurred) made during the
current Valuation Period.
THE VARIABLE SEPARATE ACCOUNT[S]
SUB-ACCOUNTS INVESTING IN SHARES OF MUTUAL FUNDS
Variable Account A is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Rhode Island, Our state of
domicile. Variable Account A is divided into Sub-accounts. Each Sub-account
listed below invests in shares of the corresponding Portfolio of the Eligible
Fund shown.
SUB-ACCOUNT ELIGIBLE FUND AND PORTFOLIO
MANNING & NAPIER INSURANCE FUND, INC.
-------------------------------------
MODERATE GROWTH Manning & Napier Moderate Growth
SUB-ACCOUNT Portfolio seeks with equal emphasis long-term growth
and preservation of capital.
GROWTH SUB-ACCOUNT Manning & Napier Growth Portfolio - seeks long term
growth of capital. The secondary objective is the
preservation of capital.
MAXIMUM HORIZON Manning & Napier Maximum Horizon
SUB-ACCOUNT Portfolio -seeks to achieve the high level of long-term
capital growth typically associated with the stock
market.
SMALL CAP SUB-ACCOUNT Manning & Napier Small Cap Portfolio - seeks to achieve
long term growth of capital by investing principally in
the equity securities of small issuers.
EQUITY SUB-ACCOUNT Manning & Napier Equity Portfolio- seeks long-term
growth of capital.
BOND SUB-ACCOUNT Manning & Napier Bond Portfolio - seeks to maximize
total return in the form of both income and capital
appreciation by
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investing in fixed income securities without regard
to maturity.
STEINROE VARIABLE INVESTMENT TRUST
----------------------------------
CIF SUB-ACCOUNT ("MONEY CASH INCOME FUND - seeks high current
MARKET" SUB-ACCOUNT) income from short-term money market investments while
emphasizing preservation of capital and maintaining
excellent liquidity.
SUB-ACCOUNTS INVESTING DIRECTLY IN SECURITIES - None
THE FIXED ACCOUNT - None
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DEFINITIONS (CONTINUED)
CERTIFICATE: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract.
CERTIFICATE ANNIVERSARY: An anniversary of the Certificate Date.
CERTIFICATE DATE: The date a Certificate is issued to a Certificate Owner.
The Certificate Date is shown on the Certificate Schedule.
CERTIFICATE OWNER: The person who owns a Certificate under the Group
Contract. Any Joint Certificate Owners and the Certificate Owner own the
Certificate equally with rights of survivorship. All Owners must exercise
ownership rights and privileges together, including the signing of Written
Requests.
CERTIFICATE VALUE: The sum of the Certificate Owner's interest in the
Sub-accounts of the Variable Account and the Fixed Account during the
Accumulation Period.
CERTIFICATE YEAR: The first Certificate Year is the annual period which
begins on the Certificate Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
ELIGIBLE FUND: An investment entity shown on the Certificate Schedule.
FIXED ACCOUNT: The account We establish to support Fixed Allocations. The
Contract Schedule shows whether the Fixed Account is available under the
Certificates.
FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated
under a Certificate prior to the Income Date.
FIXED ALLOCATION: An amount allocated to the Fixed Account that is credited
with a Guaranteed Interest Rate for a specified Guarantee Period.
FIXED ANNUITY: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
GENERAL ACCOUNT: Our general investment account which contains all of Our
assets except those in the Variable Account and Our other separate accounts.
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GROUP CONTRACT OWNER: The person or entity to which the Group Contract is
issued.
GUARANTEED INTEREST RATE: The effective annual interest rate which We will
credit for a specified Guarantee Period.
GUARANTEE PERIOD: The period of year(s) a rate of interest is guaranteed to
be credited within the Fixed Account.
INCOME DATE: The date on which Annuity Payments begin. The Income Date is
shown on the Certificate Schedule.
IN FORCE: The status of a Certificate before the Income Date so long as it
has not been totally surrendered and there has not been a death of a
Certificate Owner or Joint Certificate Owner that will cause the Certificate
to end within five years of the date of death.
OFFICE: Our executive office shown on the Certificate Schedule.
PERSON: A human being, trust, corporation, or any other legally recognized
entity.
PORTFOLIO: A series of an Eligible Fund which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENT: A payment made by or on behalf of a Certificate Owner with
respect to a Certificate.
SUB-ACCOUNT: Variable Account assets are divided into Sub-accounts. Assets
of each Sub-account will be invested in shares of a Portfolio of an Eligible
Fund, or directly in portfolio securities.
VALUATION DATE: Each day on which We and the New York Stock Exchange
("NYSE") are open for business, or any other day that the Securities and
Exchange Commission requires that mutual funds, unit investment trusts or
other investment portfolios be valued.
VALUATION PERIOD: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business on the
next succeeding Valuation Date.
VARIABLE ACCOUNT: Our Variable Account(s) shown on the Certificate Schedule.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-accounts of the
Variable Account.
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WE, US, OUR: Keyport Life Insurance Company.
WRITTEN REQUEST: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
GENERAL PROVISIONS
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Certificate Date. It must be paid
at Our Office in United States currency. Coverage under a Certificate does
not take effect until We have accepted the initial Purchase Payment during a
Certificate Owner's lifetime. Each Purchase Payment after the Certificate
Date must be at least the amount shown on the Certificate Schedule. Provided
the Certificate Value under a Certificate does not go to zero, a Certificate
will stay in force until the Income Date even if a Certificate Owner make no
payments after the initial one. We reserve the right to reject any
subsequent Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
An initial Purchase Payment is allocated to the Sub-accounts of the Variable
Account, and to the Fixed Account if available, in accordance with the
selections made by a Certificate Owner at the Certificate Date. Unless
otherwise changed by a Certificate Owner, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment. Allocation of
Purchase Payments is subject to the terms and conditions imposed by Us. We
reserve the right to allocate initial Purchase Payments to the Money Market
Sub-account until the expiration of the Right to Examine Certificate period
set forth on the first page of the Group Contract and the Certificate.
THE CONTRACT
The Group Contract, including the application, if any, and any attached rider
or endorsement constitute the entire contract between the Group Contract
Owner and Us. All statements made by the Group Contract Owner, any
Certificate Owner or any Annuitant will be deemed representations and not
warranties. No such statement will be used in any contest unless it is
contained in the application signed by the Group Contract Owner or in a
written instrument signed by the Certificate Owner, a copy of which has been
furnished to the Certificate Owner, the Beneficiary or to the Group Contract
Owner.
Only Our President or Secretary may agree to change any of the terms of the
Group Contract. Any changes must be in writing. Any
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change to the terms of a Certificate must be in writing and with Certificate
Owner's consent, unless provided otherwise by the Group Contract and the
Certificate.
To assure that the Group Contract and the Certificate will maintain their
status as a variable annuity under the Internal Revenue Code, We reserve the
right to change the Group Contract and any Certificate issued thereunder to
comply with future changes in the Internal Revenue Code, any regulations or
rulings issued thereunder, and any requirements otherwise imposed by the
Internal Revenue Service. The Group Contract Owner and the affected
Certificate Owner will be sent a copy of any such amendment.
We reserve the right, subject to compliance with the law as currently
applicable or subsequently changed, to: (a) operate the Variable Account in
any form permitted under the Investment Company Act of 1940, as amended,
(the "1940 Act"), or in any other form permitted by law; (b) take any action
necessary to comply with or obtain and continue any exemptions from the 1940
Act, or to comply with any other applicable law; (c) transfer any assets in
any Sub-account to another Sub-account, or to one or more separate investment
accounts, or the General Account; or to add, combine or remove Sub-accounts
in the Variable Account; and (d) change the way We assess charges, so long as
We do not increase the aggregate amount beyond that currently charged to the
Variable Account and the Eligible Funds in connection with a Certificate. If
the shares of any of the Eligible Funds should become unavailable for
investment by the Variable Account or if in Our judgment further investment
in such Portfolio shares should become inappropriate in view of the purpose
of the Certificate, We may add or substitute shares of another mutual fund
for the Portfolio shares already purchased under the Certificate. No
substitution of Portfolio shares in any Sub-account may take place without
prior approval of the Securities and Exchange Commission and notice to the
affected Certificate Owners, to the extent required by the 1940 Act.
CERTIFICATE OWNER
A Certificate Owner has all rights and may receive all benefits under a
Certificate. A Certificate Owner is the person designated as such on the
Certificate Date, unless changed. A Certificate Owner may exercise all
rights of a Certificate while it is In Force, subject to the rights of (a)
any assignee under an assignment filed with Us, and (b) any irrevocably named
Beneficiary.
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JOINT CERTIFICATE OWNER
A Certificate can be owned by Joint Certificate Owners. Upon the death of
any Certificate Owner or Joint Certificate Owner, the surviving owner(s) will
be the primary Beneficiary(ies). Any other beneficiary designation will be
treated as a Contingent Beneficiary unless otherwise indicated in a Written
Request filed with Us.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by a Certificate Owner at the Certificate
Date, unless changed prior to the Income Date. Any change of Annuitant is
subject to Our underwriting rules then in effect. The Annuitant may not be
changed in a Certificate which is owned by a non-natural person. A
Certificate Owner may name a Contingent Annuitant. The Contingent Annuitant
becomes the Annuitant if the Annuitant dies while a Certificate is In Force.
If the Annuitant dies and no Contingent Annuitant has been named, We will
allow a Certificate Owner sixty days to designate someone other than the
Certificate Owner as Annuitant. The Certificate Owner will be the Contingent
Annuitant unless the Certificate Owner names someone else. If the Certificate
is owned by a non-natural person, the death of the Annuitant will be treated
as the death of the Certificate Owner and a new Annuitant may not be
designated.
BENEFICIARY
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint
Certificate Owner, the surviving owner(s) will become the primary
Beneficiary. Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request filed
with Us. If a Certificate Owner names more than one Person as Primary
Beneficiary or as Contingent Beneficiary, and does not state otherwise on an
application or in a Written Request to Us, any non-survivors will not receive
a benefit. The survivors will receive equal shares. Subject to the rights
of any irrevocable Beneficiary(ies), a Certificate Owner may change primary
or contingent Beneficiary(ies). A change must be made by Written Request and
will be effective as of the date the Written Request is signed. We will not
be liable for any payment We make or action We take before We receive the
Written Request.
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GROUP CONTRACT OWNER
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the
claims of the Group Contract Owner or any of its creditors. The Group
Contract Owner may transfer ownership of this Group Contract. Any transfer
of ownership terminates the interest of any existing Group Contract Owner.
It does not change the rights of any Certificate Owner.
CHANGE OF CERTIFICATE OWNER, BENEFICIARY OR CONTINGENT ANNUITANT
While a Certificate is In Force, a Certificate Owner may by Written Request
change the primary Certificate Owner, Joint Certificate Owner, primary
Beneficiary, Contingent Beneficiary, Contingent Annuitant, or in certain
instances, the Annuitant. An irrevocably named Person may be changed only
with the written consent of such Person. The change will be effective,
following Our receipt of the Written Request, as of the date the Written
Request is signed. The change will not affect any payments We make or actions
We take prior to the time We receive the Written Request.
ASSIGNMENT OF THE CERTIFICATE
A Certificate Owner may assign a Certificate at any time while it is In
Force. The assignment must be in writing and a copy must be filed at Our
Office. A Certificate Owner's rights and those of any revocably named Person
will be subject to the assignment. An assignment will not affect any
payments We make or actions We take before We receive the assignment. We are
not responsible for the validity of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have begun, any underpayment(s) that have been made will be paid in
full with the next Annuity Payment. Any overpayment, unless repaid to Us in
one sum, will be deducted from future Annuity Payments otherwise due until We
are repaid in full.
NON-PARTICIPATING
A Certificate does not participate in Our divisible surplus.
EVIDENCE OF DEATH, AGE, SEX OR SURVIVAL
If a Certificate provision relates to the death of a natural Person, We will
require proof of death before We will act under
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that provision. Proof of death shall be: (a) a certified death certificate;
or (b) a certified decree of a court of competent jurisdiction as to the
finding of death; or (c) a written statement by a medical doctor who attended
the deceased; or (d) any other document constituting due proof of death under
applicable state law. If Our action under a Certificate provision is based
on the age, sex, or survival of any Person, We may require evidence of the
particular fact before We act under that provision.
PROTECTION OF PROCEEDS
No Beneficiary or payee may commute or assign any payments under a
Certificate before they are due. To the extent permitted by law, no payments
shall be subject to the debts of any Beneficiary or payee or to any judicial
process for payment of those debts.
REPORTS
We will send Certificate Owners a report that shows the Certificate Value at
least once each Certificate Year. We will send any other reports that may be
required by law.
TAXES
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Purchase Payments or Certificate Value. We may, in Our
sole discretion, delay the deduction until a later date. By not deducting
tax payments at the time of Our payment, We do not waive any right We may
have to deduct amounts at a later date. We will, in Our sole discretion,
determine when taxes relate to a Certificate or to the operation of the
Variable Account. We reserve the right to establish a provision for federal
income taxes if We determine, in Our sole discretion, that We will incur a
tax as a result of the operation of the Variable Account. Such a provision
will be reflected in the Accumulation and Annuity Unit Values. We will
deduct for any income taxes incurred by Us as a result of the operation of
the Variable Account whether or not there was a provision for taxes and
whether or not it was sufficient. We will deduct from any payment under a
Certificate any withholding taxes required by applicable law.
