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As filed with the Securities and Exchange Commission on August 22, 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. 1 [X]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 [X]
Variable Account A
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(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
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
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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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CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
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Prospectus
PART B
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Statement of Additional Information
PART C
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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
<TABLE>
<CAPTION>
N-4 Item Caption in Prospectus
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<S> <C>
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
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17. . . . . . . . . . . . . . . . Keyport Life Insurance Company
18. . . . . . . . . . . . . . . . Experts
19. . . . . . . . . . . . . . . . Not applicable
20. . . . . . . . . . . . . . . . Principal Underwriter
21. . . . . . . . . . . . . . . . Investment Performance
22. . . . . . . . . . . . . . . . Variable Annuity Benefits
23. . . . . . . . . . . . . . . . Financial Statements
</TABLE>
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PART A
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The information contained within double rows of asterisks is provided at the
request of the staff of the Securities and Exchange Commission. It is not and
will not be part of any documents delivered to purchasers or existing owners,
and is included solely for purposes of clarifying the content of this
registration statement. In addition, throughout the prospectus and statement of
additional information ("SAI") that follow there are similar inserts that
specifically summarize the parameters of change for the particular design
feature.
This registration statement includes a prospectus and SAI that describes a
generic form of the Group and Individual Flexible Premium Deferred Annuity
Contracts (the "Contracts") that are the subject of the registration
statement. The prospectus and SAI contain numerous bracketed portions to
indicate those portions which may be included or eliminated in any particular
form of the Contracts, including but not limited to those, as follows:
death benefits;
funding media;
withdrawal rights;
transfer privileges;
annuity options;
other features
such as dollar cost averaging,
asset allocation,
systematic withdrawals, and
Account rebalancing.
In all cases variations in other features, such as issue age, will be in
conformity with state insurance law.
The prospectus and SAI also include bracketed references to the fees and charges
to be imposed under the particular form of the Contract. Of course, in each
case, Keyport only will impose such charges in a manner and subject to the
conditions of applicable rules. In connection with the various charges under the
Contracts, Keyport and its separate accounts will rely upon and be limited by
such rules as 0-1(e), 6c-8, 26a-1 and 26a-2 under the Investment Company Act of
1940, as amended, and in compliance with their respective requirements,
including, but not limited to any "at-cost" standards. Any descriptions of the
potential range of fees and charges should be read in the context of such rules
requirements.
Each form of the Contracts will be offered pursuant to a separate prospectus and
a separate or combined SAI, as appropriate. Such separate prospectus and SAI
will be filed pursuant to Rule 497 under the 1933 Act ("Rule 497") provided that
the form of the Contract entails the same
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eligible underlying mutual funds (the "Eligible Funds") and Principal
Underwriter ("Underwriter").
If the particular form of the Contract entails new Eligible Funds or a new
Underwriter, an amendment pursuant to Rule 485(b) under the 1933 Act ("Rule
485(b)") will be filed with the Commission in addition to the Rule 497 filing.
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2
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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 Certificates 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 Contracts. 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 on
a variable basis, [and also on a fixed basis.], and payments of periodic annuity
payments [on either a variable or/a] fixed basis. The Certificates are designed
for use by individuals for retirement planning purposes.
This prospectus generally describes only the variable features of the
Certificate [(for a summary of the fixed features, see Appendix A on Page xx)].
If the Certificate Owner elects to have Certificate Values accumulated on a
variable basis, 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 The
XXXXX Trust ("XXXXX Trust") at their net asset value: X-1, X-2 and X-3. The
Variable Account also invests in shares of the following Eligible Funds of The
YYYYY Fund ("YYYYY Fund") at their net asset value: Y-1, Y-2, Y-3.
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 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. A table of contents for the
Statement of Additional Information is on Page xx.
THE CERTIFICATES MAY BE SOLD BY OR THROUGH BANKS OR OTHER DEPOSITORY
INSTITUTIONS. THE CONTRACT AND CERTIFICATES: ARE NOT INSURED BY THE FDIC; ARE
NOT A DEPOSIT OR OTHER
3
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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
4
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TABLE OF CONTENTS
Page
Glossary of Special Terms
Summary of Expenses
Synopsis
Investment Performance
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 Daily Distribution Charge]
[Deductions for Daily Administrative Charge]
[Deductions for Contingent Deferred Sales 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
Partial Withdrawals and Surrender
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
5
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Tax Status
Introduction
Taxation of Annuities in General
Qualified Plans
Tax-Sheltered Annuities
Individual Retirement Annuities
Corporate Pension and Profit-Sharing Plans
Deferred Compensation Plans with Respect to
Service for State and Local Governments
Variable Account Voting Privileges
Sales of the Contract and Certificates
Legal Proceedings
Inquiries by Certificate Owners
Table of Contents--Statement of Additional Information
[Appendix A--The Fixed Account (also known as the Modified
Guaranteed Annuity Account)]
Appendix [B]--Telephone Instructions
6
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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 Certificate 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
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 Certificate Date (age [75] for
Qualified Certificates and age [85] for a joint Owner).
CERTIFICATE VALUE: The [sum of the] Variable Account Value [and the Fixed
Account Value].
CERTIFICATE WITHDRAWAL VALUE: The Certificate Value [increased or decreased by
a limited Market Value Adjustment] less any premium taxes [and] [Certificate
Maintenance Charge] [and] [applicable Contingent Deferred Sales Charges].
CERTIFICATE YEAR: Any period of 12 months commencing with the Certificate Date
and each Certificate Anniversary thereafter shall be a Certificate Year.
[COVERED PERSON: The person(s) identified on the Certificate Schedule whose
death may result in an Adjustment of Certificate Value [and waiver of any
Contingent Deferred Sales Charges] [and a waiver of any Market Value
Adjustment] [or whose medically necessary stay in a hospital or nursing
facility may allow the Certificate Owner to be eligible for either a total or
partial waiver of the Contingent Deferred Sales Charge].]
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.
7
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ELIGIBLE FUNDS: The mutual funds that are eligible investments for the Variable
Account under the Certificates.
[FIXED ACCOUNT: Part of Keyport's general account to which Purchase Payments may
be allocated or Certificate Values may be transferred.]
[FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated under
the Certificate prior to the Income Date.]
[GUARANTEE PERIOD ANNIVERSARY: An anniversary of a Guarantee Period's Start
Date.]
[GUARANTEE PERIOD MONTH: The first Guarantee Period Month is the monthly period
which begins on the Start Date. Subsequent Guarantee Period Months begin on the
same day in the ensuing months.]
[GUARANTEE PERIOD YEAR: The first Guarantee Period Year is the annual period
which begins on the Start Date. Subsequent Guarantee Period Years begin on each
Guaranteed Period Anniversary.]
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.
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
Sections 401, 403(b) or 408(b) of the Internal Revenue Code. Keyport treats
Section 457 plans as Qualified Plans.
[START DATE: The date an amount is first allocated to a Guarantee Period].
8
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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.
9
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SUMMARY OF EXPENSES
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Summary of Expenses will be completed in each Rule 497 or 485(b) filing.
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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): [7%(1)
YEARS FROM DATE OF PAYMENT SALES CHARGE
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%]
Maximum Total Certificate Owner Transaction Expenses
(as a percentage of Purchase Payments): [7%]
Annual Certificate Maintenance Charge(2) $[36]
[The Certificate Maintenance Charge will be waived if:
(i) the Certificate Value is greater than $40,000 on the date this charge
is imposed, or
(ii) Purchase Payments of at least [$2,500] have been made in the prior
Certificate Year and there has been no partial withdrawal in the
prior Certificate Year.]
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Mortality and Expense Risk Charge: [1.25%]
10
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[Distribution Charge:] [ .15%]
[Administrative Charge:] [ .15%]
Total Variable Account Annual Expenses: [1.55%]
XXXXX TRUST AND YYYYY FUND ANNUAL EXPENSES(3)
(as a percentage of average net assets)
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES OPERATING EXPENSES([4])
EXAMPLE #1 -- ASSUMING SURRENDER OF THE CERTIFICATE AT THE END OF THE PERIODS
SHOWN.(5)
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
EXAMPLE #2 -- ASSUMING ANNUITIZATION OF THE CERTIFICATE AT THE END OF THE
PERIODS SHOWN.(5)
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
EXAMPLE #3 -- ASSUMING THE CERTIFICATE STAYS IN FORCE THROUGH THE PERIODS SHOWN.
A $1,000 INVESTMENT IN EACH SUB-ACCOUNT LISTED WOULD BE SUBJECT TO THE SAME
EXPENSES SHOWN IN EXAMPLE #2, ASSUMING 5% ANNUAL RETURN ON ASSETS.
11
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[(1)Contingent Deferred Sales Charges are deducted only if the Certificate is
totally or partially surrendered. A surrender will not incur the Charge
percentage shown as follows:
1. In any Certificate Year, Certificate Owners may withdraw an aggregate
amount, not to exceed, at the time of withdrawal, the Certificate's
earnings, which equal: (a) the Certificate Value, less (b) the portion
of the Purchase Payments not previously withdrawn.
