<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1996
Registration Nos. 333-1043
811-7543
===========================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. --- [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [X]
Variable Account A
-------------------
(Exact name of Registrant)
Keyport Life Insurance Company
------------------------------
(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
<PAGE>
(KA)
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.
===========================================
Exhibit Index on Page
-----
<PAGE>
This Amendment to the registration statement on Form N-4 which became
effective on October 18, 1996 (the "Registration Statement") is being filed
pursuant to Rule 485(a) under the Securities Act of 1933, as amended, to
supplement the Registration Statement with a separate prospectus and
statement of additional information ("SAI"), and related exhibits, describing
a particular form of the Group and Individual Flexible Premium Deferred
Annuity Contract. This Amendment relates only to the prospectus, SAI, and
exhibits included in this Amendment and does not otherwise delete, amend, or
supersede any information contained in the Registration Statement.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
------
Prospectus
PART B
------
Statement of Additional Information
PART C
------
Items 24 - 32
The Signatures
Exhibits
<PAGE>
VARIABLE ACCOUNT A
KEYPORT LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-4
N-4 Item Caption in Prospectus
1. . . . . . . . . . . Cover Page
2. . . . . . . . . . . Glossary of Special Terms
3. . . . . . . . . . . Summary of Expenses
4. . . . . . . . . . . Performance Information
5. . . . . . . . . . . Keyport and the Variable Account
Eligible Funds
6. . . . . . . . . . . Deductions
7. . . . . . . . . . . Allocations of Purchase Payments
Transfer of Variable Account Value
Substitution of Eligible Funds and Other
Variable Account Changes
Modification of the Certificate
Death Provisions for Non-Qualified
Certificates
Death Provisions for Qualified
Certificates
Certificate Ownership
Assignment
Partial Withdrawals and Surrender
Annuity Benefits
Suspension of Payments
Inquiries by Certificate Owners
8. . . . . . . . . . . Annuity Provisions
9. . . . . . . . . . . Death Provisions for Non-Qualified
Certificates
Death Provisions for Qualified
Certificates
Settlement Options
10. . . . . . . . . . . Purchase Payments and Applications
Variable Account Value
Valuation Periods
Net Investment Factor
Distribution of the Certificates
11. . . . . . . . . . . Partial Withdrawals and Surrender
Option 1: Income For a Fixed Number of
Years
Right to Revoke
12. . . . . . . . . . . Tax Status
13. . . . . . . . . . . Legal Proceedings
14. . . . . . . . . . . Table of Contents - Statement of
Additional Information
Caption in Statement of Additional Information
----------------------------------------------
15. . . . . . . . . . . Cover Page
16. . . . . . . . . . . Table of Contents
17. . . . . . . . . . . Keyport Life Insurance Company
18. . . . . . . . . . . Experts
<PAGE>
19. . . . . . . . . . . Not applicable
20. . . . . . . . . . . Principal Underwriter
21. . . . . . . . . . . Investment Performance
22. . . . . . . . . . . Variable Annuity Benefits
23. . . . . . . . . . . Financial Statements
<PAGE>
PART A
<PAGE>
OCTOBER ___, 1996 PROSPECTUS FOR
KEYPORT ADVISOR VARIABLE ANNUITY
INCLUDING FUND PROSPECTUSES FOR
THE ALGER AMERICAN FUND
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
KEYPORT VARIABLE INVESTMENT TRUST
MFS VARIABLE INSURANCE TRUST
STEINROE VARIABLE INVESTMENT TRUST
<PAGE>
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 investment companies at
their net asset value: The Alger American Fund ("Alger American Fund")- Alger
American Growth Portfolio ("Alger Growth") and Alger American Small
Capitalization Portfolio ("Alger Small Cap"); Alliance Variable Products Series
Fund, Inc. ("Alliance Series Fund") - Global Bond Portfolio ("Alliance Global
Bond") and Premier Growth Portfolio ("Alliance Premier Growth"); Keyport
Variable Investment Trust ("Colonial Trust") - Colonial-Keyport Growth and
Income Fund ("Colonial Growth & Income"), Colonial-Keyport International Fund
for Growth ("Colonial Int'l Fund for Growth"), Colonial-Keyport Strategic Income
Fund ("Colonial Strategic Income"), Colonial-Keyport U.S. Fund for
<PAGE>
Growth ("Colonial U.S. Fund for Growth"), Colonial-Keyport Utilities Fund
("Colonial Utilities"), and Newport-Keyport Tiger Fund ("Colonial-Newport
Tiger"); MFS Variable Insurance Trust ("MFS Trust") - MFS Emerging Growth Series
("MFS Emerging Growth") and MFS Research Series ("MFS Research"); and SteinRoe
Variable Investment Trust ("SteinRoe Trust") - SteinRoe Capital Appreciation
Fund ("SteinRoe Capital Appreciation"), SteinRoe Cash Income Fund ("SteinRoe
Cash Income"), SteinRoe Managed Assets Fund ("SteinRoe Managed Assets"),
SteinRoe Managed Growth Stock Fund ("SteinRoe Managed Growth Stock"), and
SteinRoe Mortgage Securities Income Fund ("SteinRoe Mortgage Securities
Income").
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 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,
2
<PAGE>
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 October ____, 1996
3
<PAGE>
TABLE OF CONTENTS
Page
Glossary of Special Terms
Summary of Expenses
Synopsis
Performance Information
Keyport and the Variable Account
Purchase Payments and Applications
Investments of the Variable Account
Allocations of Purchase Payments
Eligible Funds
Transfer of Variable Account Value
Substitution of Eligible Funds and Other Variable Account Changes
Deductions
Deductions for Certificate Maintenance Charge
Deductions for Mortality and Expense Risk Charge
Deductions for Daily Sales 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
Certificate 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
Tax Status
Introduction
Taxation of Annuities in General
Qualified Plans
Tax-Sheltered Annuities
Individual Retirement Annuities
Corporate Pension and Profit-Sharing Plans
4
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Deferred Compensation Plans with Respect to Service for State and Local
Governments
Variable Account Voting Privileges
Sales of the 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
5
<PAGE>
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 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 80 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, a 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.
6
<PAGE>
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.
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.
7
<PAGE>
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.
8
<PAGE>
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
certificate in understanding the transaction and operating expenses the owner
will directly or indirectly bear under a certificate. The values reflect
expenses of the Variable Account as well as the Eligible Funds under the
Certificates. The expenses shown for the Eligible Funds and the examples should
not be considered a representation of future expenses.