REGULATORY REQUIREMENTS
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
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SUSPENSION OR DEFERRAL OF PAYMENTS
We reserve the right to suspend or postpone payments for a withdrawal,
transfer, surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
(3) an emergency exists as a result of which valuation or disposal of the
assets and securities of the Variable Account is not reasonably
practicable; or
(4) the Securities and Exchange Commission, by order or pronouncement, so
permits for the protection of Certificate Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission govern as to whether the conditions described in (2) and (3) above
exist.
We reserve the right to delay payment of amounts allocated to the Fixed
Account for up to six months.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT
The Variable Account(s) is designated on the Certificate Schedule and
consists of assets set aside by Us, which are kept separate from Our general
assets and all other variable account assets We maintain. We own the assets
of the Variable Account. Variable Account assets equal to reserves and other
contract liabilities will not be chargeable with liabilities arising out of
any other business We may conduct. We may transfer to Our General Account
assets which exceed the reserves and other liabilities of the Variable
Account. Income and realized and unrealized gains or losses from assets in
the Variable Account are credited to or charged against the account without
regard to other income, gains or losses in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The Sub-accounts
which are available under the Certificate are shown on the Certificate
Schedule. The assets of the Sub-accounts of the unit investment trust
variable separate account are allocated to the Eligible Fund(s) and the
Portfolio(s), if applicable, within an Eligible Fund shown on the Certificate
Schedule. The assets of the
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Sub-accounts of the investment company variable separate account, if
applicable, are invested in portfolios of securities designed to meet the
objectives of the Sub-Account shown on the Certificate Schedule. We may,
from time to time, add additional Sub-accounts, Eligible Funds or Portfolios
to those shown on the Certificate Schedule. A Certificate Owner may be
permitted to transfer Certificate Values or allocate Purchase Payments to the
additional Sub-Accounts, Eligible Funds or Portfolios. However, the right to
make such transfers or allocations will be limited by the terms and
conditions imposed by Us.
We also have the right to eliminate Sub-accounts from the Variable Account,
to combine two or more Sub-accounts or to substitute a new Portfolio for the
Portfolio in which a Sub-account invests. A substitution may become
necessary if, in Our discretion, a Portfolio or Sub-account no longer suits
the purposes of the Group Contract. This may happen: due to a change in
laws or regulations or a change in a Portfolio's investment objectives or
restrictions; because the Portfolio or Sub-account is no longer available for
investment; or for some other reason. We will obtain any prior approvals
that may be required from the insurance department of Our state of domicile,
and from the SEC or any other governmental entity before making such a
substitution.
When permitted by law, We reserve the right to:
(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940 Act,
if it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the 1940
Act, if it
is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
VALUATION OF ASSETS
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
ACCUMULATION UNITS
A Certificate Owner's Variable Account value will fluctuate in accordance
with the investment results of the Sub-accounts to which the Certificate
Owner has allocated his or her Purchase Payments or Certificate Value. In
order to determine how these fluctuations
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affect a Certificate Owner's Certificate Value, We use an Accumulation Unit
value. Accumulation Units are used to account for all amounts allocated to
or withdrawn from the Sub-accounts of the Variable Account as a result of
Purchase Payments, partial withdrawals, transfers, or charges deducted from
the Certificate Value. We determine the number of Accumulation Units of a
Sub-account purchased or cancelled by dividing the amount allocated to, or
withdrawn from, the Sub-account by the dollar value of one Accumulation Unit
of the Sub-account as of the end of the Valuation Period during which We
receive the request for the transaction.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-account was initially set at $10.
Subsequent Accumulation Unit Values for each Sub-account are determined by
multiplying the Accumulation Unit Value for the immediately preceding
Valuation Period by a net investment factor for the Sub-account for the
current period. This factor may be greater or less than 1.0; therefore, the
Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
We calculate the net investment factor for each Sub-account investing in
shares of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the Sub-
account invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio that has an ex-
dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of the
preceding Valuation Period.
(c) is equal to:
(i) the sum of each Valuation Period equivalent of the annual rate
for the Mortality and Expense Risk Charge, for the Administrative
Charge, and for the Distribution Charge, if any, which are shown
on the Certificate Schedule; plus
(ii) a charge factor, if any, for any tax provision established by Us
a result of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing
directly in securities with the same formula, except:
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(a) is equal to:
(i) the value of the assets in the Sub-account at the end of the
preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or unrealized,
credited to the assets during the current Valuation Period; less
(iii)any capital losses, realized or unrealized, charged against the
assets during the current Valuation Period; less
(iv) all operating and investment expenses relating to the assets that
are incurred during the current Valuation Period.
(b) is the value of the assets in the Sub-account at the end of the
preceding Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period We deduct a Mortality and Expense Risk Charge from each
Sub-account of the Variable Account which is equal, on an annual basis, to
the amount shown on the Certificate Schedule. The Mortality and Expense Risk
Charge compensates Us for assuming the mortality and expense risks with
respect to the Certificates We issue. We guarantee the dollar amount of each
Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
ADMINISTRATIVE CHARGE
Each Valuation Period We deduct an Administrative Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Administrative Charge compensates Us for the costs
associated with administration of the Variable Account and the Certificates
We issue.
DISTRIBUTION CHARGE
Each Valuation Period We deduct a Distribution Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Distribution Charge compensates Us for the costs
associated with the distribution of the Certificates We issue.
CERTIFICATE MAINTENANCE CHARGE
We deduct a Certificate Maintenance Charge from the Certificate Value by
cancelling Accumulation Units from each applicable Sub-account to reimburse
Us for expenses relating to the maintenance of the Certificate. We will
deduct the Certificate Maintenance
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Charge from the Sub-accounts of the Variable Account in the same proportion
that the amount of Certificate Value in each Sub-account bears to the
Certificate Value. The Certificate Maintenance Charge is shown on the
Certificate Schedule. The Certificate Maintenance Charge will be deducted
from the Certificate Value on each Certificate Anniversary during the
Accumulation Period.
If a total surrender is made on a date other than a Certificate Anniversary,
the Certificate Maintenance Charge will be deducted at the time of surrender.
During the Annuity Period, the Certificate Maintenance Charge will be
deducted on a pro-rata basis from each Annuity Payment.
TRANSFERS
TRANSFERS: Subject to any limitation We impose on the number of transfers
permitted in a Certificate Year, a Certificate Owner may transfer all or part
of Certificate Owner's Certificate Value among the Sub-accounts and the Fixed
Account, if any, by Written Request or by telephone without the imposition of
any fees or charges. Transfers among the Sub-accounts and the Fixed Account
are permitted only during the Accumulation Period. The number of permitted
transfers, and the charge for transfers in excess of that number, are shown
on the Certificate Schedule. All transfers are subject to the following:
(1) If more than the number of free transfers, shown on the Certificate
Schedule, are made in a Certificate Year, We will deduct a transfer charge,
shown on the Certificate Schedule, for each subsequent transfer. The
transfer fee will be deducted from the Sub-account from which the transfer is
made. However, if Certificate Owner transfers his or her entire interest in a
Sub-account, the transfer fee will be deducted from the amount transferred.
If a Certificate Owner makes a transfer from more than one Sub-account, any
transfer fee will be allocated pro-rata among such Sub-accounts in proportion
to the amount transferred from each.
(2) During the Annuity Period, transfers of values between Sub-accounts
will be made by converting the number of Annuity Units being transferred to
the number of Annuity Units in the Sub-account to which a transfer is made,
so that the next Annuity Payment, if it were made at that time, would be the
same amount that it would have been without the transfer. Thereafter,
Annuity Payments will reflect changes in the value of the new Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain
PAGE 15
<PAGE>
in a Sub-account after a transfer is shown on the Certificate Schedule.
(4) If 100% of the value of any Sub-account is transferred and the
current allocation for Purchase Payments includes that Sub-account, the
allocation for future Purchase Payments will change to reflect a Certificate
Owner's allocation of Certificate Value following the transfer.
(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described
above.
We will not be liable for transfers made in accordance with a Certificate
Owner's instructions. All amounts and Accumulation Units will be determined
as of the end of the Valuation Period in which We receive the request for
transfer.
PARTIAL WITHDRAWALS AND TOTAL SURRENDER
PARTIAL WITHDRAWALS
During the Accumulation Period while the Certificate is In Force, a
Certificate Owner may, upon Written Request, make a partial withdrawal,
subject to the provisions and limitations shown on the Certificate Schedule.
For purposes of determining whether a Surrender Charge is applicable to a
partial withdrawal:
(1) A partial withdrawal will first be taken from the portion of a
Certificate Owner's Certificate Value which is in excess of Purchase
Payments, and then from Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the
order inwhich the Purchase Payments were made, starting with the first.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-account in the ratio that a Certificate Owner's interest in
the Sub-account bears to his or her Certificate Value in all the
Sub-accounts. A Certificate Owner must specify by Written Request in advance
if he or she wants Accumulation Units to be cancelled in a manner other than
the method described above. If there is no value or insufficient value in
the Variable Account, then the amount withdrawn, or the insufficient portion,
will be deducted from the Fixed Account. If a Certificate Owner has multiple
Guarantee Periods, We will deduct such amount from each Guarantee Period's
values in the ratio that each Period's values bears to the total Fixed
Account Value. A Certificate Owner must
PAGE 16
<PAGE>
specify by Written Request in advance if he or she wants multiple Guarantee
Periods to be reduced in a manner other than the method described above.
Each partial withdrawal must be for an amount not less than the amount shown
on the Certificate Schedule. The Certificate Value which must remain in a
Certificate is shown on the Certificate Schedule. The Certificate Schedule
also shows any charge.
TOTAL SURRENDER
During the Accumulation Period while the Certificate is In Force, a
Certificate Owner may, upon Written Request, make a total surrender of the
Certificate Withdrawal Value. The Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation Period during
which We receive a Written Request for a withdrawal or surrender; less
(2) any applicable taxes not previously deducted; less
(3) any Surrender Charge; less
(4) any Certificate Maintenance Charge.
We will pay the amount of any withdrawal or surrender within seven days
unless the Suspension or Deferral of Payments Provision is in effect.
DEATH PROVISIONS
DEATH OF CERTIFICATE OWNER
These provisions apply if, during the Accumulation Period while the
Certificate is In Force, the Certificate Owner or any Joint Certificate Owner
dies (whether or not the decedent is also the Annuitant) or the Annuitant
dies under a Certificate owned by a non-natural Person. The "designated
beneficiary" will control the Certificate after such a death. This
"designated beneficiary" will be the first Person among the following who is
alive on the date of death: Certificate Owner; Joint Certificate Owner;
primary Beneficiary; Contingent Beneficiary; and Certificate Owner's estate.
If the Certificate Owner and Joint Certificate Owner are both alive, they
shall be the "designated beneficiary" together.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE "DESIGNATED
BENEFICIARY", the surviving spouse will automatically become the
PAGE 17
<PAGE>
new sole Certificate Owner as of the date of the death. And, if the
Annuitant is the decedent, the new Annuitant will be any living Contingent
Annuitant, otherwise the surviving spouse. The Certificate may stay in force
until another death occurs (i.e., until the death of the Certificate Owner or
Joint Certificate Owner). Except for this paragraph, all of "Death
Provisions" will apply to that subsequent death.
IN ALL OTHER CASES, the Certificate may stay in force up to five years from
the date of death. During this period, the "designated beneficiary" may
exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to surrender the Certificate for its
Certificate Withdrawal Value. If this Certificate is still in force at the
end of the five-year period, We will automatically end it then by paying to
the "designated beneficiary" the Certificate Withdrawal Value without the
deduction of any applicable Surrender Charges. If the "designated
beneficiary" is not alive then, We will pay any Person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
DEATH OF ANNUITANT
These provisions apply if during the Accumulation Period while the
Certificate is In Force, (a) the Annuitant dies, (b) the Annuitant is not an
Owner, and (c) the Owner is a natural person. The Certificate will continue
In Force after the Annuitant's death. The new Annuitant will be any living
Contingent Annuitant, otherwise the Certificate Owner.
PAYMENT OF BENEFITS
Instead of receiving a lump sum, a Certificate Owner or any "designated
beneficiary" may by Written Request direct that We pay any benefit of $5,000
or more under an Annuity Option that meets the following: (a) the first
payment to the "designated beneficiary" must be made no later than one year
after the date of death; (b) payments must be made over the life of the
"designated beneficiary" or over a period not extending beyond that person's
life expectancy; and (c) any Annuity Option that provides for payments to
continue after the death of the "designated beneficiary" will not allow the
successor payee to extend the period of time over which the remaining
payments are to be made.
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<PAGE>
ANNUITY PROVISIONS
GENERAL
If the Certificate is In Force on the Income Date, the Adjusted Certificate
Value will be applied under the Annuity Option selected by a Certificate
Owner. Annuity Payments may be made on a fixed or variable basis or both.