2. In any Certificate Year after the first, Certificate Owners may
withdraw, in addition to the amount available in 1., the amount by
which 10% of the Certificate Value as of the preceding Certificate
Anniversary exceeds the amount available in 1.
(2)[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.
(3)The XXXXX Trust expenses are for 199[4]. The YYYYY Fund expenses are
estimated and reflect the YYYYY Fund's Manager's agreement to reimburse expenses
above certain limits (see footnote 4).
[(4)YYYYY Fund's manager has agreed until [a/bb/cc] to reimburse all expenses,
including management fees, in excess of the following percentage of the average
annual net assets of each Fund, so long as such reimbursement would not result
in the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code. The total percentages shown in the table for YY-1, YY-2
and YY-3 are after expense reimbursement. Each percentage shown in the
parentheses is what the total for 199[ ] would be in the absence of expense
reimbursement: for YY-1 - xxx%; for YY-2 - xxx%; and for YYY-3 - xxx%.]
(5)The annuity is designed for retirement planning purposes. Surrenders prior
to the Income Date are not consistent with the long-term purposes of the
Certificate and the applicable tax laws.
THE EXAMPLES 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, ["How the Funds are Managed"] in the prospectus for XXXXX
Trust, and ["Trust Management Organizations"] and ["Expenses of the Funds"] in
the prospectus for YYYYY Fund.
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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 [and also to the Fixed Account.] The Variable Account is a
separate investment account maintained by Keyport. [The Fixed Account is part
of Keyport's "general account", which consists of all Keyport's assets except
the Variable Account and the assets of other separate accounts maintained by
Keyport.] Certificate Owners may allocate payments to, and receive annuity
payments from the Variable Account [and/or the Fixed 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. [If the Certificate Owner allocates
payments to the Fixed Account, the accumulation values will increase at
guaranteed interest rates and annuity payments will be of a fixed amount. [Fixed
Account Values are subject to a limited market value adjustment]. (See Appendix
A on Page XX for more information on the Fixed Account.)] [If the Certificate
Owner allocates payments to both Accounts, then the accumulation values and
annuity payments will be variable in part and fixed in part.]
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 [(currently $250)]. (See "Purchase Payments" on Page x.)
There are no deductions made from Purchase Payments for sales charges at the
time of purchase. [A Contingent Deferred Sales Charge may be deducted in the
event of a total or partial surrender (see "Surrenders" on Page xx). The
Contingent Deferred Sales Charge is based on a graded table of charges. The
charge will not exceed [7]% of that portion of the amount surrendered that
represents Purchase Payments made during the [seven] years immediately
preceding the request for surrender. (See "Deductions for Contingent Deferred
Sales Charge" on Page xx.)]
Keyport deducts a Mortality and Expense Risk Charge, which is equal on an annual
basis to [1.25]% of the average daily net asset values in the Variable Account
attributable to the Certificates. (See "Deductions for Mortality and Expense
Risk Charge" on Page xx.) [Keyport also deducts a daily distribution charge
which is equal on an annual basis to [.15%] of the same values. (See
"Deductions for Daily Sales Charge" on Page xx.)] [Keyport deducts a Daily
Administrative Charge which is equal on an annual basis to [.15]% of the same
values. (See "Deductions for Daily Administrative Charge" on Page xx.)]
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[Keyport deducts an annual Certificate Maintenance Charge (currently $[36.00])
from the Variable Account Value for administrative expenses. Prior to the
Income Date, Keyport reserves the right to change this charge for future years.
[Keyport will in certain instances waive this charge.] (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 distribution 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 XX-1 Sub-Account
during the "freelook" period plus an additional 10 days.
The full financial statements for [the Variable Account and] 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.
[Keyport and certain of the Eligible Funds have been offering contracts for
periods prior to the commencement of the offering of the Certificates described
in this prospectus. The performance information will be based on historical
results of Eligible Funds that apply to the Certificate for the specified time
periods.]
This performance information is not intended to indicate either past performance
under an actual Certificate or future performance.
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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
[(including any Contingent DeferredSales Charge that would apply if a
Certificate Owner surrendered the Certificate at the end of each period
indicated)]. Average total return does not take into account any premium taxes
and would be lower if these taxes were included.
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.
[First, the Sub-Accounts may present total return information computed on the
same basis as described above, except deductions will not include the Contingent
Deferred Sales Charge. This presentation assumes that the investment in the
Certificate continues beyond the period when the Contingent Deferred Sales
Charge applies, consistent with the long-term investment and retirement
objectives of the Certificate. The total return percentage will thus be higher
under this method than the standard method described above.]
[Second,] 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 Contingent
Deferred Sales Charge, the Certificate Maintenance Charge and] premium tax
charges. The percentages would be lower if these charges were included.
The XX-1 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
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the deduction of all charges assessed against the Sub-Account and a Certificate
but does not take into account [Contingent Deferred Sales Charges and] premium
tax charges. The yield would be lower if these charges were included.
The effective yield of the XX-1 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.
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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.
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 Death Benefit Amount or otherwise enhance the death benefit
with interest).
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
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business Keyport may conduct. Thus, Keyport does not guarantee the investment
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.
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PURCHASE PAYMENTS AND APPLICATIONS
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The minimums and maximums described in the following paragraph may
vary within any limits permitted under state insurance law and
Keyport's administrative guidelines in existence at the time of
issuance of the Certificate.
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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
[(currently $250)]. Keyport may reject any Purchase Payment.
If 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
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<PAGE>
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 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 [or must specify the asset allocation model
selected. (See Other Services, the Programs on Page xx).] 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 [B] 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:
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TEXT HERE WILL DESCRIBE ELIGIBLE FUNDS AND CORRESPONDING SUB-ACCOUNTS
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20
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ELIGIBLE FUNDS OF XXXXX TRUST SUB-ACCOUNTS
XX-1 XX-1 Sub-Account
XX-2 XX-2 Sub-Account
XX-3 XX-3 Sub-Account
ELIGIBLE FUNDS OF YYYYY FUND SUB-ACCOUNTS
YY-1 YY-1 Sub-Account
YY-2 YY-2 Sub-Account
YY-3 YY-3 Sub-Account
ELIGIBLE FUNDS
The Eligible Funds which are the permissible investments of the Variable Account
are the separate funds of XXXXX Trust, the separate funds of YYYYY Fund, 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.
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TEXT HERE WILL DESCRIBE INDIVIDUAL INVESTMENT ADVISERS
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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 fund for investing. 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 XXXXX TRUST
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
21
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TEXT HERE WILL DESCRIBE FUNDS AND INVESTMENT OBJECTIVES
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ELIGIBLE FUNDS OF YYYYY FUND
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
THERE IS NO ASSURANCE THAT THE ELIGIBLE FUNDS WILL ACHIEVE THEIR STATED
OBJECTIVES.
XXXXX and YYYYY Funds 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 Trust's and
Fund's prospectus under the caption ["The Trust"] and [SALES AND REDEMPTIONS,]
respectively.
TRANSFER OF VARIABLE ACCOUNT VALUE
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The number of transfers will vary between zero (0) and the maximum
number that Keyport determines is consistent with interpretations of
applicable tax law restrictions on contract owner control. The
transfer charge, if any, imposed on transfers in excess of 12 will not
exceed $25 for each transfer in excess of 12.
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Certificate Owners may transfer Variable Account Value from one Sub-Account to
another Sub-Account [and/or to the Fixed 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
22
<PAGE>
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
[of [x] for each transfer in excess of [xx] 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 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
23
<PAGE>
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 B 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.
25
<PAGE>
DEDUCTIONS
[DEDUCTIONS FOR CERTIFICATE MAINTENANCE CHARGE
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The Certificate Maintenance Charge, as stated in the body of the
prospectus never will exceed the anticipated costs of administering
the Certificates. Moreover, it will not exceed a maximum dollar amount
of $100. Under certain forms of the Certificate Keyport may not impose
any Certificate Maintenance Charge.
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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 makes
a Certificate Maintenance Charge for such services during the accumulation and
annuity payment periods. At the present time the Certificate Maintenance Charge
is $[36] 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
26
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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.]
27
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The Mortality and Expense Risk Charge as stated in the body of the
prospectus will vary between 35 and 125 basis points. The variations
will depend upon the precise combination of features and are designed
to compensate Keyport for the costs it expects to incur, based on
those particular benefits and features incorporated into the
particular form of the Certificate, over the period the Certificate is
in force.
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Deductions for Mortality and Expense Risk Charge
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 Benefits"). [Keyport assumes an
expense risk that the asset-based Administrative Charge will be insufficient to
cover the anticipated portion of Keyport's administrative expenses.] [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 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 - 1.25]% 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
"Sales of the Certificate".
[DEDUCTIONS FOR DAILY DISTRIBUTION CHARGE
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A daily Distribution Charge may not apply to all forms of the
Certificate. It will be imposed at a maximum rate of 15 basis points
of net assets when such
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imposition combined with any contingent deferred sales charge does not
result in the imposition of sales charges that exceed 9% of Purchase
Payments.