CERTIFICATE OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 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
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average net assets)
Mortality and Expense Risk Charge: 1.25%
Sales Charge: .15%
Total Variable Account Annual Expenses: 1.40%
Alger American Fund, Alliance Series Fund, Colonial Trust, MFS Trust, and
Steinroe Trust Annual Expenses(3)
(as a percentage of average net assets)
9
<PAGE>
Total Fund
Operating
Expenses After Any
Management Other Expense
Fund Fees Expenses Reimbursements
(4)
10
<PAGE>
Alger Growth .75% .10% .85%
Alger Small Cap .85 .07 .92
Alliance Global Bond .00 .95 .85 (1.77%)(4)
Alliance Premier Growth .76 .19 .95 (1.19%)(4)
Colonial Growth & Income .65 .16 .81
Colonial Int'l Fund
for Growth .90 .50 1.40
Colonial-Newport Tiger .90 .82 1.72
Colonial Strategic
Income .65 .15 .80 (.94%)(4)
Colonial U.S. Fund
for Growth .80 .20 1.00 (1.07%)(4)
Colonial Utilities .65 .18 .83
MFS Emerging Growth .75 .25 1.00 (2.91%)(4)
MFS Research .75 .25 1.00 (3.90%)(4)
SteinRoe Capital
Appreciation .65 .11 .76
SteinRoe Cash Income .50 .13 .63
SteinRoe Managed Assets .60 .06 .66
SteinRoe Managed Growth
Stock .65 .09 .74
SteinRoe Mortgage
Securities Income .55 .14 .69
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE FUNDS. KEYPORT
HAS NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
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
- ----------- ------ ------- ------- --------
Alger Growth 93 125 166 329
Alger Small Cap 94 127 170 338
Alliance Global Bond 94 128 172 342
Alliance Premier Growth 94 128 172 342
Colonial Growth & Income 93 123 164 324
11
<PAGE>
Colonial Int'l Fund
for Growth 99 141 197 397
Colonial-Newport Tiger 102 151 213 435
Colonial Strategic
Income 93 123 164 323
Colonial U.S. Fund
for Growth 95 129 175 348
Colonial Utilities 93 124 165 327
MFS Emerging Growth 95 129 175 348
MFS Research 95 129 175 348
SteinRoe Capital
Appreciation 93 122 161 318
SteinRoe Cash Income 91 118 154 301
SteinRoe Managed Assets 92 119 156 305
SteinRoe Managed Growth
Stock 92 121 160 315
SteinRoe Mortgage
Securities Income 92 120 157 309
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
- ----------- ------ ------- ------- --------
Alger Growth 23 76 136 329
Alger Small Cap 24 78 140 338
Alliance Global Bond 24 79 142 342
Alliance Premier Growth 24 79 142 342
Colonial Growth & Income 23 75 134 324
Colonial Int'l Fund
for Growth 29 93 167 397
Colonial-Newport Tiger 32 103 184 435
Colonial Strategic
Income 23 74 134 323
Colonial U.S. Fund
for Growth 25 81 145 348
Colonial Utilities 23 75 135 327
MFS Emerging Growth 25 81 145 348
MFS Research 25 81 145 348
SteinRoe Capital
Appreciation 23 73 131 318
SteinRoe Cash Income 21 69 124 301
SteinRoe Managed Assets 22 70 126 305
SteinRoe Managed Growth
Stock 22 72 130 315
SteinRoe Mortgage
Securities Income 22 71 127 309
12
<PAGE>
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.
(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)All Trust and Fund expenses are for 1995. The Alliance Series Fund, Colonial
Trust (Colonial Strategic Income and Colonial U.S. Fund for Growth only), and
MFS Trust expenses reflect such Fund's or Trust's adviser's agreement to
reimburse expenses above certain limits (see footnote 4).
(4)Expense information shown for Alliance Series Fund has been restated to
reflect current fees and is net of voluntary expense reimbursements. The
Alliance Series Fund Adviser has agreed to continue such reimbursements for the
foreseeable future. Each percentage shown in the parentheses is what the total
expenses would be in the absence of expense reimbursement: for Alliance Global
Bond - 1.77%; and for Alliance Premier Growth - 1.19%.
Colonial Trust's manager has agreed until 4/30/97 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
13
<PAGE>
the Internal Revenue Code: 1.00% for Colonial Growth & Income, Colonial
Utilities and Colonial U.S. Fund for Growth; 1.75% for Colonial Int'l Fund for
Growth and Colonial-Newport Tiger; and .80% for Colonial Strategic Income. The
total percentages shown in the table for Colonial Strategic Income and Colonial
U.S. Fund for Growth are after expense reimbursement. Each percentage shown in
the parentheses is what the total for 1995 would be in the absence of expense
reimbursement: for Colonial Strategic Income - .94%; and for Colonial U.S. Fund
for Growth - 1.07%.
MFS Trust's Adviser has agreed to bear, subject to reimbursement, expenses for
each of the two Eligible Funds shown such that each Fund's total operating
expenses shall not exceed, on an annualized basis, 1.00% of the average daily
net assets of the Fund from November 2, 1994 through December 31, 1996, 1.25% of
the average daily net assets of the Fund from January 1, 1997 through December
31, 1998, and 1.50% of the average daily net assets of the Fund from January 1,
1999 through December 31, 2004; provided however, that this obligation may be
terminated or revised at any time. Each percentage shown in the parentheses is
what the total expenses would be in the absence of expense reimbursement: for
MFS Emerging Growth - 2.91%; and for MFS Research - 3.90%.
SteinRoe Trust's adviser has voluntarily agreed until 4/30/97 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: .80% for SteinRoe Capital Appreciation and
Managed Growth Stock; .65% for SteinRoe Cash Income; .75% for SteinRoe Managed
Assets; and .70% for SteinRoe Mortgage Securities Income.
(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
14
<PAGE>
ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A GUARANTEE OF FUTURE
INVESTMENT PERFORMANCE. See "Deductions" in this prospectus, "Management of the
Fund" in the prospectuses for Alger American Fund and the Alliance Series Fund,
"Trust Management Organizations" and "Expenses of the Funds" in the prospectus
for Colonial Trust, "Management of the Series" and "Expenses" in the prospectus
for MFS Trust, and "How the Funds are Managed" in the prospectus for SteinRoe
Trust.
15
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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 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").
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"). 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").
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"). Keyport also deducts a daily sales charge
16
<PAGE>
which is equal on an annual basis to .15% of the same values. (See "Deductions
for Daily Sales Charge").
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 but not to exceed $100. Keyport will in certain instances waive this
charge. (See "Deductions for Certificate Maintenance Charge").
Keyport reserves the right to deduct a charge of $25 for each transfer in excess
of 12 per Certificate Year. (See "Transfer of Variable Account Value").
Premium taxes will be charged against the Certificate Value. Currently such
premium taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes").
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").
The Certificate allows the Certificate Owner to revoke the Certificate generally
within 10 days of delivery (see "Right to Revoke"). For most states, Keyport
will refund the Certificate Value as of the date the returned Certificate is
received by Keyport, plus any sales charges previously deducted. The
Certificate Owner thus will bear the investment risk during the revocation
period. In other states, Keyport will return Purchase Payments. In such other
states Purchase Payments will be allocated to the SteinRoe Cash Income
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 has been offering and certain of the Eligible Funds have been available
for 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.
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This performance information is not intended to indicate either past performance
under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods of
time. Total return performance information is based on the overall percentage
change in value of a hypothetical investment in the specific Sub-Account over a
given period of time.
Average annual total return information shows the average percentage change in
the value of an investment in the Sub-Account from the beginning date of the
measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less all
charges and deductions applied against the Sub-Account and a Certificate
(including any Contingent Deferred Sales 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
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Certificate Maintenance Charge and premium tax charges. The percentages would
be lower if these charges were included.
The SteinRoe Cash Income Sub-Account is a money market Sub-Account that also may
advertise yield and effective yield information. The yield of the Sub-Account
refers to the income generated by an investment in the Sub-Account over a
specifically identified 7-day period. This income is annualized by assuming
that the amount of income generated by the investment during that week is
generated each week over a 52-week period and is shown as a percentage. The
yield reflects the deduction of all charges assessed against the Sub-Account and
a Certificate but does not take into account Contingent Deferred Sales Charges
and premium tax charges. The yield would be lower if these charges were
included.
The effective yield of the SteinRoe Cash Income Sub-Account is calculated in a
similar manner but, when annualizing such yield, income earned by the
Sub-Account is assumed to be reinvested. This compounding effect causes
effective yield to be higher than yield.
KEYPORT AND THE VARIABLE ACCOUNT
Keyport Life Insurance Company was incorporated in Rhode Island in 1957 as a
stock life insurance company. Its executive and administrative offices are at
125 High Street, Boston, Massachusetts 02110 and its home office is at 235
Promenade Street, Providence, Rhode Island 02903.
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
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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 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.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $5,000. Additional Purchase Payments can be made at
the Certificate Owner's option. Each subsequent Purchase Payment must be at
least $1,000 or such lesser amount as Keyport may permit from time to time
(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
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Purchase Payment until the application is complete. Once the application is
complete, the Purchase Payment will be applied within two business days of its
completion. Keyport has reserved the right to reject any application.
Keyport confirms, in writing, to the Certificate Owner the allocation of all
Purchase Payments and the re-allocation of values after any requested transfer.
Keyport must be notified immediately by the Certificate Owner of any processing
error.
Keyport will permit others to act on behalf of an applicant in certain
instances, including the following two examples. First, Keyport will accept an
application for a Certificate that contains a signature signed under a power of
attorney if a copy of that power of attorney is submitted with the application.