INCOME DATE
The Income Date may be selected by a Certificate Owner. It is shown on the
Certificate Schedule. The Income Date can be any time after the Certificate
Date for variable payments and any time after the first Certificate
Anniversary for fixed payments. The Income Date may not be later than the
earlier of when the Annuitant reaches attained age 90 or that required under
state law. If no Income Date is selected, it will be the earlier of when the
Annuitant reaches attained age 90 or the maximum date permitted under state
law, if any.
Prior to the Income Date, a Certificate Owner may change the Income Date by
Written Request. Any change must be requested at least 30 days prior to the
new Income Date.
SELECTION OF AN ANNUITY OPTION
An Annuity Option may be selected by a Certificate Owner. If no Annuity
Option is selected, Option B will automatically be applied. Prior to the
Income Date, a Certificate Owner can change the Annuity Option selected by
Written Request. Any change must be requested at least 30 days prior to the
Income Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments are paid in monthly installments unless quarterly,
semi-annual or annual payments are chosen. The Adjusted Certificate Value is
applied to the Annuity Table for the Annuity Option selected. If the
Adjusted Certificate Value to be applied under an Annuity Option is less than
$5,000, We reserve the right to make a lump sum payment in lieu of Annuity
Payments. If the Annuity Payment would be or becomes less than $100, We will
reduce the frequency of payments to a longer interval which will result in
each payment being at least $100.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to Us
may be selected:
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OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to continue for
the remainder of the period, he/she may elect to have the present value of
the remaining payments commuted and paid in a lump sum. During the payment
period of a Variable Annuity, the payee may elect by Written Request to
receive the following amount: (a) the present value of the remaining
payments commuted; less (b) any Surrender Charge that may be due by
treating the value defined in (a) as a surrender. Instead of receiving a
lump sum, the payee may elect another Annuity Option. The amount applied
to that Option would not be reduced by the charge defined in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity Payments
during the lifetime of the payee and in any event for 10 years certain. If
the payee dies during the guaranteed payment period and the Beneficiary
does not desire payments to continue for the remainder of the guaranteed
period, he/she may elect to have the present value of the guaranteed
payments remaining commuted and paid in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during the
joint lifetime of the payee and a designated second natural person and then
during the lifetime of the survivor.
Unless the Annuity Option provides for commutation by the payee, a payee may
not withdraw or otherwise end an Annuity Option after it begins. Payments
will end upon the payee's death unless the Annuity Option provides for
payments continuing to a successor payee. No successor payee may extend the
period of time over which the remaining payments are to be made.
ANNUITY
If a Certificate Owner selects a Fixed Annuity, the Adjusted Certificate
Value is allocated to the General Account and the Annuity is paid as a Fixed
Annuity. If the Certificate Owner selects a Variable Annuity, the Adjusted
Certificate Value will be allocated to the Sub-accounts of the Separate
Account in accordance with the selection he or she makes, and the Annuity
will be paid as a Variable Annuity. A Certificate Owner can also select a
combination of a Fixed and Variable Annuity and the Adjusted Certificate
Value will be allocated accordingly. If a Certificate Owner does not select
between a Fixed Annuity and a Variable Annuity, any Adjusted Certificate
Value in the Variable Account will be applied to a Variable Annuity and any
Adjusted Certificate Value in the Fixed Account will be applied to a Fixed
Annuity.
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<PAGE>
The Adjusted Certificate Value will be applied to the applicable Annuity
Table contained in the Certificate based upon the Annuity Option a
Certificate Owner selects. If, as of the Income Date, the current Annuity
Option rates applicable to the class of Certificates issued under the Group
Contract provide an initial Annuity Payment greater than the initial Annuity
Payment guaranteed under the applicable Annuity Table in the Certificate, the
greater payment will be made.
FIXED ANNUITY
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. After the initial
Fixed Annuity payment, the payments will not change regardless of investment,
mortality or expense experience.
VARIABLE ANNUITY
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value
to the Sub-accounts during the Annuity Period. Variable Annuity payments are
not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount
of Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is divided by
the value of an Annuity Unit for each applicable Sub-account as of the
Income Date. This sets the number of Annuity Units for each monthly
payment for the applicable Sub-account. The number of Annuity Units
for each applicable Sub-account remains fixed during the Annuity
Period;
(2) the fixed number of Annuity Units per payment in each Sub-account is
multiplied by the Annuity Unit Value for that Sub-account for the
Valuation Period for which the payment is due. This result is the
dollar amount of the payment for each applicable Sub-account.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account Variable Annuity payments reduced by the applicable portion of
the Certificate Maintenance Charge.
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<PAGE>
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account
was initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation
Period is determined as follows:
(1) the net investment factor calculated as set forth on pages 11-12 (but
without the Distribution Charge, if any) for the current Valuation
Period is multiplied by the value of the Annuity Unit for the Sub-
account for the immediately preceding Valuation Period.
(2) the result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Valuation Period equivalent of the
Assumed Investment Rate for the number of days in the current
Valuation Period. The Assumed Investment Rate is equal to 6% per year.
The value of an Annuity Unit may increase or decrease from Valuation Period
to Valuation Period.
USING THE TABLES
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
DATE OF FIRST PAYMENT AGE SETBACK
--------------------- -----------
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and
for any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next
section. Upon request, We will tell a Certificate Owner any such amount.
PAGE 22
<PAGE>
BASIS OF CALCULATION
Tables 1 and 4 are based on interest at 6% and 3%, respectively. Tables 2,
3, 5, and 6 are based on the 1983 Individual Annuity Valuation Tables,
weighted 40% male and 60% female, with interest at 6% (Tables 2 and 3) and 3%
(Tables 5 and 6), projected dynamically with Projection Scale G.
Page 23
<PAGE>
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION A FOR EACH $1,000
APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
- --------------------------------------------------------------------------------
5 $19.17 12 $9.63 19 $7.24 25 $6.32
6 16.42 13 9.12 20 7.04 26 6.21
7 14.46 14 8.69 21 6.86 27 6.11
8 13.00 15 8.31 22 6.70 28 6.02
9 11.87 16 7.99 23 6.56 29 5.94
10 10.97 17 7.71 24 6.43 30 5.87
11 10.24 18 7.46
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION B FOR EACH $1,000
APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
- --------------------------------------------------------------------------------
30 $5.09 43 $5.40 56 $6.06 69 $7.47 82 $ 9.72
31 5.11 44 5.44 57 6.13 70 7.63 83 9.87
32 5.13 45 5.47 58 6.21 71 7.79 84 10.02
33 5.14 46 5.51 59 6.30 72 7.95 85 10.15
34 5.16 47 5.55 60 6.39 73 8.12 86 10.27
35 5.18 48 5.60 61 6.48 74 8.30 87 10.38
36 5.20 49 5.64 62 6.59 75 8.48 88 10.48
37 5.23 50 5.69 63 6.69 76 8.66 89 10.57
38 5.25 51 5.74 64 6.81 77 8.84 90 10.65
39 5.28 52 5.80 65 6.93 78 9.03 91 10.72
40 5.31 53 5.86 66 7.05 79 9.21 92 10.77
41 5.34 54 5.92 67 7.19 80 9.38 93 10.82
42 5.37 55 5.99 68 7.33 81 9.55 94 10.86
95 10.89
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $4.97 $4.99 $5.00 $5.02 $5.04 $5.05 $5.06 $5.07 $5.08 $5.09 $5.09 $5.09 $5.10 $5.10
35 5.01 5.04 5.07 5.09 5.11 5.13 5.15 5.16 5.17 5.18 5.18 5.19 5.19
40 5.08 5.12 5.16 5.19 5.22 5.25 5.27 5.29 5.30 5.31 5.31 5.32
45 5.18 5.23 5.29 5.34 5.38 5.41 5.44 5.46 5.48 5.49 5.49
50 5.32 5.40 5.47 5.54 5.60 5.64 5.68 5.70 5.72 5.72
55 5.51 5.62 5.73 5.85 5.90 5.96 6.00 6.02 6.04
60 5.79 5.95 6.11 6.24 6.34 6.41 6.45 6.48
65 6.20 6.44 6.66 6.84 6.97 7.05 7.10
Page 24
<PAGE>
70 6.80 7.15 7.47 7.71 7.87 7.97
75 7.69 8.22 8.66 8.99 9.20
80 9.03 9.81 10.43 10.87
85 11.02 12.11 12.98
90 13.82 15.34
95 17.66
</TABLE>
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<PAGE>
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A FOR EACH $1,000
APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
- --------------------------------------------------------------------------------
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18 5.96
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH $1,000
APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
- --------------------------------------------------------------------------------
30 $3.05 43 $3.46 56 $4.24 69 $5.79 82 $8.24
31 3.07 44 3.50 57 4.32 70 5.96 83 8.41
32 3.09 45 3.55 58 4.41 71 6.13 84 8.57
33 3.12 46 3.60 59 4.51 72 6.31 85 8.72
34 3.15 47 3.65 60 4.61 73 6.50 86 8.85
35 3.18 48 3.70 61 4.71 74 6.69 87 8.97
36 3.21 49 3.76 62 4.82 75 6.88 88 9.08
37 3.24 50 3.82 63 4.94 76 7.08 89 9.18
38 3.27 51 3.88 64 5.07 77 7.28 90 9.27
39 3.31 52 3.94 65 5.20 78 7.48 91 9.34
40 3.34 53 4.01 66 5.34 79 7.68 92 9.40
41 3.38 54 4.08 67 5.48 80 7.87 93 9.46
42 3.42 55 4.16 68 5.63 81 8.06 94 9.50
95 9.53
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.88 $2.92 $2.95 $2.98 $3.00 $3.01 $3.02 $3.03 $3.04 $3.04 $3.04 $3.05 $3.05 $3.05
35 2.97 3.02 3.06 3.09 3.12 3.14 3.15 3.16 3.17 3.17 3.18 3.18 3.18
40 3.09 3.15 3.20 3.24 3.27 3.30 3.32 3.33 3.34 3.34 3.34 3.35
45 3.24 3.31 3.38 3.44 3.48 3.51 3.53 3.54 3.55 3.56 3.56
50 3.43 3.53 3.62 3.69 3.74 3.78 3.80 3.82 3.83 3.83
55 3.68 3.81 3.93 4.02 4.09 4.13 4.16 4.18 4.19
60 4.01 4.19 4.35 4.47 4.56 4.61 4.65 4.66
65 4.47 4.73 4.94 5.11 5.21 5.28 5.32
70 5.11 5.48 5.78 6.00 6.13 6.21
75 6.04 6.57 6.99 7.28 7.46
Page 26
<PAGE>
80 7.40 8.16 8.75 9.15
85 9.38 10.46 11.29
90 12.18 13.68
95 16.02
</TABLE>
Page 27
<PAGE>
ENDORSEMENTS
To be inserted only by Us
Page 28
<PAGE>
Keyport Logo Keyport
Life Insurance Company
A Stock Company
----------------------------------
GROUP VARIABLE ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
Page 29
<PAGE>
EXHIBIT (4g)
<PAGE>
Keyport LOGO
Keyport
Life Insurance Company
A Stock Company
------------------------------------------------
This Certificate describes the benefits and provisions of the Group Contract.
The Group Contract, as issued to the Group Contract Owner by Us with any
riders or endorsements, alone makes up the agreement under which benefits are
paid. The Group Contract may be inspected at the office of the Group Contract
Owner. In consideration of any application for this Certificate and the
payment of purchase payments, We agree, subject to the terms and conditions
of the Group Contract, to provide the benefits described in this Certificate
to the Certificate Owner.
If this Certificate is In Force on the Income Date, We will begin making
income payments to the Annuitant. We will make such payments according to
the terms of the Certificate and Group Contract.
RIGHT TO EXAMINE CERTIFICATE: You may return this Certificate to Us or the
agent through whom You purchased it within 10 days after You receive it. If
so returned, We will treat the Certificate as though it were never issued.
Upon receipt We will promptly refund the Certificate Value as of the date the
returned Certificate is received by Us plus any charges We may have
previously deducted.
READ THIS CERTIFICATE CAREFULLY.
/s/ JAMES J. Klopper /s/ John W. Rosensteel
-------------------- ----------------------
Secretary President
Variable Annuity Certificate
Flexible Purchase Payments
Deferred Income Payments
Nonparticipating -- No Dividends
ANNUITY PAYMENTS AND OTHER VALUES, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT. THIS IS EXPLAINED FURTHER ON
PAGES 11 AND 18.
<PAGE>
TABLE OF CONTENTS
Page
Right to Examine Certificate . . . . . . . . . . . . . . . . . . . . . . . . .1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Certificate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3A
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Variable Account Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 10
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partial Withdrawals and Total Surrender. . . . . . . . . . . . . . . . . . . 14
Death Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Endorsements (if any) are before page. . . . . . . . . . . . . . . . . . . . 22
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Income Date during which Purchase
Payments may be made by a Certificate Owner.
ACCUMULATION UNIT: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
ADJUSTED CERTIFICATE VALUE: The Certificate Value less any applicable taxes
relating to a Certificate and Certificate Maintenance Charge. This amount is
applied to the applicable Annuity Tables to determine Annuity Payments.