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Keyport also deducts from each Sub-Account each Valuation Period a daily
Distribution Charge equal on an annual basis to 0.[15]% of the average daily net
asset value of the Sub-Account. This charge compensates Keyport for certain
sales distribution expenses relating to the Certificate.
This charge will not be deducted from Sub-Account values attributable to
Certificates that have reached the maximum cumulative distribution charge limit
defined below and to Certificates issued to employees of Keyport and other
persons specified in "Sales of the Certificate". The charge is also not
deducted from Sub-Account values attributable to Annuity Units. Keyport may
decide not to deduct the charge from Sub-Account values attributable to a
Certificate issued in an internal exchange or transfer of an annuity contract of
Keyport's general account.]
[DEDUCTIONS FOR DAILY ADMINISTRATIVE CHARGE
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A daily Administrative Charge may not apply to all forms of the
Certificate. The maximum daily Administrative Charge will be 15 basis
points. This charge may be adjusted giving consideration to the amount of
the Certificate Maintenance Charge, but in no event greater than
anticipated costs for the Certificates.
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Keyport also deducts from each Sub-Account each Valuation Period an
Administrative Charge equal on an annual basis to 0.[15]% of the average daily
net asset value of the Sub-Account. This charge compensates Keyport for a
portion of the administrative expenses relating to the Certificate.]
[DEDUCTIONS FOR CONTINGENT DEFERRED SALES CHARGE
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The Contingent Deferred Sales Charge may not apply to all forms of the
Certificate. The Contingent Deferred Sales Charge, including any
amounts deducted through the daily Sales Charge, will not exceed 9% of
Purchase Payments. The Contingent Deferred Sales Charge, not including
any amount deducted through the daily Sales Charge, will in no event
exceed a duration of 7 years and 7%.
********************************************************************************
********************************************************************************
A sales charge is not deducted from the Certificate's Purchase Payments when
initially received. However, a Contingent Deferred Sales Charge may be deducted
upon a surrender.
In order to determine whether a Contingent Deferred Sales Charge will be due
upon a partial or total surrender, Keyport maintains a separate set of records.
These records identify the date and amount of each Purchase Payment made to the
Certificate and the Certificate Value over time.
Certificate Owners will be permitted to make partial surrenders during the
Accumulation Period without incurring a Contingent Deferred Sales Charge, as
follows:
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1. In any Certificate Year, Certificate Owners may withdraw an
aggregate amount not to exceed, at the time of the withdrawal, the Certificate's
earnings, which equal: (a) the Certificate Value, less (b) the portion of the
Purchase Payments not previously withdrawn.
2. In any Certificate Year after the first, Certificate Owners may
withdraw, in addition to the amount available in 1., the amount by which 10% of
the Certificate Value as of the preceding Certificate Anniversary exceeds the
amount available in 1.
Contingent Deferred Sales Charges, as discussed below, will be deducted with
respect to withdrawals in excess of these amounts.
In computing the applicable charge amounts, the amount of any surrender in any
Certificate Year after the first as set forth in 2. above, will be deducted from
the Purchase Payments in chronological order from the oldest to the most recent
until the amount is fully deducted. Any amount so deducted will not be subject
to a charge.
The following additional amounts will be deducted from the Purchase Payments in
the same chronological order: the amount of any surrender in the first
Certificate Year in excess of the amount set forth in 1. above and the amount of
any surrender in any later Certificate Year in excess of the combined amount set
forth in 1. and 2. above. The Contingent Deferred Sales Charge for each
Purchase Payment from which a deduction is made will be equal to (a) multiplied
by (b), where:
(a) is the amount so deducted; and
(b) is the applicable percentage for the number of years that have elapsed from
the date of that payment to the date of surrender. Years are measured from
the month and day of payment to the same month and day in each subsequent
calendar year. The percentages applicable to each Purchase Payment during
the [seven] years after the date of its payment are: [7% during year 1; 6%
during year 2; 5% during year 3; 4% during year 4; 3% during year 5; 2%
during year 6; 1% during year 7;] and 0% thereafter.
The applicable Contingent Deferred Sales Charges for each Purchase Payment are
then totalled. The lesser of this total amount and the Certificate's maximum
cumulative distribution charge will be deducted from the Certificate Value in
the same manner as the surrender amount. The maximum cumulative distribution
charge is
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equal to (a) less (b), where (a) is 9% of the total Purchase Payments made to
the Certificate and (b) is the sum of all prior Contingent Deferred Sale Charge
deductions from the Certificate Value [and all prior Variable Account daily
distribution charges applicable to the Certificate from the 0.15% distribution
charge factor.] After each surrender, Keyport's records will be adjusted to
reflect any deductions made from the applicable Purchase Payments.
Example: Two Purchase Payments were made one year apart for $5,000 and $7,000.
The Certificate Value has grown to an assumed $13,200 when the Certificate Owner
decides to withdraw $8,000. The Certificate Value at the beginning of the
Certificate Year of surrender was $13,000. The Contingent Deferred Sales
Charge percentages at the time of surrender are an assumed 5% for the $5,000
payment and 6% for the $7,000 payment. The portion of the surrender
representing the Certificate's earnings ($13,200 less $12,000, or $1,200) would
not be subject to charges. Since $1,200 is less than the amount guaranteed not
to have charges (10% of $13,000, or $1,300), an additional $100 would not be
subject to charges. This $100 would be deducted from the oldest Purchase
Payment, reducing it from $5,000 to $4,900. The $1,200 increase in value plus
the additional $100 leaves $6,700 ($8,000 - 1,200 - 100) to be deducted. This
$6,700 would be deducted from the $4,900 of the first payment still left and
$1,800 of the second payment. The total Contingent Deferred Sales Charge would
be $4,900 multiplied by the applicable 5% and $1,800 times the applicable 6%, or
a total of $353. The distribution charge records would now reflect $0 for the
1st payment and $5,200 for the 2nd payment. The $8,000 requested plus the $353
charge would be deducted from Certificate Values under the rules specified in
the "Surrenders" section.
The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover the expenses of selling the Certificate, including compensation paid to
selling dealers and the cost of sales literature. Any expenses not covered by
the charge will be paid from Keyport's general account, which may include monies
deducted from the Variable Account for the Mortality and Expense Risk Charge. A
dealer selling the Certificate may receive up to [6.25%] of Purchase Payments
[with additional compensation later based on the Certificate Value of those
payments. During certain time periods selected by Keyport and [KFSC], the
percentage may increase to [6.50]%.]
The Contingent Deferred Sales Charge will be waived in the event a Covered
Person is confined in a medical facility in accordance with the provisions and
conditions of an endorsement relating to such confinements.
The Contingent Deferred Sales Charge will be eliminated under Certificates
issued to employees of Keyport and other persons specified in Sales of the
Certificate".
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Keyport may reduce or change to 0% any Contingent Deferred Sales Charge
percentage under a Certificate issued in an internal exchange or transfer of an
annuity contract of Keyport's general account.]
[DEDUCTIONS FOR TRANSFERS OF VARIABLE ACCOUNT VALUE
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The charge for transfers will range from zero to an amount equal to
the administrative costs of effecting the transfer, as described
below, not to exceed $25.
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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 ACCOUNT EXPENSES
Total Variable Account expenses in relation to the Certificate will be [the
Certificate Maintenance Charge,] the Mortality and Expense Risk Charge, [the
Daily Sales Charge, and the Daily Administrative 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
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Each of the following Programs may or may not be offered under any
form of the Certificate.
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THE PROGRAMS. Keyport offers several investment related programs which are
available only prior to the Income Date: [Asset Allocation]; [Dollar Cost
Averaging]; [Systematic Investment]; and [Systematic Withdrawal] Programs. [A
Rebalancing Program is available prior to and after the Income Date.] Under
each Program, the related transfers between and among Sub-Accounts [and the
Fixed Account] are not counted as one of the [twelve] free transfers. Each of
the Programs has its own requirements, as discussed below. Keyport reserves the
right to terminate any Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. For those Programs involving
transfers, Owners may change instructions by telephone with regard to which Sub-
Accounts [or the Fixed Account] Certificate Value may be transferred. The
current conditions and procedures are described in Appendix [B].
[DOLLAR COST AVERAGING PROGRAM. Keyport offers a Dollar Cost Averaging Program
that Certificate Owners may participate in by Written Request. The program
periodically transfers Accumulation Units from the XX-1 Sub-Account [or the One-
Year Guarantee Period of the Fixed Account] to other Sub-Accounts selected by
the Certificate Owner. The program allows a Certificate Owner to invest in
Variable Sub-Accounts over time rather than having to invest in those Sub-
Accounts all at once. The program is available for initial and subsequent
Purchase
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Payments and for Certificate Value transferred into the XX-1 Sub-Account [or the
One-Year Guarantee Period.] Under the program, Keyport makes automatic
transfers on a periodic basis out of the XX-1 Sub-Account [or the One-Year
Guarantee Period] into one or more of the other available Sub-Accounts (Keyport
reserves the right to limit the number of Sub-Accounts the Certificate Owner may
choose but there are currently no limits).