Second, Keyport will issue a Certificate that is not replacing an unaffiliated
company's existing life insurance or annuity policy without having previously
received a signed application from the applicant. Certain dealers or other
authorized persons such as employers and Qualified Plan fiduciaries will inform
Keyport of an applicant's answers to the questions in the application by
telephone or by order ticket and cause the initial Purchase Payment to be paid
to Keyport. If the information is in good order, Keyport will issue the
Certificate with a copy of an application completed with that information. The
Certificate will be delivered to the Certificate Owner with a letter from
Keyport that will give the Certificate Owner an opportunity to respond to
Keyport if any 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"). The percentage for each
Sub-Account, if not zero, must be at least 5% 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
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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:
ELIGIBLE FUNDS OF ALGER AMERICAN Fund Sub-Accounts
Alger Growth
Alger Growth
Sub-Account
Alger Small Cap
Alger Small Cap
Sub-Account
ELIGIBLE FUNDS OF ALLIANCE SERIES Fund Sub-Accounts
Alliance Global Bond
Alliance Global Bond
Sub-Account
Alliance Premier Growth
Alliance Premier
Growth Sub-Account
ELIGIBLE FUNDS OF COLONIAL TRUST SUB-ACCOUNTS
Colonial Growth & Income Colonial Growth &
Income
Sub-Account
Colonial Int'l Fund for Growth Colonial Int'l Fund
for Growth Sub-Account
Colonial-Newport Tiger Colonial-Newport
Tiger Sub-Account
Colonial Strategic Income Colonial Strategic
Income Sub-Account
Colonial U.S. Fund for Growth Colonial U.S. Fund
for Growth Sub-
Account
Colonial Utilities Colonial Utilities
Sub-Account
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ELIGIBLE FUNDS OF MFS TRUST SUB-ACCOUNTS
MFS Emerging Growth MFS Emerging Growth
Sub-Account
MFS Research MFS Research
Sub-Account
ELIGIBLE FUNDS OF STEINROE TRUST SUB-ACCOUNTS
SteinRoe Capital Appreciation SteinRoe Capital
Appreciation
Sub-Account
SteinRoe Cash Income
SteinRoe Cash Income
Sub-Account
SteinRoe Managed Assets SteinRoe Managed
Assets Sub-Account
SteinRoe Managed Growth Stock SteinRoe Managed
Growth Stock
Sub-Account
SteinRoe Mortgage Securities Income SteinRoe Mortgage
Securities Income
Sub-Account
ELIGIBLE FUNDS
The Eligible Funds which are the permissible investments of the Variable Account
are the separate funds listed above of Alger American Fund, Alliance Series
Fund, Colonial Trust, MFS Trust and SteinRoe Trust, and any other mutual funds
with which Keyport and the Variable Account may enter into a participation
agreement for the purpose of making such mutual funds available as Eligible
Funds under certain Certificates.
Fred Alger Management, Inc. ("Alger Management") is the investment manager for
both Eligible Funds of Alger American Fund. Alger Management has been in the
business of providing investment advisory services since 1964.
Alliance Capital Management L.P. is the investment adviser for both Eligible
Funds of Alliance Series Fund. AIGAM International Limited serves as
sub-adviser for Alliance Global.
Keyport Advisory Services Corp. ("KASC"), a subsidiary of Keyport, is the
manager for Colonial Trust and its Eligible Funds. Colonial Management
Associates, Inc. ("Colonial"), an affiliate of Keyport, serves as sub-adviser
for the Eligible Funds (except for Newport Tiger). Colonial has provided
investment advisory services since 1931. The portfolio of Colonial U.S. Fund
for Growth is managed by State Street Global Advisors, a division of State
Street Bank and Trust Company. Newport Fund Management, Inc., an affiliate of
Keyport, serves as sub-adviser for Colonial-Newport Tiger.
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Massachusetts Financial Services Company ("MFS") is the investment adviser for
both Eligible Funds of MFS Trust. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of Massachusetts Investors Trust,
the first mutual fund in the United States.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser for
each Eligible Fund of SteinRoe Trust. In 1986, Stein Roe was organized and
succeeded to the business of Stein Roe & Farnham, a partnership. Stein Roe is
an affiliate of Keyport. Stein Roe and its predecessor have provided investment
advisory and administrative services since 1932.
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a 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 ALGER AMERICAN SUB-ACCOUNTS
FUND
ALGER GROWTH ALGER GROWTH SUB-ACCOUNT
ALGER SMALL CAP
ALGER SMALL CAP SUB-ACCOUNT
ELIGIBLE FUNDS OF ALLIANCE SERIES SUB-ACCOUNTS
FUND
ALLIANCE GLOBAL BOND ALLIANCE GLOBAL BOND
SUB-ACCOUNT
ALLIANCE PREMIER GROWTH ALLIANCE PREMIER GROWTH
SUB-ACCOUNT
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ELIGIBLE FUNDS OF COLONIAL TRUST SUB-ACCOUNT
COLONIAL GROWTH & INCOME COLONIAL GROWTH & INCOME
SUB-ACCOUNT
COLONIAL INT'L FUND FOR GROWTH COLONIAL INT'L FUND FOR
GROWTH SUB-ACCOUNT
COLONIAL-NEWPORT TIGER COLONIAL-NEWPORT TIGER
SUB-ACCOUNT
COLONIAL STRATEGIC INCOME COLONIAL STRATEGIC INCOME
SUB-ACCOUNT
COLONIAL U.S. FUND FOR GROWTH COLONIAL U.S. FUND FOR
GROWTH SUB-ACCOUNT
COLONIAL UTILITIES COLONIAL UTILITIES
SUB-ACCOUNT
ELIGIBLE FUNDS OF MFS TRUST SUB-ACCOUNTS
MFS EMERGING GROWTH MFS EMERGING GROWTH
SUB-ACCOUNT
MFS RESEARCH MFS RESEARCH
SUB-ACCOUNT
ELIGIBLE FUNDS OF STEINROE TRUST SUB-ACCOUNTS
STEINROE CAPITAL APPRECIATION STEINROE CAPITAL
APPRECIATION SUB-ACCOUNT
STEINROE CASH INCOME STEINROE CASH INCOME
SUB-ACCOUNT
STEINROE MANAGED ASSETS STEINROE MANAGED ASSETS
SUB-ACCOUNT
STEINROE MANAGED GROWTH STOCK STEINROE MANAGED GROWTH
STOCK SUB-ACCOUNT
STEINROE MORTGAGE SECURITIES INCOME STEINROE MORTGAGE
SECURITIES INCOME
SUB-ACCOUNT
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ELIGIBLE FUNDS OF ALGER AMERICAN FUND AND
VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
Alger Growth Long-term capital appreciation.
(Alger Growth Sub-Account)
Alger Small Cap Long-term capital appreciation.
(Alger Small Cap Sub-Account)
ELIGIBLE FUNDS OF ALLIANCE SERIES FUND AND INVESTMENT OBJECTIVE
VARIABLE ACCOUNT SUB-ACCOUNTS
Alliance Global Bond A high level of return from a
(Alliance Global Bond Sub-Accounts) combination of current income and
capital appreciation by investing
in a globally diversified
portfolio of high quality debt
securities denominated in the
U.S. Dollar and a range of
foreign currencies.
Alliance Premier Growth Growth of capital rather than
(Alliance Premier Growth Sub-Account) current income.
ELIGIBLE FUNDS OF COLONIAL TRUST AND
VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
Colonial Growth & Income Primarily income and long-term
(Colonial Growth & Income Sub-Account) capital growth and, secondarily,
preservation of capital.
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Colonial Int'l Fund for Growth Long-term capital growth, by
(Colonial Int'l Fund for Growth Sub- investing primarily in non-U.S.
Account) equity securities.
Colonial-Newport Tiger Long term capital growth by
(Colonial-Newport Tiger Sub-Account) investing primarily in equity
securities of companies located
in the four Tigers of Asia (Hong
Kong, Singapore, South Korea and
Taiwan) and the other mini-Tigers
of East Asia (Malaysia, Thailand,
Indonesia, China and the
Philippines).
Colonial Strategic Income A high level of current income,
(Colonial Strategic Income Sub-Account) as is consistent with prudent
risk maximizing total return, by
diversifying investments
primarily in U.S. and foreign
government and high yield, high
risk corporate debt securities.