ANNUITANT: The natural person on whose life Annuity Payments are based, and to
whom any Annuity Payments will be made starting on the Income Date.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Annuitant, starting on the
Income Date, under the Annuity Option selected.
ANNUITY PERIOD: The period after the Income Date during which Annuity Payments
are made.
ANNUITY UNIT: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who controls the Certificate if any
Certificate Owner dies before the Income Date.
(Definitions continue on page 4)
KEYPORT LIFE INSURANCE COMPANY
125 High Street, Boston, MA 02110
PAGE 2
<PAGE>
CERTIFICATE SCHEDULE
GROUP CONTRACT OWNER Keyport Insurance Trust
GROUP CONTRACT NUMBER DVA001
CERTIFICATE NUMBER 123455
CERTIFICATE OWNER John Q. Public
JOINT CERTIFICATE OWNER Jane Q. Public
CERTIFICATE OWNER DOB January 1, 1940
JOINT CERTIFICATE OWNER DOB February 29, 1940
ANNUITANT Thomas Doe
ANNUITANT DOB November 22, 1960
CERTIFICATE DATE November 1, 1995
INCOME DATE November 1, 2010
INITIAL PURCHASE PAYMENT $10,000
MINIMUM INITIAL PAYMENT $5,000
MINIMUM ADDITIONAL PAYMENT $1,000
CHARGES
DISTRIBUTION CHARGE - None
ADMINISTRATIVE CHARGE - None
MORTALITY AND EXPENSE RISK CHARGE - We deduct .000957% of the assets in each
Variable Account Sub-account on a daily basis (equivalent to an annual rate of
0.35%) for Our mortality and expense risks.
CERTIFICATE MAINTENANCE CHARGE - We charge $35 to cover a portion of Our ongoing
Certificate maintenance expenses. The charge is incurred at the beginning of the
Certificate Year and is deducted on each Certificate Anniversary and at the time
of total surrender.
TRANSFER CHARGE - Currently none, however We reserve the right to charge $25 for
a transfer if You make more than 12 transfers per Certificate Year.
SURRENDER CHARGE - None
INITIAL PURCHASE PAYMENT ALLOCATION
Currently, Certificate Owners can select 7 Sub-accounts. We reserve the right
to increase or decrease the number of available Sub-accounts. The minimum You
may allocate to any Sub-account is
PAGE 3A
<PAGE>
10% of any Purchase Payment. Your initial Purchase Payment has been invested
as follows:
Manning & Napier Moderate Growth x%
Manning & Napier Growth x%
Manning & Napier Maximum Horizon x%
Manning & Napier Equity x%
Manning & Napier Small Cap x%
Manning & Napier Bond x%
SteinRoe Cash Income Fund x%
TRANSFER GUIDELINES
NUMBER OF TRANSFERS AND TRANSFER CHARGE: Currently, Certificate Owners are
permitted 12 transfers per Certificate Year during the Accumulation Period and 1
transfer every 6 months during the Annuity Period. We reserve the right to
change, upon notice, the frequency of transfers You can make. We also reserve
the right to impose a charge for any transfer in excess of 12 per Certificate
Year. The transfer charge is shown in the Charges section of the Schedule.
MINIMUM AMOUNT TO BE TRANSFERRED: None
MINIMUM AMOUNT WHICH MUST REMAIN IN A SUB-ACCOUNT AFTER TRANSFER: None
PARTIAL WITHDRAWALS
You may make partial withdrawals during the Accumulation Period without
incurring a surrender charge.
MINIMUM WITHDRAWAL AMOUNT: $300, unless the withdrawal is made pursuant to Our
systematic withdrawal program, in which case the minimum withdrawal is $100.
MINIMUM CERTIFICATE VALUE WHICH MUST REMAIN AFTER A PARTIAL WITHDRAWAL: $2,500.
DEATH BENEFITS
ADJUSTMENT OF CERTIFICATE VALUE
When We receive due proof of death of the Certificate Owner, or the Annuitant if
the Certificate Owner is a non-natural Person, We will compare, as of the date
of death, the Certificate Value to the Death Benefit amount defined in this
Schedule. If the Certificate Value is less than the Death Benefit, We will
increase the current Certificate Value by the amount of the difference. Any
amount credited will be allocated to the Variable Account based on the
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Purchase Payment allocation selection that is in effect when We receive due
proof of death.
DEATH BENEFIT AMOUNT
PURCHASE PAYMENT DEATH BENEFIT
On the Certificate Date the Death Benefit is the initial Purchase Payment. On
subsequent Valuation Dates, the Death Benefit is calculated as follows:
(1) Start with the Death Benefit from the prior Valuation Date;
(2) Add to (1) any additional Purchase Payments paid during the current
Valuation Period and subtract from (1) any Partial Withdrawals (including any
associated surrender charge incurred) made during the current Valuation Period.
THE VARIABLE SEPARATE ACCOUNT
SUB-ACCOUNTS INVESTING IN SHARES OF MUTUAL FUNDS
Variable Account A is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Rhode Island, Our state of
domicile. Variable Account A is divided into Sub-accounts. Each Sub-account
listed below invests in shares of the corresponding Portfolio of the Eligible
Fund shown.
SUB-ACCOUNT ELIGIBLE FUND AND PORTFOLIO
MANNING & NAPIER INSURANCE FUND, INC.
-------------------------------------
MODERATE GROWTH Manning & Napier Moderate Growth
SUB-ACCOUNT Portfolio -seeks with equal emphasis long-term growth
and preservation of capital.
GROWTH SUB-ACCOUNT Manning & Napier Growth Portfolio - seeks long-term
growth of capital. The secondary objective is the
preservation of capital.
MAXIMUM HORIZON Manning & Napier Maximum Horizon
ACCOUNT Portfolio - seeks to achieve the high level of long-
term capital growth typically associated with the stock
market.
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SMALL CAP SUB- Manning & Napier Small Cap Portfolio -
ACCOUNT seeks to achieve long term growth of capital by
investing principally in the equity securities of small
issuers.
EQUITY SUB-ACCOUNT Manning & Napier Equity Portfolio - seeks long-term
growth of capital.
BOND SUB-ACCOUNT Manning & Napier Bond Portfolio - seeks to maximize
total return in the form of both income and capital
appreciation by investing in fixed income securities
without regard to maturity.
STEINROE VARIABLE INVESTMENT TRUST
-----------------------------------
CIF SUB-ACCOUNT ("MONEY CASH INCOME FUND - seeks high
MARKET" SUB-ACCOUNT) current income from short-term money market investments
while emphasizing preservation of capital and
maintaining excellent liquidity.
SUB-ACCOUNTS INVESTING DIRECTLY IN SECURITIES - None
THE FIXED ACCOUNT - None
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DEFINITIONS (CONTINUED)
CERTIFICATE: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract.
CERTIFICATE ANNIVERSARY: An anniversary of the Certificate Issue Date.
CERTIFICATE ISSUE DATE: The date a Certificate is issued to a Certificate
Owner. The Certificate Issue Date is shown on the Certificate Schedule.
CERTIFICATE OWNER: The person who owns a Certificate under the Group Contract.
Any Joint Certificate Owners and the Certificate Owner own the Certificate
equally with rights of survivorship.
CERTIFICATE VALUE: The sum of the Certificate Owner's interest in the Sub-
accounts of the Variable Account and the Fixed Account during the Accumulation
Period.
CERTIFICATE YEAR: The first Certificate Year is the annual period which begins
on the Certificate Issue Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
ELIGIBLE FUND: An investment entity shown on the Certificate Schedule.
FIXED ACCOUNT: The account We establish to support Fixed Allocations. The
Certificate Schedule shows whether the Fixed Account is available under the
Certificate.
FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated under
this Certificate prior to the Income Date.
FIXED ALLOCATION: An amount allocated to the Fixed Account that is credited
with a Guaranteed Interest Rate for a specified Guarantee Period.
FIXED ANNUITY: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
GENERAL ACCOUNT: Our general investment account which contains all of Our
assets except those in the Variable Account and Our other separate accounts.
GROUP CONTRACT OWNER: The person or entity to which the Group Contract is
issued.
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GUARANTEED INTEREST RATE: The effective annual interest rate which We will
credit for a specified Guarantee Period.
GUARANTEE PERIOD: The period of year(s) a rate of interest is guaranteed to be
credited within the Fixed Account.
INCOME DATE: The date on which Annuity Payments begin. The Income Date is
shown on the Certificate Schedule.
IN FORCE: The status of a Certificate before the Income Date so long as it has
not been totally surrendered and there has not been a death of a Certificate
Owner or Joint Certificate Owner that will cause the Certificate to end within
five years of the date of death.
OFFICE: Our executive office shown on the Certificate Schedule.
PERSON: A human being, trust, corporation, or any other legally recognized
entity.
PORTFOLIO: A series of an Eligible Fund which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENT: A payment made by or on behalf of a Certificate Owner with
respect to a Certificate.
SUB-ACCOUNT: Variable Account assets are divided into Sub-accounts. Assets of
each Sub-account will be invested in shares of a Portfolio of an Eligible Fund,
or directly in portfolio securities.
VALUATION DATE: Each day on which We and the New York Stock Exchange ("NYSE")
are open for business, or any other day that the Securities and Exchange
Commission requires that mutual funds, unit investment trusts or other
investment portfolios be valued.
VALUATION PERIOD: The period of time beginning at the close of business of the
NYSE on each Valuation Date and ending at the close of business on the next
succeeding Valuation Date.
VARIABLE ACCOUNT: Our Variable Account(s) shown on the Certificate Schedule.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-accounts of the Variable
Account.
WE, US, OUR: Keyport Life Insurance Company.
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WRITTEN REQUEST: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
YOU, YOUR: The Certificate Owner and any Joint Certificate Owners.
GENERAL PROVISIONS
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Certificate Issue Date. It must be
paid at Our Office in United States currency. Coverage under a Certificate does
not take effect until We have accepted the initial Purchase Payment during Your
lifetime. Each Purchase Payment after the Certificate Issue Date must be at
least the amount shown on the Certificate Schedule. Provided the Certificate
Value under a Certificate does not go to zero, a Certificate will stay in force
until the Income Date even if You make no payments after the initial one. We
reserve the right to reject any subsequent Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
Your initial Purchase Payment is allocated to the Sub-accounts of the Variable
Account, and to the Fixed Account if available, in accordance with the
selections made by You at the Certificate Issue Date. Unless otherwise changed
by You, subsequent Purchase Payments are allocated in the same manner as the
initial Purchase Payment. Allocation of Purchase Payments is subject to the
terms and conditions imposed by Us. We reserve the right to allocate initial
Purchase Payments to the money market Sub-account until the expiration of the
Right to Examine Certificate period set forth on the first page of the
Certificate.
THE CONTRACT
The Group Contract, including the application, if any, and any attached rider or
endorsement constitute the entire contract between the Group Contract Owner and
Us. All statements made by the Group Contract Owner, any Certificate Owner or
any Annuitant will be deemed representations and not warranties. No such
statement will be used in any contest unless it is contained in the application
signed by the Group Contract Owner or in a written instrument signed by the
Certificate Owner, a copy of which has been furnished to the Certificate Owner,
the Beneficiary or to the Group Contract Owner.
Only Our President or Secretary may agree to change any of the terms of the
Group Contract. Any changes must be in writing. Any change to the terms of a
Certificate must be in writing and with
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Your consent, unless provided otherwise by the Group Contract and the
Certificate.
To assure that the Group Contract and the Certificate will maintain their status
as a variable annuity under the Internal Revenue Code, We reserve the right to
change the Group Contract and any Certificate issued thereunder to comply with
future changes in the Internal Revenue Code, any regulations or rulings issued
thereunder, and any requirements otherwise imposed by the Internal Revenue
Service. The Group Contract Owner and the affected Certificate Owner will be
sent a copy of any such amendment.
We reserve the right, subject to compliance with the law as currently applicable
or subsequently changed, to: (a) operate the Variable Account in any form
permitted under the Investment Company Act of 1940, as amended, (the "1940
Act"), or in any other form permitted by law; (b) take any action necessary to
comply with or obtain and continue any exemptions from the 1940 Act, or to
comply with any other applicable law; (c) transfer any assets in any Sub-account
to another Sub-account, or to one or more separate investment accounts, or the
General Account; or to add, combine or remove Sub-accounts in the Variable
Account; and (d) change the way We assess charges, so long as We do not increase
the aggregate amount beyond that currently charged to the Variable Account and
the Eligible Funds in connection with this Certificate. If the shares of any of
the Eligible Funds should become unavailable for investment by the Variable
Account or if in Our judgment further investment in such Portfolio shares should
become inappropriate in view of the purpose of the Certificate, We may add or
substitute shares of another mutual fund for the Portfolio shares already
purchased under the Certificate. No substitution of Portfolio shares in any
Sub-account may take place without prior approval of the Securities and Exchange
Commission and notice to the affected Certificate Owners, to the extent required
by the 1940 Act.