The Certificate Owner by Written Request must specify the XX-1 Sub-Account [or
the One Year Guarantee Period] from which the transfers are to be made, the
monthly amount to be transferred [(minimum $150)] and the Sub-Account(s) to
which the transfers are to be made. The first transfer will occur at the close
of the Valuation Period that includes the 30th day after the receipt of the
Certificate Owner's Written Request. Each succeeding transfer will occur one
month later (e.g., if the 30th day after the receipt date is April 8, the second
transfer will occur at the close of the Valuation Period that includes May 8).
When the remaining value is less than the monthly transfer amount, that
remaining value will be transferred and the program will end. Before this final
transfer, the Certificate Owner may extend the program by allocating additional
Purchase Payments to the XX-1 Sub-Account [or the One Year Guarantee Period] or
by transferring Certificate Value to the XX-1 Sub-Account [or the One Year
Guarantee Period.] The Certificate Owner may, by Written Request or by
telephone, change the monthly amount to be transferred, change the Sub-
Account(s) to which the transfers are to be made, or end the program. The
program will automatically end if the Income Date occurs. Keyport reserves the
right to end the program at any time by sending the Certificate Owner a notice
one month in advance.
Written or telephone instructions must be received by Keyport by the end
(currently 4:00 PM Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by Keyport
from time to time. The current conditions and procedures appear in Appendix
[B], and Certificate Owners in a dollar cost averaging program will be notified,
in advance, of any changes.]
Asset Allocation Program
Certificate Owners may select from five asset allocation model portfolios
developed by Ibbotoson Associates. If a Certificate Owner elects one of the
models, initial and subsequent Purchase Payments will automatically be allocated
among the Sub-Accounts in the model. Only one model may be used in a Certificate
at a time. Certificate Owners may use a questionnaire and scoring system
developed by Ibbotoson Associates to determine the model which corresponds to
their risk tolerance and time horizons.
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Periodically Ibbotoson Associates will review the models and may determine that
a reconfiguration of the Sub-Accounts and percentage allocations among those
Sub-Accounts is appropriate. Certificate Owners will receive notification prior
of any reconfiguration.
[The Fixed Account is not available in any asset allocation model. A Certificate
Owner may allocate initial or subsequent Purchase Payments, or Certificate
Value, between an asset allocation model and the Fixed Account.]
[REBALANCING PROGRAM. In accordance with the Certificate Owner's election of
the relative Purchase Payments percentage allocations, Keyport will
automatically rebalance the Certificate Value of each Sub-Account either
monthly, quarterly, semi-annually, or annually. On the last day of the period
selected, Keyport will automatically rebalance the Certificate Value in each of
the Sub-Accounts to match the current Purchase Payments percentage allocations.
The Program may be terminated at any time and the percentages may be altered by
Written Request. The requested change must be received at the Office [ten (10)]
days prior to the end of the period selected. [Certificate Value allocated to
the Fixed Account is not subject to automatic rebalancing.]
[SYSTEMATIC INVESTMENT PROGRAM. Purchase Payments may be made by monthly draft
against the bank account of any Certificate Owner that has completed and
returned to Keyport a Systematic Investment Program application and
authorization form. The application and authorization form may be obtained from
Keyport or from the sales representative. Each Systematic Investment Program
Purchase Payment is subject to a minimum of [$250.]
[SYSTEMATIC WITHDRAWAL PROGRAM. To the extent permitted by law, Keyport will
make monthly, quarterly, semi-annually or annual distributions of a
predetermined dollar amount to the 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".) The Certificate Owner may specify the amount of each partial
withdrawal, subject to a minimum of [$100]. [Systematic withdrawals may only be
made from the Sub-Accounts [and the [One] Year Guarantee Period of the Fixed
Account.]] [In each Certificate Year, portions of Certificate Value may be
withdrawn without the imposition of any Contingent Deferred Sales Charge ("Free
Withdrawal Amount"). If withdrawals pursuant to the Program are greater than
the Free Withdrawal Amount, the amount of the withdrawals greater than the Free
Withdrawal Amount will be subject to the applicable Contingent Deferred Sales
Charge. Any unrelated voluntary partial withdrawal a Certificate Owner makes
during a Certificate Year will be aggregated with withdrawals pursuant to the
Program to determine the
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applicability of any Contingent Deferred Sales Charge under the Certificate
provisions regarding partial withdrawals.
Unless the Certificate Owner specifies the Sub-Account or Sub-Accounts [or the
Fixed Account] 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 [and the
Fixed Account] in amounts proportionate to the amounts in the Sub-Accounts [and
the Fixed Account.] 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 [and any applicable Contingent Deferred
Sales Charge].
[The Program may be combined with all other Programs [except the Systematic
Investment Program].]
[It may not be advisable to participate in the Systematic Withdrawal Program
and incur a Contingent Deferred Sales Charge when making additional Purchase
Payments under the Certificate.]]
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-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
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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
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) MINUS 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 Mortality and Expense Risk
Charge; plus
[(ii) the Valuation Period equivalent of the daily Distribution Charge;
plus]
[(iii) the Valuation Period equivalent of the daily Administrative
Charge; plus]
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[(iv)] a charge factor, if any, for any tax provision established by
Keyport as a result of the operations of that Sub-Account.
[If a Certificate ever reaches the maximum cumulative sales charge limit defined
in "Deductions for Contingent Deferred Sales Charge", Unit values without
(c)(ii) above will be used thereafter.] For Certificates issued to employees of
Keyport and other persons specified in "Sales of the Certificate", Unit values
with [.35]% in (c)(i) above [and without (c)(ii) above will be used. Unit
values without (c)(ii) above may be used for certain Certificates issued in an
internal exchange or transfer (see "Deductions for Daily Distribution Charges".]
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 Keyport's Office. 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 XX-1 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 or to the
agent from whom the Certificate was purchased. If the Certificate is received
at Keyport'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
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One or more of the Death Benefit options described below may be
included under any form of the Certificate.
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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 death. And, if the Annuitant is the
decedent, the new Annuitant will be any living contingent annuitant, otherwise
the surviving spouse. The Certificate may continue until another death occurs
(i.e., until the death of the Annuitant, primary 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 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 then alive,
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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 first to die of] the
primary Certificate Owner, [Joint Certificate Owner], [Annuitant], or, if there
is a non-natural Certificate Owner such as a trust, the Annuitant shall be a
[C]overed [P]erson. 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 [1]. The DBA 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.]
[Death Benefit [2]. The DBA at issue is the initial Purchase Payment.
Thereafter, the DBA is calculated for each Valuation period by adding any
additional Purchase Payments, and deducting any partial withdrawals, including
any applicable surrender charge. This resulting amount is the "net Purchase
Payment death benefit". The Certificate Value for each Certificate Anniversary
(the "Anniversary Value") before the [81st] birthday of the Covered Person is
determined. Each Anniversary Value is increased by any Purchase Payments made
after that anniversary. This resultant value is then decreased by an amount
calculated at the time of any partial withdrawal made after that anniversary.
The amount is calculated by taking the amount of any partial withdrawal, and
dividing by the Certificate Value immediately preceding the partial withdrawal,
and then multiplying by the Anniversary Value immediately preceding the
withdrawal. The greatest Anniversary Value, as so adjusted, (the "greatest
Anniversary Value") is the DBA unless the net Purchase Payment death benefit is
higher. The net Purchase Payment death benefit will be the DBA if such amount
is higher than the greatest Anniversary Value.]
[Death Benefit [3]. The DBA at issue is the initial Purchase Payment.
Thereafter, the DBA is calculated for each Valuation Period by applying a death
benefit interest rate to the previously calculated DBA, adding any Purchase
Payments made during the current Valuation Period and deducting any partial
withdrawals, including any applicable surrender charge, taken during the current
Valuation Period. The death benefit interest rate is applied to each Purchase
Payment until it equals the Maximum Guaranteed Death Benefit. Initially, the
Maximum Guaranteed Death Benefit is equal to a multiple of [two] times the
initial and additional Purchase Payment made, each computed separately].
Thereafter, the Maximum Guaranteed Death Benefit as of the effective date of a
partial withdrawal is reduced first by the amount of the withdrawal representing
earnings and second in proportion to the reduction in Certificate Value for any
partial withdrawal representing Purchase Payments.
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The death benefit interest rate compounded annually will be a stipulated
interest rate, except that with regard to amounts in the Sub-Accounts investing
in money market, short term bond or income Funds or the General Account (the
"Fixed Account") the interest rate applied will be the net rate of return for
such Funds, respectively, if it is less than the stipulated death benefit
interest rate.]
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 [and/or the
Fixed Account] based on the Purchase Payment allocation selection that is in
effect when Keyport receives due proof of death. [Whether or not the
Certificate Value is increased because of this minimum death provision, the
Designated Beneficiary may surrender the Certificate within 90 days of the date
of the covered person's death for the Certificate Withdrawal Value without any
applicable Contingent Deferred Sales Charge being deducted. For a surrender
after 90 days and for a surrender at any time after the death of a non-covered
person, any applicable Contingent Deferred Sales Charge would be deducted.] 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 Owner, and (c) the Certificate
Owner is a natural person. The Certificate will continue 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
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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 [and/or the
Fixed Account] based on the Purchase Payment allocation selection that is in
effect when Keyport receives due proof of death. [Whether or not the
Certificate Value is increased because of this minimum death provision, the
Designated Beneficiary may surrender the Certificate within 90 days of the date
of the Annuitant's death for the Certificate Withdrawal Value without any
applicable Contingent Deferred Sales Charge being deducted. For a surrender
after 90 days, any applicable Contingent Deferred Sales Charge would be
deducted.]