Colonial U.S. Fund for Growth Growth exceeding over time the
(Colonial U.S. Fund for Growth Sub- S&P 500 Index (Standard & Poor's
Account) Corporation Composite Price Stock
Index) performance.
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Colonial Utilities Primarily current income and,
(Colonial Utilities Sub-Account) secondarily, long-term capital
growth.
ELIGIBLE FUNDS OF MFS TRUST AND VARIABLE INVESTMENT OBJECTIVE
ACCOUNT SUB-ACCOUNTS
MFS Emerging Growth Long-term growth of capital.
(MFS Emerging Growth Sub-Account)
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MFS Research Long-term growth of capital and
(MFS Research Sub-Account) future income.
ELIGIBLE FUNDS OF STEINROE TRUST AND INVESTMENT OBJECTIVE
VARIABLE ACCOUNT SUB-ACCOUNTS
SteinRoe Capital Appreciation Capital growth by investing
(SteinRoe Capital Appreciation Sub-Sub primarily in common stocks,
Account) convertible securities, and other
securities selected for
prospective capital growth.
SteinRoe Cash Income High current income from short-
(SteinRoe Cash Income Sub-Account) term money market instruments
while emphasizing preservation of
capital and maintaining excellent
liquidity.
SteinRoe Managed Assets High total investment return
(SteinRoe Managed Assets Sub-Account) through investment in a changing
mix of securities.
SteinRoe Managed Growth Stock Long-term growth of capital
(SteinRoe Managed Growth Stock Sub- through investment primarily in
Account) common stocks.
SteinRoe Mortgage Securities Income Highest possible level of current
(SteinRoe Mortgage Securities Income Sub- income consistent with safety of
Account) principal and maintenance of
liquidity through investment
primarily in mortgage-backed
securities.
THERE IS NO ASSURANCE THAT THE ELIGIBLE FUNDS WILL ACHIEVE THEIR STATED
OBJECTIVES.
All the Eligible Funds are funding vehicles for variable annuity contracts and
variable life insurance policies offered by separate accounts
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of Keyport and of insurance companies affiliated and unaffiliated with Keyport.
The risks involved in this "mixed and shared funding" are disclosed in the
Eligible Fund prospectuses under the following captions: Alger American Fund -
"Participating Insurance Companies and Plans"; Alliance Series Fund
- -"Introduction to the Fund"; Colonial Trust - "The Trust"; MFS Trust -
"Investment Concept of the Trust"; and SteinRoe Trust - "The Trust".
TRANSFER OF VARIABLE ACCOUNT VALUE
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 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 $25 for each transfer in
excess of 12 per Certificate Year. For transfers under different Certificates
that are being requested under powers of attorney with a common attorney-in-fact
or that are, in Keyport's determination, based on the recommendation of a common
investment adviser or broker/dealer, there is a transfer limitation of one
transfer every 30 days.
Keyport is also limiting each transfer to a maximum of $500,000. All transfers
requested for a Certificate on the same day will be treated as a single transfer
and the total combined transfer amount will be subject to the $500,000
limitation. If the $500,000 limitation is exceeded, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation, Keyport may treat as one transfer all
transfers requested by a Certificate Owner for multiple Certificates he or she
owns. If the $500,000 limitation is exceeded for multiple transfers requested
on the same day that are treated as a single transfer, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation to transfers requested by a common
attorney-in-fact or investment adviser, Keyport will treat as one transfer
all transfers requested under different Certificates that are being requested
under powers of attorney with a common attorney-in-fact or that are, in
Keyport's determination, based on the recommendation of a common investment
adviser or broker/dealer. If the $500,000 limitation is exceeded for multiple
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tranfers 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 effect 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 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.
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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.
Keyport has also reserved the right, subject to compliance with the law as
currently applicable or subsequently changed: (a) to operate the Variable
Account in any form permitted under the Investment Company Act of 1940 or in any
other form permitted by law; (b) to take any action necessary to comply with or
obtain and continue any exemptions from the Investment Company Act of 1940 or to
comply with any other applicable law; (c) to transfer any assets in any
Sub-Account to another Sub-Account, or to one or more separate investment
accounts, or to Keyport's general account; or to add, combine or remove
Sub-Accounts in the Variable Account; and (d) to change the way Keyport assesses
charges, so long as the aggregate amount is not increased beyond that currently
charged to the Variable Account and the Eligible Funds in connection with the
Certificates.
DEDUCTIONS
DEDUCTIONS FOR CERTIFICATE MAINTENANCE CHARGE
Keyport has responsibility for all administration of the Certificates and the
Variable Account. This administration includes, but is not limited to,
preparation of the Certificates, maintenance of Certificate Owners' records, and
all accounting, valuation, regulatory and reporting requirements. Keyport 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
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MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED BY KEYPORT. The charge
will not exceed the anticipated costs of administering the Certificate.
The Certificate Maintenance Charge will be waived before the Income Date if:
(i) the Certificate Value is greater than or equal to $40,000 on the
Certificate Anniversary date this charge is imposed, or
(ii) Purchase Payments of at least $2,000 have been made in the prior
Certificate Year and there has been no partial withdrawal in the prior
Certificate Year.
The Certificate Maintenance Charge will be waived on and after the Income Date
for the current year if:
(i) variable annuity Option A (Income for a Fixed Number of Years) is
applicable; and
(ii) at the time of the first payment of the year, the present value of all
the remaining payments (see "Option A" on Page xx) is greater than or equal to
$40,000.
Prior to the Income Date, the full amount of the charge will be deducted from
the Variable Account Value on each Certificate Anniversary and on the date of
any total surrender not falling on the Certificate Anniversary. On the Income
Date, a pro-rata portion of the charge due on the next Certificate Anniversary
will be deducted from the Variable Account Value. This pro-rata charge covers
the period from the prior Certificate Anniversary to the Income Date. For
example, if the Income Date occurs 73 days after that prior anniversary, then
one-fifth (i.e., 73 days/365 days) of the annual charge would be deducted on the
Income Date. The charge will be deducted from each Sub-Account in the
proportion that the value of each bears to the Variable Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of the
Certificate Maintenance Charge for a payee's annuity will be the same as the
yearly amount in effect immediately before the annuity payments begin. Keyport
may not later change the amount of the Certificate Maintenance Charge deducted
from the annuity payments. The charge will be deducted on a pro-rata basis from
each annuity payment. For example, if annuity payments are monthly, then
one-twelfth of the annual charge will be deducted from each payment.
DEDUCTIONS FOR MORTALITY AND EXPENSE RISK CHARGE
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
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experience (death rate) of persons receiving such payments or of the general
population. Keyport guarantees the Death Benefits described below (see "Death
Provisions"). 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 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
Certificates".
DEDUCTIONS FOR DAILY SALES CHARGE
Keyport also deducts from each Sub-Account each Valuation Period a Daily Sales
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 sales charge limit defined
below and to Certificates issued to employees of Keyport and other persons
specified in "Sales of the Certificates". 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 CONTINGENT DEFERRED SALES CHARGE
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 sales charge will be deducted from the Certificate Value in the same
manner as the surrender amount. The maximum cumulative distribution charge is
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 sales
charges applicable to the Certificate
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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 "Partial
Withdrawals and Surrender".
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 6.00% 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 6.25%.
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
Certificates".
Keyport may reduce or change to 0% any Contingent Deferred Sales Charge
percentage under a Certificate issued in an internal
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exchange or transfer of an annuity contract of Keyport's general account.
DEDUCTIONS FOR TRANSFERS OF VARIABLE ACCOUNT VALUE
The Certificate allows Keyport to charge a transfer fee. Currently no fee is
being charged. Certificate Owners will be notified, in advance, of the
imposition of any fee. The fee will not exceed the lesser of $25 and the cost
of effecting a transfer.
DEDUCTIONS FOR PREMIUM TAXES
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Keyport elects to defer such deduction. It
is not possible to describe precisely the amount of premium tax payable on any
transaction involving the Certificate offered hereby. Such premium taxes
depend, among other things, on the type of Certificate (Qualified or Non-
Qualified), on the state of residence of the Certificate Owner, the state of
residence of the Annuitant, the status of Keyport within such states, and the
insurance tax laws of such states. Currently such premium taxes range from 0%
to 5.0% of either total Purchase Payments or Certificate Value.