CERTIFICATE OWNER
You are the Certificate Owner of this Certificate. You have all rights and may
receive all benefits under a Certificate. A Certificate Owner is the person
designated as such on the Certificate Issue Date, unless changed. You may
exercise all rights of this Certificate while it is In Force, subject to the
rights of (a) any assignee under an assignment filed with Us, and (b) any
irrevocably named Beneficiary.
JOINT CERTIFICATE OWNER
A Certificate can be owned by Joint Certificate Owners. Upon the death of any
Certificate Owner or Joint Certificate Owner, the
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surviving owner(s) will be the primary Beneficiary(ies). Any other
beneficiary designation will be treated as a Contingent Beneficiary unless
otherwise indicated in a Written Request filed with Us.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by You at the Certificate Issue Date, unless
changed prior to the Income Date. Any change of Annuitant is subject to Our
underwriting rules then in effect. The Annuitant may not be changed in a
Certificate which is owned by a non-natural person. You may name a Contingent
Annuitant. The Contingent Annuitant becomes the Annuitant if the Annuitant dies
while this Certificate is In Force. If the Annuitant dies and no Contingent
Annuitant has been named, We will allow You sixty days to designate someone
other than Yourself as Annuitant. You will be the Contingent Annuitant unless
You name someone else. If the Certificate is owned by a non-natural person, the
death of the Annuitant will be treated as the death of the Certificate Owner and
a new Annuitant may not be designated.
BENEFICIARY
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint Certificate
Owner, the surviving owner(s) will become the primary Beneficiary. Any other
beneficiary designation will be treated as a Contingent Beneficiary unless
otherwise indicated in a Written Request filed with Us. If You name more than
one Person as Primary Beneficiary or as Contingent Beneficiary, and do not state
otherwise on an application or in a Written Request to Us, any non-survivors
will not receive a benefit. The survivors will receive equal shares. Subject
to the rights of any irrevocable Beneficiary(ies), You may change primary or
contingent Beneficiary(ies). A change must be made by Written Request and will
be effective as of the date the Written Request is signed. We will not be
liable for any payment We make or action We take before We receive the Written
Request.
GROUP CONTRACT OWNER
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the claims
of the Group Contract Owner or any of its creditors. The Group Contract Owner
may transfer ownership of this Group Contract. Any transfer of ownership
terminates the interest of any existing Group Contract Owner. It does not
change the rights of any Certificate Owner.
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CHANGE OF CERTIFICATE OWNER, BENEFICIARY OR CONTINGENT ANNUITANT
While this Certificate is In Force, You may by Written Request change the
primary Certificate Owner, Joint Certificate Owner, primary Beneficiary,
Contingent Beneficiary, Contingent Annuitant, or in certain instances, the
Annuitant. An irrevocably named Person may be changed only with the written
consent of such Person. The change will be effective, following Our receipt of
the Written Request, as of the date the Written Request is signed. The change
will not affect any payments We make or actions We take prior to the time We
receive the Written Request.
ASSIGNMENT OF THE CERTIFICATE
You may assign this Certificate at any time while it is In Force. The
assignment must be in writing and a copy must be filed at Our Office. Your
rights and those of any revocably named Person will be subject to the
assignment. An assignment will not affect any payments We make or actions We
take before We receive the assignment. We are not responsible for the validity
of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have begun, any underpayment(s) that have been made will be paid in
full with the next Annuity Payment. Any overpayment, unless repaid to Us in one
sum, will be deducted from future Annuity Payments otherwise due until We are
repaid in full.
NON-PARTICIPATING
This Certificate does not participate in Our divisible surplus.
EVIDENCE OF DEATH, AGE, SEX OR SURVIVAL
If a Certificate provision relates to the death of a natural Person, We will
require proof of death before We will act under that provision. Proof of death
shall be: (a) a certified death certificate; or (b) a certified decree of a
court of competent jurisdiction as to the finding of death; or (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
document constituting due proof of death under applicable state law. If Our
action under a Certificate provision is based on the age, sex, or survival of
any Person, We may require evidence of the particular fact before We act under
that provision.
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PROTECTION OF PROCEEDS
No Beneficiary or payee may commute or assign any payments under a Certificate
before they are due. To the extent permitted by law, no payments shall be
subject to the debts of any Beneficiary or payee or to any judicial process for
payment of those debts.
REPORTS
We will send Certificate Owners a report that shows the Certificate Value at
least once each Certificate Year. We will send any other reports that may be
required by law.
TAXES
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Purchase Payments or Certificate Value. We may, in Our sole
discretion, delay the deduction until a later date. By not deducting tax
payments at the time of Our payment, We do not waive any right We may have to
deduct amounts at a later date. We will, in Our sole discretion, determine when
taxes relate to a Certificate or to the operation of the Variable Account. We
reserve the right to establish a provision for federal income taxes if We
determine, in Our sole discretion, that We will incur a tax as a result of the
operation of the Variable Account. Such a provision will be reflected in the
Accumulation and Annuity Unit Values. We will deduct for any income taxes
incurred by Us as a result of the operation of the Variable Account whether or
not there was a provision for taxes and whether or not it was sufficient. We
will deduct from any payment under this Certificate any withholding taxes
required by applicable law.
REGULATORY REQUIREMENTS
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
SUSPENSION OR DEFERRAL OF PAYMENTS
We reserve the right to suspend or postpone payments for a withdrawal, transfer,
surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
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(3) an emergency exists as a result of which valuation or disposal of the
assets and securities of the Variable Account is not reasonably
practicable; or
(4) the Securities and Exchange Commission, by order or pronouncement, so
permits for the protection of Certificate Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission govern as to whether the conditions described in (2) and (3) above
exist.
We reserve the right to delay payment of amounts allocated to the Fixed Account
for up to six months.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT
The Variable Account(s) is designated on the Certificate Schedule and consists
of assets set aside by Us, which are kept separate from Our general assets and
all other variable account assets We maintain. We own the assets of the
Variable Account. Variable Account assets equal to reserves and other contract
liabilities will not be chargeable with liabilities arising out of any other
business We may conduct. We may transfer to Our General Account assets which
exceed the reserves and other liabilities of the Variable Account. Income and
realized and unrealized gains or losses from assets in the Variable Account are
credited to or charged against the account without regard to other income, gains
or losses in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The Sub-accounts
which are available under the Certificate are shown on the Certificate
Schedule. The assets of the Sub-accounts of the unit investment trust
variable separate account are allocated to the Eligible Fund(s) and the
Portfolio(s), if applicable, within an Eligible Fund shown on the Certificate
Schedule. The assets of the Sub-accounts of the investment company variable
separate account, if applicable, are invested in portfolios of securities
designed to meet the objectives of the Sub-Account shown on the Certificate
Schedule. We may, from time to time, add additional Sub-accounts, Eligible
Funds or Portfolios to those shown on the Certificate Schedule. You may be
permitted to transfer Certificate Values or allocate Purchase Payments to the
additional Sub-Accounts, Eligible Funds or Portfolios. However, the right to
make such transfers or allocations will be limited by the terms and
conditions imposed by Us.
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We also have the right to eliminate Sub-accounts from the Variable Account, to
combine two or more Sub-accounts or to substitute a new Portfolio for the
Portfolio in which a Sub-account invests. A substitution may become necessary
if, in Our discretion, a Portfolio or Sub-account no longer suits the purposes
of the Group Contract. This may happen: due to a change in laws or regulations
or a change in a Portfolio's investment objectives or restrictions; because the
Portfolio or Sub-account is no longer available for investment; or for some
other reason. We will obtain any prior approvals that may be required from the
insurance department of Our state of domicile, and from the SEC or any other
governmental entity before making such a substitution.
When permitted by law, We reserve the right to:
(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940 Act,
if it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the 1940
Act, if it
is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
VALUATION OF ASSETS
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
ACCUMULATION UNITS
Your Variable Account Value will fluctuate in accordance with the investment
results of the Sub-accounts to which You have allocated Your Purchase Payments
or Certificate Value. In order to determine how these fluctuations affect Your
Certificate Value, We use an Accumulation Unit value. Accumulation Units are
used to account for all amounts allocated to or withdrawn from the Sub-accounts
of the Variable Account as a result of Purchase Payments, partial withdrawals,
transfers, or charges deducted from the Certificate Value. We determine the
number of Accumulation Units of a Sub-account purchased or cancelled by dividing
the amount allocated to, or withdrawn from, the Sub-account by the dollar value
of one Accumulation Unit of the Sub-account as of the end of the Valuation
Period during which We receive the request for the transaction.
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ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-account was initially set at $10.
Subsequent Accumulation Unit Values for each Sub-account are determined by
multiplying the Accumulation Unit Value for the immediately preceding Valuation
Period by a net investment factor for the Sub-account for the current period.
This factor may be greater or less than 1.0; therefore, the Accumulation Unit
Value may increase or decrease from Valuation Period to Valuation Period.
We calculate the net investment factor for each Sub-account investing in shares
of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the Sub-
account invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio
that has an ex-dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of the
preceding Valuation Period.
(c) is equal to:
(i) the sum of each Valuation Period equivalent of the annual rate
for the mortality and expense risk charge, for the administrative
charge, and for the distribution charge, if any, which are shown
on the Certificate Schedule; plus
(ii) a charge factor, if any, for any tax provision established by Us
a result of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing directly
in securities with the same formula, except:
(a) is equal to:
(i) the value of the assets in the Sub-account at the end of the
preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or unrealized,
credited to the assets during the current Valuation Period; less
(iii)any capital losses, realized or unrealized, charged against the
assets during the current Valuation Period; less
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(iv) all operating and investment expenses relating to the assets that
are incurred during the current Valuation Period.
(b) is the value of the assets in the Sub-account at the end of the
preceding Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period We deduct a mortality and expense risk charge from each
Sub-account of the Variable Account which is equal, on an annual basis, to the
amount shown on the Certificate Schedule. The mortality and expense risk charge
compensates Us for assuming the mortality and expense risks with respect to the
Certificates We issue. We guarantee the dollar amount of each Annuity Payment
after the first Annuity Payment will not be affected by variations in mortality
or expense experience.
ADMINISTRATIVE CHARGE
Each Valuation Period We deduct an administrative charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The administrative charge compensates Us for the costs
associated with administration of the Variable Account and the Certificates We
issue.
DISTRIBUTION CHARGE
Each Valuation Period We deduct a distribution charge from the Variable Account
which is equal, on an annual basis, to the amount shown on the Certificate
Schedule. The distribution charge compensates Us for the costs associated with
the distribution of the Certificates We issue.
CERTIFICATE MAINTENANCE CHARGE
We deduct a certificate maintenance charge from the Certificate Value by
cancelling Accumulation Units from each applicable Sub-account to reimburse Us
for expenses relating to the maintenance of the Certificate. We will deduct the
certificate maintenance charge from the Sub-accounts of the Variable Account in
the same proportion that the amount of Certificate Value in each Sub-account
bears to the Certificate Value. The certificate maintenance charge is shown on
the Certificate Schedule. The certificate maintenance charge will be deducted
from the Certificate Value on each Certificate Anniversary during the
Accumulation Period.
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If a total surrender is made on a date other than a Certificate Anniversary, the
certificate maintenance charge will be deducted at the time of surrender.
During the Annuity Period, the certificate maintenance charge will be deducted
on a pro-rata basis from each Annuity Payment.
TRANSFERS
Subject to any limitation We impose on the number of transfers permitted in a
Certificate Year, You may transfer all or part of Your Certificate Value among
the Sub-accounts and the Fixed Account, if any, by Written Request or by
telephone without the imposition of any fees or charges. Transfers among the
Sub-accounts and the Fixed Account are permitted only during the Accumulation
Period. The number of permitted transfers, and the charge for transfers in
excess of that number, are shown on the Certificate Schedule. All transfers are
subject to the following:
(1) If more than the number of free transfers, shown on the Certificate
Schedule, are made in a Certificate Year, We will deduct a transfer charge,
shown on the Certificate Schedule, for each subsequent transfer. The transfer
fee will be deducted from the Sub-account from which the transfer is made.
However, if You transfer Your entire interest in a Sub-account, the transfer fee
will be deducted from the amount transferred. If You make a transfer from more
than one Sub-account, any transfer fee will be allocated pro-rata among such
Sub-accounts in proportion to the amount transferred from each.
(2) During the Annuity Period, transfers of values between Sub-accounts
will be made by converting the number of Annuity Units being transferred to the
number of Annuity Units in the Sub-account to which a transfer is made, so that
the next Annuity Payment, if it were made at that time, would be the same amount
that it would have been without the transfer. Thereafter, Annuity Payments will
reflect changes in the value of the new Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain in a Sub-account
after a transfer is shown on the Certificate Schedule.
(4) If 100% of the value of any Sub-account is transferred and the current
allocation for Purchase Payments includes that Sub-account, the allocation for
future Purchase Payments will change to reflect Your allocation of Certificate
Value following the transfer.
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(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described above.
We will not be liable for transfers made in accordance with Your instructions.
All amounts and Accumulation Units will be determined as of the end of the
Valuation Period in which We receive the request for transfer.