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
(without the deduction of any applicable Contingent Deferred Sales Charge) 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.
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.
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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 systematic 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]. [The amount
withdrawn will include any applicable Contingent Deferred Sales Charge and
therefore the amount actually withdrawn may be greater than the amount of the
surrender check requested.] 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. [If there is no value, or insufficient value, in the Variable
Account, then the amount surrendered, or the insufficient portion, will be
deducted from the Fixed Account in the ratio that each Guarantee Period's value
bears to the total Fixed 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
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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 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 [increased or decreased by a limited Market Value Adjustment
of Fixed Account 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 ANNUITY OPTION
The Certificate Owner may select an Income Date and an Annuity Option at the
time of application. If the Certificate Owner does not select an 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 an 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
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Keyport does not currently anticipate offering any additional variable
annuity options, but may offer additional fixed annuity options. Any
additional variable annuity options would be limited to those that
could be added by a filing pursuant to Rule 497 or Rule 485(b).
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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] [Fixed 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 Certificate Value [increased or decreased by a limited Market Value
Adjustment] 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 [and Fixed
Account Value [increased or decreased by a limited Market Value Adjustment] less
any premium taxes not previously deducted will be applied to a fixed 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 an annuity
option. Any annuity 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.
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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); [less (b) any Contingent Deferred Sales Charge due
by treating the value defined in (a) as a total surrender. (See "Deductions for
Contingent Deferred Sales Charge".] Instead of receiving a lump sum, the payee
may elect another payment option and the amount applied to the option will not
be reduced by the charge defined in (b) above. If, at the death of the payee,
Option A payments have been made for fewer 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 was selected.
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
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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 fewer 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 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 may instruct Keyport to
change the Sub-Account(s) used to determine the amount of the variable annuity
payments [1] time[s] every [6] months.
PROOF OF AGE, SEX, AND SURVIVAL OF ANNUITANT
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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 postpone surrender payments from the Fixed
Account for up to six months.] 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 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.
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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 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
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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 Annuity 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.
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. See "Tax-Sheltered Annuities" (TSAs) for an
alternative type of withholding that may apply to distributions from TSAs that
are eligible for rollover to another TSA or an individual retirement annuity or
account (IRA).
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
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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.
QUALIFIED PLANS
The Certificate is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such 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 the various types of Qualified Plans. Participants under
such Qualified Plans as well as Certificate Owners, Annuitants, and Designated
Beneficiaries are cautioned that the rights of any person to any benefits under
such Qualified Plans may be subject to the terms and conditions of the plans
themselves regardless of the terms and conditions of the Certificate issued in
connection therewith. Following are brief descriptions of the various types 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.
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TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to
certain contribution limitations, exclude the amount of Purchase Payments from
gross income for tax purposes. However, such Purchase Payments may be subject
to Social Security (FICA) taxes. This type of annuity contract is commonly
referred to as a "Tax-Sheltered Annuity" (TSA).
Section 403(b)(11) of the Code contains distribution restrictions.
Specifically, benefits may be paid, through surrender of the Certificate or
otherwise, only (a) when the employee attains age 59-1/2, separates from
service, dies or becomes totally and permanently disabled (within the meaning of
Section 72(m)(7) of the Code) or (b) in the case of hardship. A hardship
distribution must be of employee contributions only and not of any income
attributable to such contributions. Section 403(b)(11) does not apply to
distributions attributable to assets held as of December 31, 1988. Thus, it
appears that the law's restrictions would apply only to distributions
attributable to contributions made after 1988, to earnings on those
contributions, and to earnings on amounts held as of 12/31/88. The Internal
Revenue Service has indicated that the distribution restrictions of Section
403(b)(11) are not applicable when TSA funds are being transferred tax-free
directly to another TSA issuer, provided the transferred funds continue to be
subject to the Section 403(b)(11) distribution restrictions.
Keyport will notify a Certificate Owner who has requested a distribution from a
Certificate if all or part of such distribution is eligible for rollover to
another TSA or to an individual retirement annuity or account (IRA). Any amount
eligible for rollover treatment will be subject to mandatory federal income tax
withholding at a 20% rate if the Certificate Owner receives the amount rather
than directing Keyport by Written Request to transfer the amount as a direct
rollover to another TSA or IRA.
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.
CORPORATE PENSION AND PROFIT-SHARING PLANS
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Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of the Certificate to provide benefits under the plans.
DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS
Section 457 of the Code, while not actually providing for a Qualified Plan as
that term is normally used, provides for certain deferred compensation plans
that enjoy special income tax treatment with respect to service for tax-exempt
organizations, state governments, local governments, and agencies and
instrumentalities of such governments. The Certificate can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. However, all such investments are
owned by and subject to the claims of general creditors of the sponsoring
employer.
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 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.
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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
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Another registered broker-dealer that is an affiliate of Keyport may
serve as the principal underwriter of the Certificates.
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[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, an employee of the investment adviser or sub-investment adviser
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 [(1) they are not subject to the deduction for the Certificate
Maintenance Charge, the asset-based Sales charge or the Contingent Deferred
Sales Charge and (2)] they have a Mortality and Expense Risk Charge of 0[.35]%
per year.
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
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Certificate Owners with questions about their Certificates may write Keyport
Life Insurance Company, Client Service Department, 125 High Street, Boston, MA
02110, or call (800) 367-3653.
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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
Custodian
Principal Underwriter
Experts
Investment Performance
Average Annual Total Return for a Certificate
that is Surrendered and for a Certificate that Continues
Change in Accumulation Unit Value
Yields for XX-1 Sub-Accounts
Financial Statements
Keyport Life Insurance Company
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The Certificate may or may not provide for a Fixed Account Option.
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[APPENDIX A
THE FIXED ACCOUNT [(ALSO KNOWN AS THE MODIFIED GUARANTEED ANNUITY ACCOUNT)]
INTRODUCTION
This Appendix describes the Fixed Account option available under the
Certificate.
[FIXED ACCOUNT VALUES PROVIDED BY THE CERTIFICATE ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD ADJUSTMENTS
IN AMOUNTS TRANSFERRED AND AMOUNTS PAID (INCLUDING WITHDRAWALS, SURRENDERS,
DEATH BENEFITS, AND AMOUNTS APPLIED TO PURCHASE ANNUITY PAYMENTS) TO A
CERTIFICATE OWNER OR OTHER PAYEE. IN NO EVENT WILL THE DOWNWARD MARKET VALUE
ADJUSTMENT ELIMINATE INTEREST AT THE RATE OF 3% PER YEAR APPLIED TO THE AMOUNT
ALLOCATED TO A GUARANTEED PERIOD. PAYMENTS MADE FROM FIXED ACCOUNT VALUES AT THE
END OF THEIR GUARANTEE PERIOD ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.]
Purchase Payments allocated to the Fixed Account option become part of Keyport's
general account. Because of applicable exemptive and exclusionary provisions,
interests in the Fixed Account options have not been registered under the
Securities Act of 1933 ("1933 Act"), nor is the general account an investment
company under the Investment Company Act. Accordingly, neither the general
account, the Fixed Account option, nor any interest therein, are subject to
regulation under the 1933 Act or the Investment Company Act. Keyport
understands that the Securities and Exchange Commission has not reviewed the
disclosure in the prospectus relating to the general account and the Fixed
Account option.
INVESTMENTS IN THE FIXED ACCOUNT AND CAPITAL PROTECTION PLUS
Purchase Payments will be allocated to the Fixed Account in accordance with the
selection made by the Certificate Owner in the application. Any selection must
specify that percentage of the Purchase Payment that is to be allocated to each
Guarantee
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Period of the Fixed Account. The percentage, if not zero, must be at least
[10%]. The 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. 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 C and Certificate Owners
authorizing telephone allocation instructions will be notified, in advance, of
any changes.
Keyport currently offers Guarantee Periods of 1, [3, 5, and 7] years. Keyport
may change at any time the number of Guarantee Periods it offers under newly-
issued and in-force Certificates, as well as the length of those Guarantee
Periods. If Keyport stops offering a particular Guarantee Period, existing
Fixed Account Value in such Guarantee Period would not be affected until the end
of the Period (at that time, a Period of the same length would not be a transfer
option). Each Guarantee Period currently offered is available for initial and
subsequent Purchase Payments and for transfers of Certificate Value.
[Keyport offers a Capital Protection Plus program that a Certificate Owner may
request. Under this program, Keyport will allocate part of the Purchase Payment
to the Guarantee Period selected by the Certificate Owner so that such part,
based on that Guarantee Period's interest rate in effect on the date of
allocation, will equal at the end of the Guarantee Period the total Purchase
Payment. The rest of the Purchase Payment will be allocated to the Sub-
Account(s) of the Variable Account based on the Certificate Owner's allocation.