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DEDUCTIONS FOR INCOME TAXES
Keyport will deduct from any amount payable under the Certificate any income
taxes that a governmental authority requires Keyport to withhold with respect to
that amount. See "Income Tax Withholding" and "Tax-Sheltered Annuities".
TOTAL VARIABLE ACCOUNT EXPENSES
Total Variable Account expenses in relation to the Certificate will be the
Certificate Maintenance Charge, the Mortality and Expense Risk Charge, and the
Daily Sales Charge.
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 prospectuses.
OTHER SERVICES
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 SteinRoe Cash Income 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 Payments and for Certificate Value transferred into the
SteinRoe Cash Income Sub-Account or the One-Year Guarantee Period. Under the
program, Keyport makes automatic transfers on a periodic basis
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out of the SteinRoe Cash Income 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 SteinRoe Cash Income
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 SteinRoe Cash Income Sub-Account or the One Year
Guarantee Period or by transferring Certificate Value to the SteinRoe Cash
Income 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 (Model A - Capital
Preservation, Model B - Income and Growth, Model C - Moderate Growth, Model D -
Growth, and Model E - Aggressive Growth). 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 to determine the model which corresponds to their risk tolerance and time
horizons.
Periodically Ibbotoson Associates will review the models and may determine that
a reconfiguration of the Sub-Accounts and percentage
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allocations among those Sub-Accounts is appropriate. Certificate Owners will
receive notification prior to 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. After the Income Date, automatic
rebalancing applies only to variable annuity payments and Keyport will rebalance
the number of Annuity Units in each Sub-Account (Annuity Units are used to
calculate the amount of each Sub-Account annuity payment; see "Variable Annuity
Benefits" in the Statement of Additional Information).
SYSTEMATIC INVESTMENT PROGRAM. Purchase Payments may be made by monthly draft
against the bank account of any Certificate Owner who 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
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Certificate Year will be aggregated with withdrawals pursuant to the Program to
determine the 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. 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 for the next succeeding Valuation Date. A
Valuation Date is each
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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 a specified dollar amount.
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 + b) - c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the Mortality and Expense Risk
Charge; plus
(ii) the Valuation Period equivalent of the Daily Sales Charge; plus
(iii) 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
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Certificates issued to employees of Keyport and other persons specified in
"Sales of the Certificates", 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 Sales Charge").
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 SteinRoe Cash Income 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. 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
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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, 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 decedent if he or she is
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 the Covered Person. If the Covered Person dies, the
Certificate Value will be increased, as provided below, if it is less than the
Death Benefit Amount ("DBA"). The DBA is:
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
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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.
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. If the Annuitant is the first to die of the
Certificate's primary Certificate Owner, Joint Certificate Owner and Annuitant,
then the Annuitant is the Covered Person and the Certificate Value will be
increased, as provided below, if it is less than the Death Benefit Amount
("DBA"), as defined above. When Keyport receives due proof of the Annuitant's
death, Keyport will compare, as of the date of death, the
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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 Certificate Owner 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.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
DEATH OF ANNUITANT. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the Certificate
after such a death. The Certificate Value will be increased, as provided below,
if it is less than the Death Benefit Amount ( DBA ) as defined above. When
Keyport receives due proof of the Annuitant's death, Keyport will compare, as of
the date of death, the Certificate Value to the DBA. If the Certificate Value
was less than the DBA, Keyport will increase the current Certificate Value by
the amount of the difference. Note that while the amount of the difference is
determined as of the date of death, that amount is not added to the Certificate
Value until Keyport receives due proof of death. The amount to be credited will
be allocated to the Variable Account 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,
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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.
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
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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 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 described in Appendix A (less any premium taxes not
previously deducted and less any applicable Certificate Maintenance Charge) on
the Income Date in accordance with the option selected.
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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 or any maximum date permitted
under state law.
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
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
described in Appendix A 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
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described in Appendix A 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.
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 (5% per year for Oregon Certificates), 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 (5% per year for Oregon Certificates), unless 3% per
year had been chosen by the payee at the time the option was selected.
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The Mortality and Expense Risk Charge is deducted during the Option A payment
period if a variable payout has been selected, but Keyport has no mortality risk
during this period.
If annual payments are chosen for Option A and a variable payout has been
selected, Keyport has available a "stabilizing" payment option that may be
chosen. Each annual payment will be determined as described in "Variable
Annuity Payment Values". Each annual payment will then be placed in Keyport's
general account, from which it will be paid out in twelve equal monthly
payments. The sum of the twelve monthly payments will exceed the annual payment
amount because of an interest rate factor used by Keyport that will vary from
year to year. The commutation method described above for calculating the
present value of remaining payments applies to the annual payments. Any monthly
payments remaining before the next annual payment will be commuted at the
interest rate used to determine that year's monthly payments.
See "Annuity Payments" for the manner in which Option A may be taxed.
OPTION B: LIFE INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. Keyport will pay an
annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for 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 (5% per year for Oregon Certificates), unless 3% per
year had been chosen by the payee at the time the option was selected.
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
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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 (5% per year for Oregon Certificates), 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 unlimited times every 12 months.
PROOF OF AGE, SEX, AND SURVIVAL OF ANNUITANT
Keyport may require proof of age, sex or survival of any payee upon whose age,
sex or survival payments depend. If the age or sex has been misstated, Keyport
will compute the amount payable based on the correct age and sex. If income
payments have begun, any underpayments Keyport may have made will be paid in
full with the next annuity payment. Any overpayments, unless repaid in one sum,
will be deducted from future annuity payments until Keyport is repaid in full.
SUSPENSION OF PAYMENTS
Keyport reserves the right to 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
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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.
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
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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 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
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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 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
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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.
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
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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
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
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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.
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
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give such voting instructions with respect to the proportion of the Eligible
Fund shares held in the Variable Account corresponding to his or her interest in
the Variable Account.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC") serves as the Principal Underwriter
for the Certificate described in this prospectus. The Certificate will be sold
by salespersons who represent Keyport Life Insurance Company (KFSC's corporate
parent) as variable annuity agents and who are registered representatives of
broker/dealers who have entered into distribution agreements with KFSC. KFSC is
registered under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. It is located at 125 High
Street, Boston, Massachusetts 02110.
Different Certificates may be sold (1) to a person who is an officer, director,
or employee of Keyport, or an affiliate of Keyport, a trustee or officer of an
Eligible Fund, 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
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 SteinRoe Cash Income Sub-Account
Financial Statements
Keyport Life Insurance Company
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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 Period of the Fixed Account. The percentage, if not zero, must be at
least 5%. 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 B 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
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<PAGE>
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
(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
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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 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
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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):
(n/12)
(1) (1+a)/(1+b) - 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.
(y+d/#)
(2) (1.03)/(1+i) - 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
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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.
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
A-5
<PAGE>
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 permitting unlimited
Variable Account and Fixed Account transfers 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 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 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
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<PAGE>
Account Value is transferred to Sub-Account A, the allocation formula will
change to 100% to Sub-Account A.
A-7
<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
<PAGE>
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.
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.
B-2
<PAGE>
PROSPECTUS
[Date]
<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.
<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.
K.A.VAP 10/96
____Yes, I would like to receive the Keyport Advisor Variable Annuity Statement
of Additional Information.
____Yes, I would like to receive the Statement of Additional Information for the
Eligible Funds of:
____The Alger American Fund
____Alliance Variable Products Series Fund, Inc.
____Keyport Variable Investment Trust
____MFS Variable Insurance Trust
____ SteinRoe Variable Investment Trust
Name
Address
City State Zip ______________________________
<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 Keyport Advisor variable
annuity prospectus dated October ____, 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 SteinRoe Cash Income Sub-Account
Financial Statements
Keyport Life Insurance Company
The date of this statement of additional information is October ____, 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 8 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.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Annuity Unit for each Sub-Account at a specified
dollar amount. The Unit value for each
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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 Certificate's annuity tables is 6% per year (5% per year for
Oregon Certificates). An AIR of 3% per year is also currently
available upon Written Request.