PARTIAL WITHDRAWALS AND TOTAL SURRENDER
PARTIAL WITHDRAWALS
During the Accumulation Period while the Certificate is In Force, You may, upon
Written Request, make a partial withdrawal, subject to the provisions and
limitations shown on the Certificate Schedule. For purposes of determining
whether a surrender charge is applicable to Your partial withdrawal:
(1) Your partial withdrawal will first be taken from the portion of Your
Certificate Value which is in excess of Your Purchase Payments, and
then from Your Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the order
in which the Purchase Payments were made, starting with the first.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-account in the ratio that Your interest in the Sub-account bears
to Your Certificate Value in all the Sub-accounts. You must specify by Written
Request in advance if You want Accumulation Units to be cancelled in a manner
other than the method described above. If there is no value or insufficient
value in the Variable Account, then the amount withdrawn, or the insufficient
portion, will be deducted from the Fixed Account. If You have multiple
Guarantee Periods, We will deduct such amount from each Guarantee Period's
values in the ratio that each Period's values bears to the total Fixed Account
Value. You must specify by Written Request in advance if You want multiple
Guarantee Periods to be reduced in a manner other than the method described
above.
Each partial withdrawal must be for an amount not less than the amount shown on
the Certificate Schedule. The Certificate Value which must remain in a
Certificate is shown on the Certificate Schedule. The Certificate Schedule also
shows any charge.
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TOTAL SURRENDER
During the Accumulation Period while the Certificate is In Force, You may, upon
Written Request, make a total surrender of the Certificate Withdrawal Value. The
Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation Period during
which We receive a Written Request for a withdrawal or surrender;
less
(2) any applicable taxes not previously deducted; less
(3) any surrender charge; less
(4) any certificate maintenance charge.
We will pay the amount of any withdrawal or surrender within seven days unless
the Suspension or Deferral of Payments Provision is in effect.
DEATH PROVISIONS
DEATH OF CERTIFICATE OWNER
These provisions apply if, during the Accumulation Period while the Certificate
is In Force, the Certificate Owner or any Joint Certificate Owner dies (whether
or not the decedent is also the Annuitant) or the Annuitant dies under a
Certificate owned by a non-natural Person. The "designated beneficiary" will
control the contract after such a death. This "designated beneficiary" will be
the first Person among the following who is alive on the date of death:
Certificate Owner; Joint Certificate Owner; primary Beneficiary; Contingent
Beneficiary; and Certificate Owner's estate. If the Certificate Owner and Joint
Certificate Owner are both alive, they shall be the "designated beneficiary"
together.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE "DESIGNATED
BENEFICIARY", the surviving spouse will automatically become the new sole
Certificate Owner as of the date of the death. And, if the Annuitant is the
decedent, the new Annuitant will be any living Contingent Annuitant, otherwise
the surviving spouse. The Certificate may stay in force until another death
occurs (i.e., until the death of the Certificate Owner or Joint Certificate
Owner). Except for this paragraph, all of "Death Provisions" will apply to that
subsequent death.
IN ALL OTHER CASES, the Certificate may stay in force up to five years from the
date of death. During this period, the "designated
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beneficiary" may exercise all ownership rights, including the right to make
transfers or partial withdrawals or the right to surrender the Certificate
for its Certificate Withdrawal Value. If this Certificate is still in force
at the end of the five-year period, We will automatically end it then by
paying to the "designated beneficiary" the Certificate Withdrawal Value
without the deduction of any applicable surrender charges. If the
"designated beneficiary" is not alive then, We will pay any Person(s) named
by the "designated beneficiary" in a Written Request; otherwise the
"designated beneficiary's" estate.
DEATH OF ANNUITANT
These provisions apply if during the Accumulation Period while the Certificate
is In Force, (a) the Annuitant dies, (b) the Annuitant is not an Owner, and (c)
the Owner is a natural person. The Certificate will continue In Force after the
Annuitant's death. The new Annuitant will be any living Contingent Annuitant,
otherwise the Certificate Owner.
PAYMENT OF BENEFITS
Instead of receiving a lump sum, You or any "designated beneficiary" may by
Written Request direct that We pay any benefit of $5,000 or more under an
Annuity Option that meets the following: (a) the first payment to the
"designated beneficiary" must be made no later than one year after the date of
death; (b) payments must be made over the life of the "designated beneficiary"
or over a period not extending beyond that person's life expectancy; and (c) any
Annuity Option that provides for payments to continue after the death of the
"designated beneficiary" will not allow the successor payee to extend the period
of time over which the remaining payments are to be made.
ANNUITY PROVISIONS
GENERAL
If the Certificate is In Force on the Income Date, the Adjusted Certificate
Value will be applied under the Annuity Option selected by You. Annuity
Payments may be made on a fixed or variable basis or both.
INCOME DATE
The Income Date may be selected by You. It is shown on the Certificate
Schedule. The Income Date can be any time after the
PAGE 18
<PAGE>
Certificate Issue Date for variable payments and any time after the first
Certificate Anniversary for fixed payments. The Income Date may not be later
than the earlier of when the Annuitant reaches attained age 90 or that
required under state law. If no Income Date is selected, it will be the
earlier of when the Annuitant reaches attained age 90 or the maximum date
permitted under state law, if any.
Prior to the Income Date, You may change the Income Date by Written Request.
Any change must be requested at least 30 days prior to the new Income Date.
SELECTION OF AN ANNUITY OPTION
An Annuity Option may be selected by You. If no Annuity Option is selected,
Option B will automatically be applied. Prior to the Income Date, You may
change the Annuity Option selected by Written Request. Any change must be
requested at least 30 days prior to the Income Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments are paid in monthly installments unless quarterly, semi-annual
or annual payments are chosen. The Adjusted Certificate Value is applied to the
Annuity Table for the Annuity Option selected. If the Adjusted Certificate
Value to be applied under an Annuity Option is less than $5,000, We reserve the
right to make a lump sum payment in lieu of Annuity Payments. If the Annuity
Payment would be or becomes less than $100, We will reduce the frequency of
payments to a longer interval which will result in each payment being at least
$100.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to Us may
be selected:
OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to continue for
the remainder of the period, he/she may elect to have the present value of
the remaining payments commuted and paid in a lump sum. During the payment
period of a Variable Annuity, the payee may elect by Written Request to
receive the following amount: (a) the present value of the remaining
payments commuted; less (b) any surrender charge that may be due by
treating the value defined in (a) as a surrender. Instead of receiving a
lump sum, the
PAGE 19
<PAGE>
payee may elect another Annuity Option. The amount applied
to that Option would not be reduced by the charge defined in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity Payments
during the lifetime of the payee and in any event for 10 years certain. If
the payee dies during the guaranteed payment period and the Beneficiary
does not desire payments to continue for the remainder of the guaranteed
period, he/she may elect to have the present value of the guaranteed
payments remaining commuted and paid in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during the
joint lifetime of the payee and a designated second natural person and then
during the lifetime of the survivor.
Unless the Annuity Option provides for commutation by the payee, a payee may not
withdraw or otherwise end an Annuity Option after it begins. Payments will end
upon the payee's death unless the Annuity Option provides for payments
continuing to a successor payee. No successor payee may extend the period of
time over which the remaining payments are to be made.
ANNUITY
If You select a Fixed Annuity, the Adjusted Certificate Value is allocated to
the General Account and the Annuity is paid as a Fixed Annuity. If You select a
Variable Annuity, the Adjusted Certificate Value will be allocated to the Sub-
accounts of the Separate Account in accordance with the selection You make, and
the Annuity will be paid as a Variable Annuity. You can also select a
combination of a Fixed and Variable Annuity and the Adjusted Certificate Value
will be allocated accordingly. If You don't select between a Fixed Annuity and
a Variable Annuity, any Adjusted Certificate Value in the Variable Account will
be applied to a Variable Annuity and any Adjusted Certificate Value in the Fixed
Account will be applied to a Fixed Annuity.
The Adjusted Certificate Value will be applied to the applicable Annuity Table
contained in the Certificate based upon the Annuity Option You select. If, as
of the Income Date, the current Annuity Option rates applicable to the class of
Certificates issued under the Group Contract provide an initial Annuity Payment
greater than the initial Annuity Payment guaranteed under the applicable Annuity
Table in the Certificate, the greater payment will be made.
FIXED ANNUITY
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity
PAGE 20
<PAGE>
Tables. After the initial Fixed Annuity payment, the payments will not
change regardless of investment, mortality or expense experience.
VARIABLE ANNUITY
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value to
the Sub-accounts during the Annuity Period. Variable Annuity payments are not
guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount of
Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is divided by
the value of an Annuity Unit for each applicable Sub-account as of the
Income Date. This sets the number of Annuity Units for each monthly
payment for the applicable Sub-account. The number of Annuity Units
for each applicable Sub-account remains fixed during the Annuity
Period;
(2) the fixed number of Annuity Units per payment in each Sub-account is
multiplied by the Annuity Unit Value for that Sub-account for the
Valuation Period for which the payment is due. This result is the
dollar amount of the payment for each applicable Sub-account.
The total dollar amount of each Variable Annuity payment is the sum of all Sub-
account Variable Annuity payments reduced by the applicable portion of the
Certificate Maintenance Charge.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account was
initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation Period
is determined as follows:
(1) the net investment factor calculated as set forth on pages 11-12 (but
without the distribution charge, if any) for the current Valuation
Period is multiplied by the value of the Annuity Unit for the Sub-
account for the immediately preceding Valuation Period.
PAGE 21
<PAGE>
(2) the result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Valuation Period equivalent of the
Assumed Investment Rate for the number of days in the current
Valuation Period. The Assumed Investment Rate is equal to 6% per year.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
USING THE TABLES
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
DATE OF FIRST PAYMENT AGE SETBACK
--------------------- -----------
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and for
any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next section.
Upon request, We will tell You any such amount.
BASIS OF CALCULATION
Tables 1 and 4 are based on interest at 6% and 3%, respectively. Tables 2, 3,
5, and 6 are based on the 1983 Individual Annuity Valuation Tables, weighted 40%
male and 60% female, with interest at 6% (Tables 2 and 3) and 3% (Tables 5 and
6), projected dynamically with Projection Scale G.
PAGE 22
<PAGE>
- -------------------------------------------------------------------------------
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION A FOR EACH $1,000
APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
- -------------------------------------------------------------------------------
5 $19.17 12 $9.63 19 $7.24 25 $6.32
6 16.42 13 9.12 20 7.04 26 6.21
7 14.46 14 8.69 21 6.86 27 6.11
8 13.00 15 8.31 22 6.70 28 6.02
9 11.87 16 7.99 23 6.56 29 5.94
10 10.97 17 7.71 24 6.43 30 5.87
11 10.24 18 7.46
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION B FOR EACH $1,000
APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
- -------------------------------------------------------------------------------
30 $5.09 43 $5.40 56 $6.06 69 $7.47 82 $ 9.72
31 5.11 44 5.44 57 6.13 70 7.63 83 9.87
32 5.13 45 5.47 58 6.21 71 7.79 84 10.02
33 5.14 46 5.51 59 6.30 72 7.95 85 10.15
34 5.16 47 5.55 60 6.39 73 8.12 86 10.27
35 5.18 48 5.60 61 6.48 74 8.30 87 10.38
36 5.20 49 5.64 62 6.59 75 8.48 88 10.48
37 5.23 50 5.69 63 6.69 76 8.66 89 10.57
38 5.25 51 5.74 64 6.81 77 8.84 90 10.65
39 5.28 52 5.80 65 6.93 78 9.03 91 10.72
40 5.31 53 5.86 66 7.05 79 9.21 92 10.77
41 5.34 54 5.92 67 7.19 80 9.38 93 10.82
42 5.37 55 5.99 68 7.33 81 9.55 94 10.86
95 10.89
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $4.97 $4.99 $5.00 $5.02 $5.04 $5.05 $5.06 $5.07 $5.08 $5.09 $5.09 $5.09 $5.10 $5.10
35 5.01 5.04 5.07 5.09 5.11 5.13 5.15 5.16 5.17 5.18 5.18 5.19 5.19
40 5.08 5.12 5.16 5.19 5.22 5.25 5.27 5.29 5.30 5.31 5.31 5.32
45 5.18 5.23 5.29 5.34 5.38 5.41 5.44 5.46 5.48 5.49 5.49
50 5.32 5.40 5.47 5.54 5.60 5.64 5.68 5.70 5.72 5.72
55 5.51 5.62 5.73 5.85 5.90 5.96 6.00 6.02 6.04
PAGE 23
<PAGE>
60 5.79 5.95 6.11 6.24 6.34 6.41 6.45 6.48
65 6.20 6.44 6.66 6.84 6.97 7.05 7.10
70 6.80 7.15 7.47 7.71 7.87 7.97
75 7.69 8.22 8.66 8.99 9.20
80 9.03 9.81 10.43 10.87
85 11.02 12.11 12.98
90 13.82 15.34
95 17.66
</TABLE>
PAGE 24
<PAGE>
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A FOR EACH $1,000
APPLIED
<TABLE>
<CAPTION>
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18 5.96
</TABLE>
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH $1,000
APPLIED
<TABLE>
<CAPTION>
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $3.05 43 $3.46 56 $4.24 69 $5.79 82 $8.24
31 3.07 44 3.50 57 4.32 70 5.96 83 8.41
32 3.09 45 3.55 58 4.41 71 6.13 84 8.57
33 3.12 46 3.60 59 4.51 72 6.31 85 8.72
34 3.15 47 3.65 60 4.61 73 6.50 86 8.85
35 3.18 48 3.70 61 4.71 74 6.69 87 8.97
36 3.21 49 3.76 62 4.82 75 6.88 88 9.08
37 3.24 50 3.82 63 4.94 76 7.08 89 9.18
38 3.27 51 3.88 64 5.07 77 7.28 90 9.27
39 3.31 52 3.94 65 5.20 78 7.48 91 9.34
40 3.34 53 4.01 66 5.34 79 7.68 92 9.40
41 3.38 54 4.08 67 5.48 80 7.87 93 9.46
42 3.42 55 4.16 68 5.63 81 8.06 94 9.50
95 9.53
</TABLE>
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.88 $2.92 $2.95 $2.98 $3.00 $3.01 $3.02 $3.03 $3.04 $3.04 $3.04 $3.05 $3.05 $3.05
35 2.97 3.02 3.06 3.09 3.12 3.14 3.15 3.16 3.17 3.17 3.18 3.18 3.18
40 3.09 3.15 3.20 3.24 3.27 3.30 3.32 3.33 3.34 3.34 3.34 3.35
45 3.24 3.31 3.38 3.44 3.48 3.51 3.53 3.54 3.55 3.56 3.56
50 3.43 3.53 3.62 3.69 3.74 3.78 3.80 3.82 3.83 3.83
55 3.68 3.81 3.93 4.02 4.09 4.13 4.16 4.18 4.19
60 4.01 4.19 4.35 4.47 4.56 4.61 4.65 4.66
65 4.47 4.73 4.94 5.11 5.21 5.28 5.32
70 5.11 5.48 5.78 6.00 6.13 6.21
75 6.04 6.57 6.99 7.28 7.46
PAGE 25
<PAGE>
80 7.40 8.16 8.75 9.15
85 9.38 10.46 11.29
90 12.18 13.68
95 16.02
</TABLE>
PAGE 26
<PAGE>
ENDORSEMENTS
To be inserted only by Us
PAGE 27
<PAGE>
Keyport Logo Keyport
Life Insurance Company
Providence, Rhode Island
--------------------------------------
VARIABLE ANNUITY CERTIFICATE
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
PAGE 28
<PAGE>
EXHIBIT (8b)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MANNING & NAPIER INSURANCE FUND, INC.