If any part of the Fixed Account Value is surrendered or transferred before the
end of the Guarantee Period, the Value at the end of that Period will not equal
the original Purchase Payment amount.
For an example of Capital Protection Plus, assume Keyport receives a Purchase
Payment of $10,000 when the interest rate for the 7-year Guarantee Period is
6.75% per year. Keyport will allocate $6,331 to that Guarantee Period because
$6,331 will increase at that interest rate to $10,000 after 7 years. The
remaining $3,669 of the payment will be allocated to the Sub-Account(s) selected
by the Certificate Owner.]
FIXED ACCOUNT VALUE
The Fixed Account Value at any time is equal to:
(a) all Purchase Payments allocated to the Fixed Account plus the interest
subsequently credited on those payments; plus
(b) any Variable Account Value transferred to the Fixed Account plus the
interest subsequently credited on the transferred value; less
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(c) any prior partial withdrawals from the Fixed Account, including any charges
therefor; less
(d) any Fixed Account Value transferred to the Variable Account.
INTEREST CREDITS
Keyport will credit interest daily (based on an annual compound interest rate)
to Purchase Payments allocated to the Fixed Account at rates declared by Keyport
for Guarantee Periods of one or more years from the month and day of allocation.
Any rate set by Keyport will be at least [3%] per year.
Keyport's method of crediting interest means that Fixed Account Value might be
subject to different rates for each Guarantee Period the Certificate Owner has
selected in the Fixed Account. For purposes of this section, Variable Account
Value transferred to the Fixed Account and Fixed Account Value renewed for
another Guarantee Period shall be treated as a Purchase Payment allocation.
[APPLICATION OF MARKET VALUE ADJUSTMENT
Any surrender, withdrawal, transfer, or application to an Annuity Option of
Fixed Account Value from a Guarantee Period of three years or more is subject to
a limited Market Value Adjustment, unless: (1) the effective date of the
transaction is at the end of the Guarantee Period; or (2) the effective date of
a surrender is within 90 days of the date of death of the first Covered Person
to die.
If a Market Value Adjustment applies to either a surrender or the application to
an Annuity Option, then any negative Market Value Adjustment amount will be
deducted from the Certificate Value and any positive Market Value Adjustment
amount will be added to the Certificate Value. If a Market Value Adjustment
applies to either a partial withdrawal or a transfer, then any negative Market
Value Adjustment amount will be deducted from the partial
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withdrawal or transfer amount after the withdrawal or transfer amount has been
deducted from the Fixed Account Value, and any positive Market Value Adjustment
amount will be added to the applicable amount after it has been deducted from
the Fixed Account Value.
No Market Value Adjustment is ever applicable to Guarantee Periods of fewer than
three years.
EFFECT OF MARKET VALUE ADJUSTMENT
A Market Value Adjustment reflects the change in prevailing current interest
rates since the beginning of a Guarantee Period. The Market Value Adjustment may
be positive or negative, but any negative Adjustment may be limited in amount
(see Market Value Adjustment Factor below).
Generally, if the Treasury Rate for the Guarantee Period is lower than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the limited Market
Value Adjustment will result in a reduction of the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
Similarly, if the Treasury Rate for the Guarantee Period is higher than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the Market Value
Adjustment will result in an increase in the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charges or applicable taxes.
MARKET VALUE ADJUSTMENT FACTOR
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to a Payment Option, by the
Market Value Adjustment Factor. The Market Value Adjustment Factor is calculated
as the larger of Formula (1) or (2):
(1) [(1+a)/(1+b)](n/12) - 1
where:
"a" is the Treasury Rate for the number of Guarantee Period Years in the
Guarantee Period;
"b" is the Treasury Rate for a period equal to the time remaining (rounded up to
the next whole number of Guarantee Period Years) to the expiration of the
Guarantee Period; and
"n" is the number of complete Guarantee Period Months remaining before the
expiration of the Guarantee Period.
61
<PAGE>
(2) [(1.03)/(1+i)](y+d/#) - 1
where:
"i" is the Guaranteed Interest Rate for the Guarantee Period;
"y" is the number of complete Guarantee Period Years that have elapsed in Your
Guarantee Period;
"d" is the number of days since the last Guarantee Period Anniversary or, if "y"
is zero, the number of days since the start of the Guarantee Period; and
"#" is the number of days in the current Guarantee Period Year (i.e., the sum of
"d" and the number of days until the next Guarantee Period Anniversary).
In Formulas (1) and (2), all references to Guarantee Period, Guarantee Period
Anniversary, Guarantee Period Month, and Guarantee Period Year relate to the
Guarantee Period from which is being taken the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
As stated above, the Formula (2) amount will apply only if it is greater than
the Formula (1) amount. This will occur only when the Formula (1) amount is
negative and the Formula (2) amount is a smaller negative number. Formula (2)
thus ensures that a full (normal) negative Market Value Adjustment of Formula
(1) will not apply to the extent it would decrease the Guarantee Period's Fixed
Account Value (before the deduction of any applicable surrender charges or any
applicable taxes) below the following amount:
(a) the amount allocated to the Guarantee Period; less
(b) any prior systematic or partial withdrawal amounts; less
(c) any prior amounts transferred to the Variable Account or to another
Guarantee Period in the Fixed Account; plus
(d) interest on the above items (a) through (c) credited annually at a
rate of 3% per year.
TREASURY RATES
The Treasury Rate for a Guarantee Period is the interest rate in the Treasury
Constant Maturity Series, as published by the Federal Reserve Board, for a
maturity equal to the number of years specified in "a" and "b" in Formula (1)
above. For "a", Keyport uses the Treasury Constant Maturity Series for the week
which includes the most recent Determination Date on or preceding the Reset Date
for Your Guarantee Period. For "b", Keyport uses the Treasury Constant Maturity
Series for the week which includes the most recent Determination Date on or
preceding the date of calculation of the Market Value Adjustment Factor. The
Determination Dates are the last business day prior to the first and fifteenth
of each calendar month.
62
<PAGE>
If the number of years specified in "a" or "b" is not equal to a maturity in the
Treasury Constant Maturity Series, the Treasury Rate will be determined by
straight line interpolation between the interest rates of the next highest and
next lowest maturities.
If the Treasury Constant Maturity Series becomes unavailable, Keyport will adopt
a comparable constant maturity index or, if such a comparable index also is not
available, Keyport will replicate calculation of the Treasury Constant Maturity
Series Index based on U.S. Treasury Security coupon rates.
END OF A GUARANTEE PERIOD
Keyport will notify a Certificate Owner in writing at least 30 days prior to the
end of a Guarantee Period. At the end of the Guarantee Period, Keyport will
automatically transfer the Guarantee Period's Fixed Account Value to the Money
Market Sub-Account of the Variable Account unless Keyport previously received a
Certificate Owner's Written Request of: (1) election of a new Guarantee Period
from among those being offered by Keyport at that time; or (2) instructions to
transfer the ending Guarantee Period's Fixed Account Value to one or more Sub-
accounts of the Variable Account. A new Guarantee Period cannot be longer than
the number of years remaining until the Income Date.]
TRANSFERS OF FIXED ACCOUNT VALUE
The Certificate Owner may transfer Fixed Account Value from one Guarantee Period
to another or to one or more Sub-Accounts of the Variable Account subject to any
applicable Market Value Adjustment. If the Fixed Account Value represents
multiple Guarantee Periods, the transfer request must specify from which values
the transfer is to be made.
The Certificate allows Keyport to limit the number of transfers that can be made
in a specified time period. Currently, Keyport is limiting Variable Account and
Fixed Account transfers to generally [xx] transfers per calendar year with a
$[500,000] per transfer dollar limit. See "Transfer of Variable Account Value".
These limitations will not apply to any transfer made at the end of a Guarantee
Period. Certificate Owners will be notified, in advance, of a change in the
limitation on the number of transfers.
Transfer requests must be by Written Request unless the Certificate Owner has
authorized Keyport by Written Request to accept telephone transfer 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 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 C 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.
63
<PAGE>
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be executed at the
close of business that day. Any requests received later will be executed at the
close of the next business day.
The amount of the transfer will be deducted from the specified values in the
manner stated in the next section below.
If 100% of a Guarantee Period's value is transferred and the current allocation
for Purchase Payments includes that Guarantee Period, 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 the one-year Guarantee Period and 50% to Sub-Account A and all Fixed
Account Value is transferred to Sub-Account A, the allocation formula will
change to 100% to Sub-Account A.
64
<PAGE>
[APPENDIX B]
TELEPHONE INSTRUCTIONS
TELEPHONE TRANSFERS OF CERTIFICATE VALUES
1. If there are joint Certificate Owners, both must authorize Keyport to
accept telephone instructions but either Certificate Owner may give Keyport
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 satisfaction.
3. Neither Keyport 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 will employ reasonable procedures to confirm that a telephone
instruction is genuine and, if Keyport does not, Keyport 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 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 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 receives
the Certificate Owner's written revocation, (b) Keyport discontinues the
privilege, or (c) Keyport 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 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, 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 will not execute the transfer and will notify the caller within 48
hours.