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized investment
return of the selected Sub-Account(s) (after deducting the Mortality and Expense
Risk Charge) is better or worse than the assumed AIR percentage. If a given
amount of Sub-Account value is applied to a particular payment option, the
initial payment will be smaller if a 3% AIR is selected instead of a 6% AIR but,
all other things being equal, the subsequent 3% AIR payments have the potential
for increasing in amount by a larger percentage and for decreasing in amount by
a smaller percentage. For example, consider what would happen if the actual
annualized investment return (see the first sentence of this paragraph) is 9%,
6%, 3%, or 0% between the time of the first and second payments. With an actual
9% return, the 3% AIR and 6% AIR payments would both increase in amount but the
3% AIR payment would increase by a larger percentage. With an actual 6% return,
the 3% AIR payment would increase in amount while the 6% AIR payment would stay
the same. With an actual return of 3%, the 3% AIR payment would stay the same
while the 6% AIR payment would decrease in amount. Finally, with an actual
return of 0%, the 3% AIR and 6% AIR payments would both decrease in amount but
the 3% AIR payment would decrease by a smaller percentage. Note that the
changes in payment amounts described above are on a percentage basis and thus do
not illustrate when, if ever, the 3% AIR payment amount might become larger than
the 6% AIR payment amount. Note though that if Option 1 (Income for a Fixed
Number of Years) is selected and payments continue for the entire period, the 3%
AIR payment amount will start out being smaller than the 6% AIR payment amount
but
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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 unlimited times every 12 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 5% 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, which is 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, 1995
and 1994 and for each of the years in the three-year period ended December 31,
1995 included herein, have been included herein in reliance on the report of
KPMG Peat Marwick LLP, independent certified public accountants, and upon
authority of said firm as experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also be
compared to the performance of sub-accounts used with variable annuities offered
by other insurance companies. This comparative information may be expressed as
a ranking prepared by Financial Planning Resources, Inc. of Miami, FL (The VARDS
Report), Lipper Analytical Services, Inc., or by Morningstar, Inc.
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<PAGE>
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: LARGE COMPANY 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 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
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Treasury bills is that they are backed by the full faith and credit of the U.S.
government and thus have virtually no risk of default. Although government
securities fluctuate in price, they are highly liquid.
YIELDS FOR STEINROE CASH INCOME SUB-ACCOUNT
Yield and effective yield percentages for the SteinRoe Cash Income
Sub-Account are calculated using the method prescribed by the Securities and
Exchange Commission. Both yields reflect the deduction of the annual 1.40%
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
Effective Yield Equals: (A - B)365/7 - 1
-----
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day period.
The assumed annual SteinRoe Cash Income charge is equal to the $36
Certificate charge multiplied by a fraction equal to the average number of
Certificates with SteinRoe Cash Income 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 SteinRoe Cash
Income Accumulation Unit during the 7-day period divided by the average
Certificate Value in SteinRoe Cash Income 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 SteinRoe Cash Income 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
S-6
<PAGE>
The Variable Account has not yet commenced operations and therefore no
financial statements are included. The Financial Statements of Keyport are
provided as relevant to its ability to meet its financial obligations under the
Certificates.
S-7
<PAGE>
Independent Auditors' Report
The Board of Directors
Keyport Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Keyport Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 2(b) to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, effective January 1, 1994.
February 16, 1996 /s/KPMG Peat Marwick LLP
------------------------
S-8
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Assets December 31,
------ 1995 1994
---- ----
<S> <C> <C>
Cash and investments:
Fixed maturities available for sale (amortized
cost: 1995 - $9,227,834; 1994 - $6,795,065) $ 9,535,948 $ 6,509,815
Fixed maturities held to maturity (fair value:
1995 - 0; 1994 - $1,442,665) - 1,448,680
Equity securities (cost: 1995-$17,521; 1994-$13,627) 25,214 12,941
Mortgage loans 74,505 129,452
Policy loans 498,326 477,293
Other invested assets 10,748 11,994
Cash and cash equivalents 777,384 684,618
Total cash and investments 10,922,125 9,274,793
Accrued investment income 132,856 111,936
Deferred policy acquisition costs 179,672 439,232
Value of insurance in force 43,939 139,221
Deferred federal income taxes - 42,361
Intangible assets 20,314 21,444
Federal income taxes recoverable 9,205 4,911
Other assets 11,859 10,772
Separate account assets 959,224 828,934
Total assets $12,279,194 $10,873,604
Liabilities and Stockholder's Equity
Policy liabilities:
Policyholder account balances $10,073,806 $ 9,333,755
Other policyholders' funds 10,586 10,289
Total policy liabilities 10,084,392 9,344,044
Current federal income taxes 7,666 -
Deferred federal income taxes 32,823 -
Payable for investments purchased and loaned 317,715 -
Guaranty association fees 21,940 24,688
Other liabilities 23,221 57,978
Separate account liabilities 889,106 764,409
Total liabilities 11,376,863 10,191,119
Stockholder's equity:
Common stock, $1.25 par value; authorized 8,000
shares; issued and outstanding 2,412 shares 3,015 3,015
Additional paid-in capital 505,933 505,933
Net unrealized investment gains (losses) 85,772 (64,464)
Retained earnings 307,611 238,001
Total stockholder's equity 902,331 682,485
Total liabilities and stockholder's equity $12,279,194 $10,873,604
</TABLE>
See accompanying notes to consolidated financial statements.
S-9
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income $757,361 $689,575 $669,667
Insurance revenues 29,767 25,273 18,158
Net realized investment gains (losses) (3,958) (8,220) 11,403
Total revenues 783,170 706,628 699,228
Benefits and expenses:
Interest credited to policyholders 557,156 481,926 504,205
Policy benefits 4,448 4,838 3,113
Operating expenses 42,475 47,095 36,983
Guaranty association expenses 2,000 7,200 3,714
Amortization of deferred policy acquisition costs 58,541 52,174 41,003
Amortization of value of insurance in force 9,479 16,989 22,375
Amortization of intangible assets 1,130 1,130 1,130
Total benefits and expenses 675,229 611,352 612,523
Income before federal income taxes 107,941 95,276 86,705
Federal income tax expense 38,331 32,051 28,710
Net income $ 69,610 $ 63,225 $ 57,995
</TABLE>
See accompanying notes to consolidated financial statements.
S-10
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Stockholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment
Common Paid-In Gains Retained
Stock Capital (Losses) Earnings Total
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $1,508 $430,933 $ 5,687 $118,288 $556,416
Net income 57,995 57,995
Capital contribution by parent 75,000 75,000
Change in net unrealized
investment gains (losses) (5,141) (5,141)
Balance, December 31, 1993 1,508 505,933 546 176,283 684,270
Net income 63,225 63,225
Common stock dividend 1,507 (1,507) -
(1,206 shares)
Change in net unrealized
investment gains (losses) (65,010) (65,010)
Balance, December 31, 1994 3,015 505,933 (64,464) 238,001 682,485
Net income 69,610 69,610
Change in net unrealized
investment gains (losses) 150,236 150,236
Balance, December 31, 1995 $3,015 $ 505,933 $ 85,772 $307,611 $902,331
</TABLE>
See accompanying notes to consolidated financial statements.