MANNING & NAPIER INVESTOR SERVICES, INC.
MANNING & NAPIERS ADVISORS, INC.
AND
KEYPORT LIFE INSURANCE COMPANY
This Agreement, made and entered into this 20TH day of SEPT., 1996 by and
among Keyport Life Insurance Company, a Rhode Island corporation, (referred to
as the "Company"), each on its own behalf and on behalf of its Separate Account,
which is a segregated asset account of the Company; Manning & Napier Insurance
Fund, Inc. (the "Fund"), a Maryland Corporation; Manning & Napier Investor
Services, Inc. ("Distributor"), a New York corporation; and Manning & Napier
Advisors, Inc. ("Advisor"), a New York corporation.
WHEREAS, the Fund engages in business as an open-end investment management
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
("Variable Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund and Distributor
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares (such series being hereinafter referred to individually as a
"Portfolio" or collectively as the "Portfolios") as shown on Schedule A attached
hereto; and
<PAGE>
WHEREAS, the Fund currently intends to apply for 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 to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity separate
and variable life insurance 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 investment management
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Manning & Napier Advisors, Inc. (the "Advisor") is duly registered
as an investment advisor under the federal Investment Advisors Act of 1940 and
any applicable state securities law; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, the Company has established a duly organized, and validly existing
segregated asset account as shown on Schedule B attached hereto (the "Separate
Account") established by resolution of the Boards of Directors of the Company,
and divided such Separate Account into subaccounts to set aside and invest
assets attributable to aforesaid variable annuity contracts; and
2
<PAGE>
WHEREAS, the Company has registered or will register the certain Separate
Account as a unit investment trust under the 1940 Act; and
WHEREAS, Distributor 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, Keyport Financial Services Corporation ("KFSC") the underwriter
for the individual variable annuity and the variable life policies, is
registered as a broker-dealer with the SEC under the 1934 Act and is a member in
good standing of the 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 the Separate Account to fund certain Variable Insurance Products. Distributor
is authorized to sell such shares to unit investment trusts such as the Separate
Account at net asset value, and acts as distributor of the Portfolio shares.
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 Distributor shall sell to the Company those shares of the Fund which
the Separate 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 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 the
3
<PAGE>
Separate Account and receipt by such designee shall constitute receipt by the
Fund provided that the Company receives the order by 4:00 p.m. New York time and
the Fund receives notice from the Company, as the Company and Fund may agree, by
9:00 a.m. New York time on the next Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for regular trading and on
which the Fund calculates its net asset value pursuant to the rules of the SEC.
1.2 The Fund agrees subject to the terms of this Agreement, to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Separate Account on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC. The Fund shall use
reasonable efforts to calculate such net asset value on each day on 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 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 its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.3 The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts which have agreed
to participate in the Fund to fund their Separate Accounts and/or certain
qualified plans, all in accordance with the requirements of Section 817(h) of
the Internal Revenue Code of 1986, as amended (hereinafter "Code") and Treasury
Regulation 1.817-5. No shares of any Portfolio will be sold to the general
public.
4
<PAGE>
1.4 The Fund and Distributor will not sell Fund shares to any insurance
company or separate account unless an agreement containing substantially similar
provisions as Articles I, III, V, VI and Sections 2.5 of Article II of this
Agreement is in effect to govern such sales.
1.5 The Fund will 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 redemption requests. For purposes of this Section 1.5, the
Company shall be the designee of the Fund for receipt of requests for redemption
from the Separate Account, and receipt by such designee should constitute
receipt by the Fund; provided that the Company receives the request for
redemption by 4:00 p.m. New York time, and the Fund receives notice from the
Company, as the Company and Fund may agree, by 9:00 a.m. New York time on the
next Business Day.
Subject to the applicable rules and regulations, if any, of the SEC, the
Fund may pay the redemption price for shares of any Portfolio in whole or in
part by a distribution in kind of securities from the Portfolio of the Fund
allocated to such Portfolio in lieu of money, valuing such securities at their
value employed for determining net asset value governing such redemption price,
and selecting such securities in a manner the Board may determine in good faith
to be fair and equitable.
1.6 The Fund may suspend the redemption of any full or fractional shares
of the Fund (1) for any period (a) during which the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or (b) during which
trading on the New York Stock Exchange is restricted; (2) for any period during
which an emergency exists as a result of which (a) disposal by the Fund of
securities owned by it is not reasonably practicable or (b) it is not
5
<PAGE>
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
1.7 The Company will purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus and statement of additional information ("SAI")
(collectively referred to as "Prospectus," unless otherwise provided). The
Company agrees that all net amounts available under the Variable Insurance
Products with the form number(s) that are listed on Schedule B attached hereto
and incorporated herein by this reference, as such Schedule B may be amended
from time to time hereafter by mutual written agreement of all the parties
hereto (the "Contracts"), shall be invested in the Fund, in such other Funds
advised by Stein, Roe & Farnham Incorporated or the Advisor as may be mutually
agreed to in writing by the parties hereto, or in the Company's general
accounts, or in such other funds as the parties hereto agree in writing.
1.8 The Company shall pay for Fund shares on the same Business Day as 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, or
may otherwise be provided by separate agreement. 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.
1.9 Issuance and transfer of the Funds' shares will be by book entry only.
Stock certificates will not be issued to the Company or the Separate Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Separate Account or the appropriate subaccount of the Separate Account.
6
<PAGE>
1.10 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 shares of any Portfolio. 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 income, dividends and capital gains distributions.
1.11 The Fund shall make the net asset value per share for each Series
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., New York 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 to the extent required by the 1933 Act; that the
Contracts will be issued and distributed 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 prior to any issuance or sale of any Contract it has legally and validly
established the Separate Account as a segregated asset account under the
applicable state insurance laws and has registered or, prior to any issuance or
sale of the Contracts, will register the Separate Account as a unit investment
trust in accordance
7
<PAGE>
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 KFSC, the underwriter for the
individual variable annuity and the variable life policies, is a member in good
standing of the NASD and is a registered broker-dealer with the SEC. The Company
represents and warrants that the Company and KFSC will issue and distribute such
policies in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.3 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and any 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
Distributor.
2.4 The Fund represents that it intends to qualify 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 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. The Fund represents and warrants that each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Code, and the
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rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify the Company immediately upon having a
reasonable basis for believing any Fund has ceased to comply or might not so
comply and will immediately take all reasonable steps to adequately diversify
the Fund to achieve compliance within the grace period afforded by Regulation
1.817-5. The Fund acknowledges that any failure to qualify as a Regulated
Investment Company will eliminate the ability of the subaccounts to avail
themselves of the "look through" provisions of section 817(h) of the Code, and
that as a result the Contracts will almost certainly fail to qualify as annuity
contracts under section 817(h) of the Code.
2.5 The Company represents that the Contracts are currently treated as
endowment 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 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 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 it is currently in compliance and shall at
all times remain in compliance with the applicable insurance laws of the
domiciliary states of the Participating Insurance Companies to the extent that
the Participating Insurance Companies advise the Fund, in writing, of such laws
or any changes in such laws.
2.7 Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
Distributor further represents that it
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will sell and distribute the Fund's shares in accordance with applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.9 The Fund represents and warrants that the Advisor is and shall remain
duly registered under all applicable federal and state securities laws and that
the Advisor shall perform its obligations for the Fund in compliance in all
material respects with the applicable laws of the State of New York and any
applicable state and federal securities laws.
2.10 The Fund represents and warrants that all of its Directors, officers,
employees, investment advisors, and other individuals/entities dealing with the
money and/or to securities of the Fund 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 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 advisors, 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 than
ten million dollars ($10,000,000) with no deductible amount. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable fidelity insurance company. The Company agrees to make all reasonable
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efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and Distributor in the event
such coverage no longer applies.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1 The Fund and the Advisor shall provide the Company with as many copies
of the Fund's current prospectus and Statement of Additional Information as the
Company may reasonably request in connection with delivery of the prospectus to
shareholders and purchasers of Variable Insurance Products. If requested by
Company in lieu thereof, the Fund or the Advisor shall provide such
documentation (including a "camera ready" copy of the new prospectus as set in
type or, at the request of Company, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus for the
shares is supplemented or amended) to have the prospectus for the Variable
Insurance Products and the prospectus for the Fund shares printed together in
one document. The expenses of such printing will be apportioned between the
Company and the Fund as the parties agree to in writing. In the event that the
Company requests that the Fund or the Advisor provide the Fund's prospectus in a
"camera ready" or diskette format, the Fund shall be responsible for providing
the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g. typesetting expenses) and the Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectus.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from Distributor and the Company, and at
its expense, shall provide a final
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<PAGE>
copy of such Statement of Additional Information to Distributor for duplication
and provision to any Owner of a Variable Insurance Product or prospective owner
who requests it.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy materials, reports to shareholders and other communications (except for
prospectus and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distribution to owners of Variable Insurance Products (hereinafter
"Owners").
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote the Fund shares in accordance with instructions received
from Owners; and
(iii) vote Fund shares for which no instructions have been received
in a particular Separate Account in the same proportion as Fund
shares of such Portfolio for which instructions have been
received in that Separate Account,
so long and to the extent that the SEC 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 to be provided in writing to the Participating Insurance
Companies.
3.5 The Fund shall 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
12
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16(c) of that Act) as well as with Section 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 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, the form of each piece of sales literature or other promotional
material in which the Fund or its investment advisor is named, at least ten (10)
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably objects to such use within five (5) Business Days after
receipt of its 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 Variable Insurance Products other than the information or
representations contained in the registration statement or Prospectus for the
Fund shares, as such registration statement and Prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund or its designee.
4.3 The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Separate Account(s),
are named at least ten (10) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within five (5) Business Days after receipt of such material.
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<PAGE>
4.4 The Fund shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, each Separate
Account, or the Variable Insurance Products other than the information or
representations contained in or accurately derived from a registration statement
or prospectus for such Variable Insurance Products, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for such Separate Account which are in the public domain or
approved by the Company for distribution to 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 shall 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 SEC or other regulatory authorities.
4.6 The Company shall 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 Variable
Insurance Products or any Separate Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
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<PAGE>
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
and any other material constituting sales literature or advertising under the
1933 Act, the 1940 Act or NASD rules.
ARTICLE V. Fees and Expenses
5.1 The Fund shall pay no fee or other compensation to the Company under
this Agreement (except for items covered in Article III), except that if the
Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to
finance distribution expenses, then Distributor may make payments to the Company
for the Variable Insurance Products if and in amounts agreed to by Distributor
in writing and such payments will be made out of existing fees payable to
Distributor, past profits of Distributor or other resources available to
Distributor. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
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5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses 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 distributing the Fund's proxy
materials and reports to Owners.