65
<PAGE>
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.]
66
<PAGE>
PROSPECTUS
[DATE]
67
<PAGE>
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
Keyport Life Insurance Company's ultimate parent is
Liberty Mutual Insurance Company
Service Hotline 800-367-3653 Keyline 800-367-3654
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 [NAME OF FUND] Statement of Additional
Information.
Yes. I would like to receive the [NAME OF FUND] Statement of Additional
Information.
Name
Address
City, State Zip
68
<PAGE>
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.
69
<PAGE>
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 (SAI) is not a prospectus but it
relates to, and should be read in conjunction with, the variable annuity
prospectus dated ______________________________, 1996. The SAI is incorporated
by reference into the prospectus. The prospectus is available, at no charge, by
writing Keyport at 125 High Street, Boston, MA 02110 or by calling (800) 437-
4466.
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. . . . . . . . . . . . . . . . . . . . . . . . . .
Average Annual Total Return for a Contract that is
Surrendered and for a Contract that Continues. . . . . . . . . . .
Change in Accumulation Unit Value . . . . . . . . . . . . . . . . . .
Yields for XX-1 Sub-Accounts. . . . . . . . . . . . . . . . . . . . .
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .
Keyport Life Insurance Company. . . . . . . . . . . . . . . . . . . .
The date of this statement of additional information is , 1996.
<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: (a) the sum of all Sub-Account payments; less [(b) the
pro-rata amount of the annual Certificate Maintenance Charge.]
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.
<PAGE>
********************************************************************************
********************************************************************************
The formula for the net investment factor will vary depending upon whether
certain asset charges are imposed, as explained in the notes in the
Prospectus. With regard to the AIR, the AIR will vary within the limits
permitted under state insurance law, but no less than 3%.
********************************************************************************
********************************************************************************
When Keyport first purchased the Eligible Fund shares of XXX TRUST AND YYY
FUND 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:
(a) is equal to the net investment factor as defined in the prospectus
[without any deduction for the sales charge defined in (c)(ii) of the net
investment factor formula]; 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
<PAGE>
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[s] 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 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 Contract and Certificates, which are offered continuously, is
distributed by [Keyport Financial Services Corp. ("KFSC"), a wholly-owned
subsidiary of Keyport].
EXPERTS
The consolidated financial statements of Keyport as of December 31, 199[5]
and 199[4] and for each of the years in the three-year period ended December 31,
199[5] included herein, have
<PAGE>
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 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
<PAGE>
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.
********************************************************************************
********************************************************************************
Information regarding the Performance of the Certificates will be included
in the subsequent filings.
********************************************************************************
********************************************************************************
[AVERAGE ANNUAL TOTAL RETURN FOR A CERTIFICATE THAT IS SURRENDERED AND FOR A
CERTIFICATE THAT CONTINUES]
[CHANGE IN ACCUMULATION UNIT VALUE]
YIELDS FOR XX-1 SUB-ACCOUNT
Yield and effective yield percentages for the XX-1 Sub-Account are calculated
using the method prescribed by the Securities and Exchange Commission. Both
yields reflect the deduction of the annual [1.25]% asset-based Certificate
charges. [Both yields also reflect, on an allocated basis, the Certificate's
annual $[36] Certificate Maintenance Charge.] Both yields do not reflect
[Contingent Deferred Sales Charges and] premium tax charges. The yields would
be lower if these charges were included. The following are the standardized
formulas:
Yield equals: (A - B - 1) x 365
----- ---
C 7
(365/7)
Effective Yield Equals: (A - B) - 1
-------
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
<PAGE>
B = [hypothetical Certificate Maintenance Charge for the 7-day period.
The assumed annual XX-1 Sub-Account charge is equal to the $[36]
Certificate charge multiplied by a fraction equal to the average
number of Certificates with XX-1 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 XX-1 Sub-Account Accumulation Unit during the 7-day period
divided by the average Certificate Value in XX-1 Sub-Account during
the 7-day period.]
C = the Accumulation Unit value at the beginning of the 7-day period.
The yield formula assumes that the weekly net income generated by an
investment in the XX-1 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.
<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
------------------------
70
<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.
71
<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.
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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.
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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.
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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
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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
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<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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<PAGE>
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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<PAGE>
(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:
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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
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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
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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
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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.
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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
* (4a) Form of Group Variable Annuity Contract of Keyport Life Insurance
Company
* (4b) Form of Variable Annuity Certificate of Keyport Life Insurance
Company
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
* (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) Form of Participation Agreement
(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.
** To be filed by amendment
Item 25. Directors and Officers of the Depositor.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Depositor
- ------------------ ----------------------
<S> <C>
Kenneth R. Leibler, President Director and Chairman of
Liberty Financial Companies Inc. the Board
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
15 Westminster Street
Providence, RI 02903
Mr. Robert C. Nyman Director
Chairman and CEO
C-2
<PAGE>
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
Deborah A. Re Vice President, Administrative Operations
C-3
<PAGE>
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
</TABLE>
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
C-5
<PAGE>
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 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
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<PAGE>
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.
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 19th day of
August, 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 August 19, 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
filed herewith as part of Exhibit 16.
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 August 19, 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 filed herewith as
Exhibit 16.
C-9
<PAGE>
EXHIBIT INDEX
Item Page
- ---- ----
(8) Form of Participation Agreement
(9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
(15) Chart of Affiliations
(16) Powers of Attorney
(27) Financial Data Schedule
C-10
<PAGE>
EXHIBIT 8
<PAGE>
FORM OF
PARTICIPATION AGREEMENT
AMONG
[MUTUAL FUND]
[DISTRIBUTOR]
[INVESTMENT ADVISER]
AND
KEYPORT LIFE INSURANCE COMPANY
This Agreement, made and entered into this day of , 19[ ] 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; [mutual fund] (the "Fund"),
a [ ] organized under the laws of the State of [ ]; [distributor]
("Distributor"), a [ ] corporation; and [investment adviser] ("Adviser"), a
[] corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
("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
<PAGE>
"Portfolios") as shown on Schedule A attached hereto; and
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 management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, [investment adviser] (the "Adviser") is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940 and any
applicable state securities law; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, the Company has established duly organized, a 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
WHEREAS, the Company has registered or will register the certain Separate
Account
3
<PAGE>
as a unit investment trust under the 1940 Act; and
WHEREAS, Distributor is registered as a broker-dealer with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, [ ] ([" "]) 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 Separate Account
and receipt by such designee shall constitute receipt by the Fund provided that
4
<PAGE>
each 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 Companies and their Separate Accounts on those days on which the
Fund calculates its net asset value pursuant to rules of the SEC and the Fund
shall use reasonable efforts to calculate such net asset value on each day on
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of 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.
5
<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
6
<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 Adviser 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.
7
<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
8
<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 [ ], 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 [ ] 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 [ ] 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
9
<PAGE>
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
10
<PAGE>
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 [ ] and that it does and will comply in all
material respects with the 1940 Act.
2.9 The Fund represents and warrants that the Adviser is and shall remain
duly registered under all applicable federal and state securities laws and that
the Adviser shall perform its obligations for the Fund in compliance in all
material respects with the applicable laws of the State of [ ] and any
applicable state and federal securities laws.
2.10 The Fund represents and warrants that all of its Trustees, officers,
employees, investment advisers, 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 their directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less 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
11
<PAGE>
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 Adviser 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 Adviser 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 Adviser 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 final copy of such Statement of Additional
Information to Distributor for duplication and provision
12
<PAGE>
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.
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 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)
13
<PAGE>
with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, the form of each piece of sales literature or other promotional
material in which the Fund or its investment adviser 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.
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
14
<PAGE>
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.
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
15
<PAGE>
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.
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
16
<PAGE>
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 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.
17
<PAGE>
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 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
18
<PAGE>
trustees, that a material irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the 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
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)
19
<PAGE>
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 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
20
<PAGE>
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 Adviser, the Fund and each member of the Board and officers and each person,
if any, who controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 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
21
<PAGE>
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 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
22
<PAGE>
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.
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
23
<PAGE>
(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 ADVISER
7.2(a) The Adviser shall indemnify and hold harmless the Companies, and
each of their directors and officers and each person, if any, who controls the
Companies 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)
24
<PAGE>
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 literature of the Variable Insurance
Products not supplied by the Adviser, Distributor or persons under its
control) or wrongful conduct of one or both of the Fund or the Adviser
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
25
<PAGE>
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 Adviser 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 Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, Distributor or each Separate Account, whichever is
applicable.
7.2(c) The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified
26
<PAGE>
the Adviser in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Adviser of any such claim shall not relieve the Adviser from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against and Indemnified Party, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.2(d) The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Variable Insurance Products or the operation of the Account. This
indemnification shall be in addition to any liability which the Adviser 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
27
<PAGE>
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 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
28
<PAGE>
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 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
29
<PAGE>
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 [ ].
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.
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
30
<PAGE>
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 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
31
<PAGE>
(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 Funds 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 Funds.
(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.
32
<PAGE>
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 EFFECT 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.