S-11
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 69,610 $ 63,225 $ 57,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to policyholders 557,156 478,797 501,073
Net realized investment losses (gains) 3,958 8,220 (11,403)
Amortization of value of insurance in force
and intangible assets 10,609 18,120 23,505
Net amortization (accretion) on investments 9,688 12,215 (3,132)
Change in deferred policy acquisition costs (24,630) (38,852) (50,531)
Change in current and deferred federal
income taxes 1,953 7,731 10,988
Change in guaranty association fees (2,748) 140 (3,669)
Net change in other assets and liabilities (61,058) (13,729) (102)
Total adjustments 494,928 472,642 466,729
Net cash provided by operating
activities 564,538 535,867 524,724
Cash flows from investing activities:
Investments purchased - held to maturity - (277,626) (2,674,315)
Investments purchased - available for sale (2,851,013) (2,624,493) -
Investments sold - held to maturity 14,930 10,637 97,816
Investments sold - available for sale 605,197 950,885 387,305
Investments matured - held to maturity 317,773 576,021 1,195,083
Investments matured - available for sale 906,522 854,441 758,279
Increase in policy loans (21,033) (35,143) (38,661)
Decrease in mortgage loans 54,947 26,520 3,416
Acquisition of subsidiary, net of cash acquired - (961) (24,831)
Net cash used in investing activities (972,677) (519,719) (295,908)
Cash flows from financing activities:
Withdrawals from policyholder accounts (933,785) (1,034,464) (1,295,617)
Deposits to policyholder accounts 1,116,975 1,202,076 856,339
Capital contribution by parent - - 75,000
Securities lending 317,715 - -
Net cash provided by (used in)
financing activities 500,905 167,612 (364,278)
Change in cash and cash equivalents 92,766 183,760 (135,462)
Cash and cash equivalents at beginning of year 684,618 500,858 636,320
Cash and cash equivalents at end of year $ 777,384 $ 684,618 $ 500,858
</TABLE>
See accompanying notes to consolidated financial statements.
S-12
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(in thousands)
(1) Organization
Keyport Life Insurance Company offers a diversified line of fixed and
variable annuity products designed to serve the growing retirement savings
market. These annuity products primarily consist of single premium deferred
and variable annuities that are sold through a wide ranging network of banks,
agents, and securities dealers.
The consolidated financial statements include Keyport Life Insurance Company
and its wholly owned subsidiaries, Independence Life and Annuity Company
("Independence Life"), Keyport Advisory Services Corporation, and Keyport
Financial Services Corporation (collectively, the "Company"). The Company is
a wholly owned subsidiary of Stein Roe Services Incorporated ("Stein Roe").
Stein Roe is a wholly owned subsidiary of Liberty Financial Companies,
Incorporated ("Liberty Financial") which is a majority-owned indirect subsidiary
of Liberty Mutual Insurance Company ("Liberty Mutual").
(2) Summary of Significant Accounting Policies
(a) Basis of Reporting and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could subsequently differ from
such estimates. All significant intercompany transactions and balances have
been eliminated.
(b) Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 , "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"). SFAS 115 segregates fixed maturity
investments into three classifications: "held to maturity", "trading" and
"available for sale." Securities may be designated as held to maturity only
if there is the positive intent and ability to hold these securities to
maturity. Held to maturity securities are carried at amortized cost. Securities
purchased for short-term resale are classified as trading and are carried at
fair value. Unrealized gains and losses on trading account securities are
recognized in income. Fixed maturity investments are classified as available for
sale if they might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, general liquidity needs, or other
factors. Available for sale securities are carried at fair value and unrealized
gains and losses (net of related adjustments to deferred policy acquisition
costs, value of insurance in force and deferred income taxes) are recorded
directly to stockholder's equity. Equity
S-13
<PAGE>
securities are classified as available for sale and are carried at fair value.
Unrealized gains and losses on equity securities are credited or charged
directly to stockholder's equity net of applicable deferred income taxes.
Accordingly, as of January 1, 1994, the Company reclassified certain fixed
maturity investments from the held to maturity to the available for sale
category to conform to the classification criteria prescribed in SFAS 115.
This had the effect of recording a net unrealized gain of $41,614 directly
to stockholder's equity.
As of December 31, 1995, pursuant to a Guide to Implementation of SFAS 115
issued by the Financial Accounting Standards Board in November 1995, the
Company made a one-time reclassification from fixed maturities held to
maturity to fixed maturities available for sale. This had the effect of
recording a net unrealized gain of $13,867 directly to stockholder's equity.
The Company enters into dollar roll transactions to enhance the yield of its
mortgage backed portfolio. Dollar roll transactions represent a one month
reverse repurchase agreement involving mortgage backed securities, frequently
those issued by a U.S. Government Agency. Dollar roll transactions under
which substantially the same securities are received at the end of the
repurchase period are accounted for as financing arrangements. Accordingly,
both the collateral and repurchase liability are reflected on the balance sheet
and the transaction fee is recorded over the period of the agreement. As of
December 31, 1995, the Company was engaged in one dollar roll agreement
classified as a financing arrangement involving a FNMA mortgage backed security
with market value of $87,198. The Company did not enter into dollar roll
agreements during 1994.
The Company from time to time engages in securities lending under which it
lends certain U.S. Government and corporate bonds to approved counterparties
to enhance the yield of its bond portfolio. The carrying values of the loaned
securities are unaffected by the transaction, and the lending fee is recorded
during the period the securities are loaned. The Company records the
collateral received for the security lending transaction as an asset and its
obligation to return the collateral at the end of the transaction as a
liability. As of December 31, 1995, the Company had recorded an asset, and a
corresponding liability of $230,517 for cash pledged as collateral. The
Company did not enter into any securities lending transactions in 1994.
Fixed maturities and mortgage loans with premiums and discounts are amortized
using the interest method. Unamortized premiums and discounts on mortgage
backed securities are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments.
Policy loans are carried at the unpaid principal balance plus accrued
interest. Cash and cash equivalents are carried at cost, which approximates
market.
Realized investment gains and losses are calculated on a first-in, first-out
basis. For each investment security where a decline in value is determined to
be other than temporary, the Company's policy is to write down the investment
security to fair value with the charge to realized investment losses. Sales
S-14
<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.
S-15
<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.
S-16
<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
S-17
<PAGE>
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
S-18
<PAGE>
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
S-19
<PAGE>
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
S-20
<PAGE>
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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<PAGE>
Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 139,221 $ 101,036 $ 115,824
Additions:
Value of insurance purchased - 1,479 7,522
Interest accrued on unamortized balance 4,578 4,994 6,124
Adjustments for unrealized investment losses - 53,344 -
Adjustments for realized investment losses - 351 65
Total additions 4,578 60,168 13,711
Deductions:
Amortization expense (14,057) (21,983) (28,499)
Adjustments for unrealized investment gains (85,803) - -
Total deductions (99,860) (21,983) (28,499)
Balance, end of year $ 43,939 $ 139,221 $ 101,036
Interest is accrued on the unamortized value of insurance in force balance at
the contract rate of 5.58%, 5.49% and 6.01% for the years ended December 31,
1995, 1994 and 1993, respectively.
Estimated net amortization expense of the value of insurance in force as of
December 31, 1995, is as follows: 1996 - $7,747; 1997 - $8,169; 1998 - $7,218;
1999 - $6,648; 2000 - $6,199; and thereafter - $40,417.
(8) Federal Income Taxes
The provision for federal income taxes, computed under the asset and liability
method, is summarized as follows:
Year Ended December 31,
1995 1994 1993
Current $37,746 $18,118 $24,878
Deferred 585 13,933 3,832
Federal income tax expense $38,331 $32,051 $28,710
A reconciliation of federal income tax expense as recorded in the accompanying
consolidated statements of operations with expected federal income tax expense
computed at the applicable federal tax rate of 35% is as follows:
Year Ended December 31,
1995 1994 1993
Expected income tax expense $37,779 $33,347 $30,347
Increase (decrease) in income taxes resulting from:
Nontaxable investment income (1,737) (2,099) (2,189)
Amortization of goodwill 396 396 396
Other, net 1,893 407 156
Actual federal income tax expense $38,331 $32,051 $28,710
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<PAGE>
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was enacted. This
law increased the Company's top marginal tax rate to 35% from 34% retroactive to
January 1, 1993. The effect of this change in tax rates on the Company's
consolidated financial statements was not material.