ARTICLE VI. Potential Conflicts
6.1 The parties acknowledge that the Fund presently 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 the 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 and Qualified Plans. It is anticipated that
the Exemptive Order, when and if issued, shall require the Fund and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 6. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 6, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement
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<PAGE>
and the parties hereto agree to amend this Agreement consistent with the
Exemptive Order. The Fund will not enter into a participation agreement with any
other Participating Insurance Company unless it imposed the same conditions and
undertakings as are imposed on the Company.
6.2 The Board shall monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Owners of separate accounts
of Participating Insurance Companies investing in the Fund. A material
irreconcilable 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 policy Owners; (f) a decision by an insurer to disregard the voting
instructions of Owners; or (g) if applicable, a decision of a Qualified Plan to
disregard the voting instructions of plan participants. The Board shall
promptly inform the Company if it determines that a material irreconcilable
conflict exists and the implications thereof.
6.3 The Company will report any potential or existing conflicts (including
the occurrence of any event specified in paragraph 6.1 which may give rise to
such a conflict) of which it is aware to the Board. The Company will assist the
Board in carrying out their 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
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is not limited to, an obligation by the Company to inform the Board whenever
Owner voting instructions are disregarded. The responsibilities of the Company
will be carried out with a view to the interests of the Owners.
6.4 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 directors), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts of
Participating Insurance Companies 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 Owners and, as
appropriate, segregating the assets of any particular 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 Owners the option of making such a
change; and (2) establishing a new registered management investment company or
managed separate account.
6.5 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Owner voting instructions and that decision represents
a minority position or would preclude a majority vote, the Company shall be
required, at the Fund's election, to withdraw the affected Separate Account's
(or subaccount's) investment in the Fund and terminate this Agreement with
respect to such Separate Account (or subaccount); provided, however, that such
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<PAGE>
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. The responsibility to take such remedial
action shall be carried out with a view only to the interests of the Owners. 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 (6) month period Distributor and the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund.
6.6 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 Separate Account's investment in the Fund and terminate this Agreement
within six (6) months after the Board informs the Company in writing that it has
determined that such decision has created a irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing irreconcilable material conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six (6) month period, Distributor and the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund.
6.7 For purposes of Sections 6.4 through 6.7 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Fund be required to establish a new funding medium for the
Variable Insurance Products. The Company shall not be required by Section 6.4 to
establish a new funding medium for the Variable Insurance
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Products if an offer to do so has been declined by vote of a majority of 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 shall withdraw the
affected Separate 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.
6.8 If and to the extent that Rule 6e-2 or 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, 6.2, 6.3, 6.4, 6.5, and 6.6 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 VII. Indemnification
7.1 Indemnification By the Company
7.1(a) The Company shall indemnify and hold harmless the Distributor,
the Advisor, the Fund and each member of the Board and officers and each person,
if any, who controls the Fund
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within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.1) 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 of the Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Variable Insurance Products or in the
sales literature for the Variable Insurance Products (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Company by or on behalf of the Fund for use in the registration
statement or prospectus for the Variable Insurance Products or in the
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Variable Insurance Products or Fund
shares; or
(ii) arise out of or are based upon statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales
21
<PAGE>
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 Variable
Insurance Products; 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 from 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 7.1(b) and 7.1(c) hereof.
7.1(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.
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7.1(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. After notice from the Company to such party of the
election of one or both of the Company 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.
7.1(d) The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceeding against them in connection with the
issuance or sale of Variable Insurance Products or the operation of the Fund.
This indemnification shall be in addition to any liability which the Company may
otherwise have.
7.2 Indemnification By the Advisor
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7.2(a) The Advisor shall indemnify and hold harmless the Company, and
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 7.2) 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 are related to the operations of the
Fund 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 or sales literature for 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 in
writing to the Advisor, Distributor or the Fund by or on behalf of the
Company for use in the registration statement or prospectus for the
Fund or in the sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of Fund shares;or
(ii) arise out of or are based upon statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales
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<PAGE>
literature of the Variable Insurance Products not supplied by the
Advisor, Distributor or persons under its control) or wrongful conduct
of one or both of the Fund or the Advisor or persons under its
control, with respect to the sale or distribution of 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 Variable Insurance Products, or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund; or
(iv) arise out of or result from any failure by the Advisor 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 II of this Agreement); or
(v) 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 7.2(b) and
7.2(c) hereof.
7.2(b) The Advisor 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
25
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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, Distributor or each
Separate Account, whichever is applicable.
7.2(c) The Advisor 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 Advisor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have 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 Advisor of any such
claim shall not relieve the Advisor 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
and Indemnified Party, the Advisor will be entitled to participate, at its own
expense, in the defense thereof. The Advisor also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Advisor to such party of the Advisor'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 Advisor 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.
7.2(d) The Company agrees promptly to notify the Advisor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Variable Insurance Products or the operation of the
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Account. This indemnification shall be in addition to any liability which the
Advisor may otherwise have.
7.3 Indemnification by the Distributor
7.3(a) The Distributor shall 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 7.3) against any and all
losses, claims, damages, liabilities 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 and:
(i) arise out of or are based upon statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Variable Insurance
Products not supplied by the Distributor, Advisor, Fund or persons
under its control) or wrongful conduct of the Distributor or persons
under its control, with respect to the sale or distribution of the
Fund shares; or
(ii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in sales literature of the Variable Insurance
Products, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in
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reliance upon and in conformity with information furnished to the
Company by the Distributor, or
(iii) arise out of or result from any failure by the Distributor to provide
the services and furnish the materials under the terms of this
Agreement; or
(iv) arise out of or result from any material breach of any representation
and/or warranty made by the Distributor in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Distributor;
as limited by and in accordance with the provisions of Sections 7.3(b) and
7.3(c) hereof.
7.3(b) The Distributor 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 or the Separate Account, whichever is applicable.
7.3(c) The Distributor 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 Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have 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 Distributor of any
such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against and whom such action is brought otherwise
than on account of this indemnification provision. In case any such
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action is brought against an Indemnified Party, the Distributor will be entitled
to participate, at its own expense, in the defense thereof. The Distributor
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Distributor to such
party of the Distributor'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 Distributor 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.
7.3(d) The Company agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against them or any of their
respective officers or directors in connection with this Agreement, the issuance
or sale of the Variable Insurance Products or the operation of either Account.
This indemnification shall be in addition to any liability which the Distributor
may otherwise have.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of New York.
8.2 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, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
29
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ARTICLE XI. Termination
9.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason by six months' advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Distributor 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 not consistent
with the Company's obligations to Owners; or
(c) termination by the Company by written notice to the Fund and the
Distributor 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 investments media of the Variable
Insurance Products issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Distributor 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 any independent or resulting failure under
Section 817 of the Code, or under any successor or similar provision
of either, or if the Company reasonably believe that the Fund may fail
to so qualify; or
(e) termination by either the Fund or the Distributor by written notice to
the Company, if either one or both of the Fund or the Distributor
respectively, shall determine, in their sole judgement exercised in
good faith, that the Company has
30
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suffered a material adverse change in their business, operations,
financial condition or prospects since the date of this Agreement or
are the subject of material adverse publicity; but no termination
shall be effective under this subsection (e) until the Company has
been afforded a reasonable opportunity to respond to a statement by
the Fund or the Distributor concerning the reason for notice of
termination hereunder; or
(f) termination by the Company by written notice to the Fund and the
Distributor, if the Company shall determine, in its sole judgement
exercised in good faith, that either the Fund or the Distributor 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; but no termination shall
be effective under this subsection (f) until the Company has been
afforded a reasonable opportunity to respond to a statement by the
Fund or the Distributor concerning the reason for notice of
termination hereunder.
(g) At the option of the Fund if the Variable Insurance Products cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, of if the Fund reasonably believes that
the Variable Insurance Products may fail to so qualify. Termination
shall be effective upon receipt of notice by the Company.
(h) At the option of the Company, upon the Fund's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of the Company within ten (10) days after written notice
of such breach is delivered to the Fund.
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(i) At the option of the Fund, upon the Company's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of the Fund within ten (10) days after written notice of
such breach is delivered to the Company.
(j) At the option of the Company, if the Variable Insurance Products are
not sold in accordance with applicable federal and/or state law by the
Distributor. Termination shall be effective immediately upon such
occurrence without notice.
(k) At the option of the Fund, if the Variable Insurance Products are not
registered and issued in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon such
occurrence without notice.
9.2 ffect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Distributor shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Variable Insurance Products 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 9.2 shall not apply to any terminations under Article VI and
the effect of such Article VI terminations shall be governed by Article VI of
this Agreement. However, in no event shall the Fund and Distributor be required
to make additional shares available to Existing Contracts for more that six (6)
months after the date of termination of the Agreement.
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9.3 The Company shall not redeem Fund shares attributable to the Variable
Insurance Products (as opposed to Fund shares attributable to the Company's
assets held in the Separate Account) except (i) as necessary to implement Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Distributor the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Distributor) to the effect that any redemption
pursuant to the clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Variable Insurance
Products, and as may be in the best interests of Owners, as determined by the
Company, the Company shall not prevent Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Distributor ninety (90) days notice of its intention to do so.
9.4 Notwithstanding any termination of this Agreement for any reason, the
terms and conditions of the following provisions of this Agreement shall remain
in effect with respect to any Existing Contract, for so long as such Existing
Contract has assets invested in the Fund: Section 1.3 to 1.10 of Article I
(governing the pricing and redemption of shares); Article II (Representations
and Warranties); Sections 3.1 through 3.3 and 3.5 of Article III (Prospectus and
Proxy Statements, and Voting); Articles IV and VIII (Sales Material and
Information; Fees and Expenses, Diversification; Potential Conflicts;
Indemnification; and Applicable Law); Article X (Notices); and Sections 11.1,
11.2, and 11.5 through 11.8 of Article XI (Miscellaneous).
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Further, notwithstanding any termination of this Agreement for any reason, the
terms and conditions of the following provisions of this Agreement shall remain
in effect with regard to Variable Insurance Products previously invested in the
Fund: Article II (Representations and Warranties); and Article VIII
(Indemnification).
ARTICLE X. 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:
c/o Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Corporate Secretary
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attention: General Counsel
If to Distributor:
Manning & Napier Investor Services, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Secretary
ARTICLE XI. Miscellaneous
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11.1 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 any
obligations entered into on behalf of the Fund.
11.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the Owners 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.
11.3 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.
11.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5 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.
11.6 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.
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11.7 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.
11.8 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 Distributor may assign the Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Distributor (but in such event the Distributor shall continue
to be liable under Article VII of this Agreement for any indemnification due to
the Company, and assignee shall also be liable), if such assignee is duly
licensed and registered to perform the obligations of the Distributor under this
Agreement.
11.9 No provision of the Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by the Fund, the
Distributor and the Company.
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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.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ John W. Rosensteel
----------------------
Title: President and CEO
-----------------
Date: September 25, 1996
------------------
MANNING & NAPIER INVESTOR SERVICES, INC.
By its authorized officer,
By: /s/ B. Reuben Auspitz
---------------------
Title: President
---------
Date: September 20, 1996
------------------
MANNING & NAPIER INSURANCE FUND, INC.
By its authorized officer,
By: /s/ B. Reuben Auspitz
---------------------
Title: President
---------
Date: September 20, 1996
------------------
MANNING & NAPIER ADVISORS, INC.
By its authorized officer,
By: /s/ William Manning
-------------------
Title: President
---------
Date: September 20, 1996
------------------
37
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Schedule A
Manning & Napier Insurance Fund
Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
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Schedule B
Separate Accounts Selected Funds
Variable Account J Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
- --------------------------------------------------------------------------------
Contract - Form Number
- ----------------------
DVA(1) (Group Master Contract)
DVA(1)/CERT (Group Certificate)
DVA(1)/IND (Individual Contract)
39
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EXHIBIT 9
<PAGE>
October 11, 1996
John W. Rosensteel, President
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
RE: OPINION OF COUNSEL - VARIABLE ACCOUNT A
Dear Mr. Rosensteel:
You have requested my opinion concerning the legality of the variable
annuity contracts being registered with the Securities and Exchange
Commission by Pre-Effective Amendment No. 3.
I have made such examination of the law and have examined such records and
documents as in my judgment was necessary or appropriate to enable me to
render the opinion expressed below.
I am of the opinion that the contracts will be legally issued and will
represent binding obligations of the depositor (Keyport Life Insurance
Company).
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
Sincerely,
/s/ Bernard R. Beckerlegge
Bernard R. Beckerlegee
Senior Vice President and
General Counsel
<PAGE>
Exhibit 10
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of
Keyport Life Insurance Company
We consent to the use of our report dated February 16, 1996, included
herein and to the reference to our Firm under the heading "Experts" in the
Statement of Additional Information.
Our report dated February 16, 1996 contains an explanatory paragraph that
refers to a change in accounting by the Company to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 14, 1996