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
33
<PAGE>
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). 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
34
<PAGE>
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:
[ ]
35
<PAGE>
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attention: General Counsel
If to Distributor:
[ ]
If to Adviser
[ ]
ARTICLE XI. MISCELLANEOUS
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
36
<PAGE>
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.
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.
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: ________________________________
Title: _____________________________
Date: ______________________________
[distributor]
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
[mutual fund]
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
[investment adviser]
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
38
<PAGE>
Schedule A
[mutual fund]
[ ]
39
<PAGE>
Schedule B
Separate Accounts Selected Funds
- ----------------- --------------
Variable Account A [ ]
40
<PAGE>
EXHIBIT 9
<PAGE>
August 16, 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. 1.
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. Beckerlegge
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 10
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Keyport Life Insurance Company:
We consent to the use of our report 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.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
August 20, 1996
<PAGE>
EXHIBIT 15
<PAGE>
Exhibit 15, Chart of Affiliations, depicts the relationships between
Keyport Life Insurance Company ("Keyport") and its affiliates.
I. Liberty Mutual Insurance Company
A. Liberty Mutual Equity Company
1. LFC Holdings, Inc.
a. Liberty Financial Companies, Inc.
(i) The Colonial Group, Inc.
(a) Colonial Advisory Services Inc.
(b) Colonial Investors Services Center,
Inc.
(c) Colonial Management Associates Inc.
(1) Colonial Investment Services
Inc.
(ii) Liberty Newport Holdings Ltd.
(a) Newport Pacific Management Inc.
(1) Newport Fund Management Inc.
(iii) Liberty Financial Services Inc.
(a) Liberty Asset Mgmt. Co.
(b) Copley Venture Capital Inc.
(c) Liberty Investment Svcs., Inc.
(1) Liberty Financial Advisors Inc.
(2) Liberty Securities Corp.
(3) Financial Centre Ins. Agency
Inc.
(4) LSC Ins. Agency of AZ, Inc.
(5) LSC Ins. Agency of ME, Inc.
(6) LSC Ins. Agency of NM, Inc.
(iv) Independent Holdings Inc.
(a) Independent Financial Marketing Group
Inc.
(1) Independent Financial Securities
Inc.
(2) IFS Agencies Inc.
(3) IFS Agencies of NM, Inc.
(4) IFMG Agencies of ME, Inc.
(5) IFS Agencies of AL, Inc.
(6) IFS Ins. Agencies of OH, Inc.
<PAGE>
(v) SteinRoe Services Inc.
(a) Stein Roe & Farnham Inc.
(1) SteinRoe Futures Inc.
(b) Keyport Life Insurance Company
(1) Keyport Financial Services Corp.
(2) Keyport Advisory Services Corp.
(3) Independence Life & Annuity
Company
(vi) The PAMCO Group Inc.
(vii) Liberty Real Estate Group Inc.
(a) Virginia Acquisition Group Inc.
(1) Investors Pool 9A Limited Partnership
(Virginia Acquisition Group, the general
partner, has a 1% interest and Keyport Life
Insurance Company, the limited partner, has a
99% interest)
(I) Investors Real Estate Investment Co.
(b) Liberty Real/Estate Management Inc.
(1) Liberty Retirement Living Inc.
<PAGE>
EXHIBIT 16
<PAGE>
LIMITED POWER OF ATTORNEY
I, Kenneth R. Leibler, a director and the Chairman of the Board of Keyport
Life Insurance Company, a corporation duly organized under the laws of the State
of Rhode Island, do hereby appoint John W. Rosensteel, Bernard R. Beckerlegge
and James J. Klopper, and each of them singly, my true and lawful attorneys,
with full power to them and each of them to sign for me and in my name as a
director and the Chairman of the Board of this Company all documents required
for registration of a security under the Securities Act of 1933, as amended, all
documents required for registration of an investment company under the
Investment Company Act of 1940, as amended, and all other documents required to
be filed with the Securities and Exchange Commission under those two Acts and
regulations under the Acts.
Dated: April 16, 1996
--------------
/s/Kimberly Taylor /s/ Kenneth R. Leibler
- ------------------------- -------------------------
Signature of Witness Signature of Mr. Leibler
<PAGE>
LIMITED POWER OF ATTORNEY
I, John W. Rosensteel, a director and the President and Chief Executive
Officer of Keyport Life Insurance Company, a corporation duly organized under
the laws of the State of Rhode Island, do hereby appoint Bernard R. Beckerlegge
and James J. Klopper, and each of them singly, my true and lawful attorneys,
with full power to them and each of them to sign for me and in my name as a
director and the President and Chief Executive Officer of this Company all
documents required for registration of a security under the Securities Act of
1933, as amended, all documents required for registration of an investment
company under the Investment Company Act of 1940, as amended, and all other
documents required to be filed with the Securities and Exchange Commission under
those two Acts and regulations under the Acts.
Dated: April 11, 1996
---------------
/s/William L. Dixon /s/John W. Rosensteel
- ------------------------- -------------------------
Signature of Witness Signature of Mr. Rosensteel
<PAGE>
LIMITED POWER OF ATTORNEY
I, F. Remington Ballou, a director of Keyport Life Insurance Company, a
corporation duly organized under the laws of the State of Rhode Island, do
hereby appoint John W. Rosensteel, Bernard R. Beckerlegge and James J. Klopper,
and each of them singly, my true and lawful attorneys, with full power to them
and each of them to sign for me and in my name as a director of this Company all
documents required for registration of a security under the Securities Act of
1933, as amended, all documents required for registration of an investment
company under the Investment Company Act of 1940, as amended, and all other
documents required to be filed with the Securities and Exchange Commission under
those two Acts and regulations under the Acts.
Dated: April 11, 1996
--------------
/s/William L. Dixon /s/F. Remington Ballou
- ------------------------- -------------------------
Signature of Witness Signature of Mr. Ballou
<PAGE>
LIMITED POWER OF ATTORNEY
I, Robert C. Nyman, a director of Keyport Life Insurance Company, a
corporation duly organized under the laws of the State of Rhode Island, do
hereby appoint John W. Rosensteel, Bernard R. Beckerlegge and James J. Klopper,
and each of them singly, my true and lawful attorneys, with full power to them
and each of them to sign for me and in my name as a director of this Company all
documents required for registration of a security under the Securities Act of
1933, as amended, all documents required for registration of an investment
company under the Investment Company Act of 1940, as amended, and all other
documents required to be filed with the Securities and Exchange Commission under
those two Acts and regulations under the Acts.
Dated: April 11, 1996
--------------
/s/William L. Dixon /s/Robert C. Nyman
- ------------------------- -------------------------
Signature of Witness Signature of Mr. Nyman
<PAGE>
LIMITED POWER OF ATTORNEY
I, Frederick Lippitt, a director of Keyport Life Insurance Company, a
corporation duly organized under the laws of the State of Rhode Island, do
hereby appoint John W. Rosensteel, Bernard R. Beckerlegge and James J. Klopper,
and each of them singly, my true and lawful attorneys, with full power to them
and each of them to sign for me and in my name as a director of this Company all
documents required for registration of a security under the Securities Act of
1933, as amended, all documents required for registration of an investment
company under the Investment Company Act of 1940, as amended, and all other
documents required to be filed with the Securities and Exchange Commission under
those two Acts and regulations under the Acts.
Dated: April 11, 1996
--------------
/s/William L.Dixon /s/Frederick Lippitt
- ------------------------- -------------------------
Signature of Witness Signature of Mr. Lippitt
<PAGE>
LIMITED POWER OF ATTORNEY
I, Paul H. LeFevre, Jr., a Senior Vice President and the Chief Financial
Officer of Keyport Life Insurance Company, a corporation duly organized under
the laws of the State of Rhode Island, do hereby appoint John W. Rosensteel,
Bernard R. Beckerlegge, and James J. Klopper, and each of them singly, my true
and lawful attorneys, with full power to them and each of them to sign for me
and in my name as Senior Vice President and the Chief Financial Officer of this
Company all documents required for registration of a security under the
Securities Act of 1933, as amended, all documents required for registration of
an investment company under the Investment Company Act of 1940, as amended, and
all other documents required to be filed with the Securities and Exchange
Commission under those two Acts and regulations under the Acts.
Dated: April 11, 1996
--------------
/s/William L. Dixon /s/Paul H. LeFevre, Jr.
- ------------------------- -------------------------
Signature of Witness Signature of Mr. LeFevre
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 9,535,948
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,214
<MORTGAGE> 74,505
<REAL-ESTATE> 0
<TOTAL-INVEST> 10,922,125
<CASH> 777,384
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 179,672
<TOTAL-ASSETS> 12,279,194
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 10,586
<POLICY-HOLDER-FUNDS> 10,073,806
<NOTES-PAYABLE> 0
<COMMON> 3,015
0
0
<OTHER-SE> 899,316
<TOTAL-LIABILITY-AND-EQUITY> 12,279,194
0
<INVESTMENT-INCOME> 757,361
<INVESTMENT-GAINS> (3,958)
<OTHER-INCOME> 29,767
<BENEFITS> 4,448
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 107,941
<INCOME-TAX> 38,331
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,610
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