The components of deferred federal income taxes are as follows:
December 31,
1995 1994
Deferred tax assets:
Policy liabilities $ (140,971) $ (127,558)
Excess of tax over book bases - investments - (69,039)
Guaranty association fees (7,679) (8,642)
Net operating loss carryforward (3,041) (3,573)
Deferred gain on interest rate swap agreements (312) (1,964)
Other (1,039) (3,914)
Total deferred tax assets (153,042) (214,690)
Deferred tax liabilities:
Excess book over tax basis - investments 130,530 -
Deferred policy acquisition costs 44,468 137,909
Value of insurance inforce and intangibles 7,152 34,420
Deferred loss on interest rate swap agreements 3,715 -
Total deferred tax liabilities 185,865 172,329
Net deferred federal income tax liability (asset) $ 32,823 $ (42,361)
The Company believes that is more likely than not that the Company will realize
the benefits of the total deferred tax assets and, accordingly, believes that a
valuation allowance with respect to the realization of the total deferred tax
assets is not necessary. While there are no assurances that this benefit will be
realized, the Company expects that the net deductible amounts will be
recoverable through the reversal of taxable temporary differences, taxes paid in
the carryback period, tax planning strategies, and future expectations of
taxable income.
As of December 31, 1995 and 1994, the Company had approximately $8,688 and
$10,208 respectively, of net operating loss carryforwards relating to
Independence Life's operations prior to the acquisition by the Company. These
operating loss carryforwards are limited to use against future taxable profits
of Independence Life and expire through 2006.
Income taxes paid were $44,694, $28,811, and $17,722 for the years ended
December 31, 1995, 1994 and 1993, respectively.
(9) Statutory Information and Dividend Restrictions
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. In
converting to GAAP, adjustments to the Company's statutory amounts include: the
deferral and amortization of the costs of acquiring new policies, such as
commissions and other issue costs; the deferral of federal income taxes; the
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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 KA
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Keyport Life Insurance Company:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing Variable
Account A
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and Dealer
*** (3c) Manning & Napier Broker/Dealer's Agreement
* (4a) 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
*** (4f) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company (M&N)
*** (4g) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company (M&N)
(4h) Specimen Variable Annuity Contract of Keyport Life
Insurance Company (KA)
(4i) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company (KA)
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<PAGE>
* (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
(7) Not applicable
** (8a) Form of Participation Agreement
*** (8b) Participation Agreement Among Manning & Napier Insurance Fund,
Inc., Manning & Napier Investor Services, Inc., Manning & Napier
Advisors, Inc., and Keyport Life Insurance Company
(8c) Participation Agreement Among MFS Variable Insurance Trust,
Keyport Life Insurance Company, and Massachusetts Financial
Services Company
(8d) Participation Among The Alger American Fund, Keyport Life
Insurance Company, and Fred Alger and Company, Incorporated
(8e) Participation Agreement Among Alliance Variable Products
Series Fund, Inc., Alliance Fund Distributors, Inc.,
Alliance Capital Management L.P., and Keyport Life Insurance
Company
(9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
(11) Not applicable
(12) Not applicable
**** (13) Schedule for Computations of Performance Quotations
** (15) Chart of Affiliations
** (16) Powers of Attorney
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** (27) Financial Data Schedule
* Incorporated by reference to Registration Statement (File No. 333-1043)
filed on or about February 16, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement (File No. 333-1043) filed on or about August 22, 1996.
*** Incorporated by reference to Pre-Effective Amendment No. 3 to
Registration Statement (File No. 333-1043) filed on or about October
15, 1996.
**** To be filed by amendment
Item 25. Directors and Officers of the Depositor.
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
- ------------------ ---------------------
Kenneth R. Leibler, President Director and Chairman of the Board
Liberty Financial Companies Inc.
Federal Reserve Plaza, 24th Floor
600 Atlantic Avenue
Boston, MA 02110
F. Remington Ballou Director
B. A. Ballou & Company, Inc.
800 Waterman Avenue
East Providence, RI 02914
Frederick Lippitt Director
The Providence Plan
740 Hospital Trust Building
15 Westminster Street
Providence, RI 02903
Mr. Robert C. Nyman Director
Chairman and CEO
Nyman Mfg. Co.
275 Ferris Avenue
E. Providence, RI 02910-1001
John W. Rosensteel President, Chief Executive Officer and
Director
C-3
<PAGE>
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
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
C-4
<PAGE>
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
*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.
C-5
<PAGE>
The Depositor controls Keyport Financial Services Corp. (KFSC), a
Massachusetts corporation functioning as a broker-dealer of securities, through
100% stock ownership. KFSC files separate financial statements.
The Depositor controls Keyport Advisory Services Corp. (KASC), a
Massachusetts corporation functioning as an investment adviser, through 100%
stock ownership. KASC files separate financial statements.
The Depositor controls Independence Life and Annuity Company ("Independence
Life")(formerly Keyport America Life Insurance Company), a Rhode Island
corporation functioning as a life insurance company, through 100% stock
ownership. Independence Life files separate financial statements.
The chart for the affiliations of the Depositor is Exhibit 15.
Item 27. Number of Contract Owners.
None
Item 28. Indemnification.
Directors and officers of the Depositor and the principal underwriter are
covered persons under Directors and Officers/Errors and Omissions liability
insurance policies issued by ICI Mutual Insurance Company, Federal Insurance
Company, Firemen's Fund Insurance Company, CNA and Lumberman's Mutual Casualty
Company. Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors and officers under such insurance
policies, or otherwise, the Depositor has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Depositor of expenses incurred or paid by a director or officer
in the successful defense of any action, suit or proceeding) is asserted by such
director or officer 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.
C-6
<PAGE>
The directors and officers are:
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
- ------------------ --------------------
John W. Rosensteel President, Director and Chairman of the
Board
Francis E. Reinhart Director and Vice President,
Administration
Lee R. Roberts Director
John E. Arant, III Vice President, Chief Sales Officer
William L. Dixon Vice President, Compliance Officer
Rogelio P. Japlit Treasurer
James J. Klopper Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
Keyport Life Insurance Company, 125 High Street, Boston, Massachusetts 02110.
Item 31. Management Services.
Not applicable.
C-7
<PAGE>
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted;
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information; and
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
C-8
<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 23rd day of
October, 1996.
VARIABLE ACCOUNT A
---------------------------------------
(Registrant)
BY: KEYPORT LIFE INSURANCE COMPANY
----------------------------------
(Depositor)
BY: /S/ JOHN W. ROSENSTEEL*
----------------------------------
John W. Rosensteel
President
*BY: /S/ JAMES J. KLOPPER OCTOBER 23, 1996
------------------------------- ----------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of Mr. Rosensteel pursuant to power of attorney duly executed by him and
included as part of Exhibit 16 in Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 filed on or about August 22, 1996 (File
Nos. 333-1043; 811-7543).
C-9
<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
President
Director and Chairman of the Board
(Principal Executive Officer)
/S/ F. REMINGTON BALLOU* /S/ PAUL H. LEFEVRE, JR.*
- ----------------------------------- -------------------------------------
F. Remington Ballou Paul H. LeFevre, Jr.
Director Senior Vice President
(Chief Financial Officer)
/S/ FREDERICK LIPPITT*
- -----------------------------------
Frederick Lippitt
Director
/S/ ROBERT C. NYMAN*
- -----------------------------------
Robert C. Nyman
Director
/S/ JOHN W. ROSENSTEEL*
- -----------------------------------
John W. Rosensteel
Director
*BY: /S/ JAMES J. KLOPPER OCTOBER 23, 1996
------------------------------ ----------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of each of the above Directors and Officers of the Depositor pursuant to
powers of attorney duly executed by such persons and included as part of
Exhibit 16 in Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-4 filed on or about August 22, 1996 (File Nos. 333-1043;
811-7543).
C-10
<PAGE>
EXHIBIT INDEX
ITEM PAGE
- ---- ----
(4h) Specimen Group Variable Annuity Contract of Keyport Life Insurance
Company (KA)
(4i) Specimen Variable Annuity Certificate of Keyport Life Insurance
Company (KA)
(8c) Participation Agreement Among MFS Variable Insurance Trust, Keyport
Life Insurance Company, and Massachusetts Financial Services Company
(8d) Participation Among The Alger American Fund, Keyport Life Insurance
Company, and Fred Alger and Company, Incorporated
(8e) Participation Agreement Among Alliance Variable Products Series Fund,
Inc., Alliance Fund Distributors, Inc., Alliance Capital Management
L.P., and Keyport Life Insurance Company
(9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
C-11
<PAGE>
EXHIBIT (4h)
<PAGE>
KEYPORT
LIFE INSURANCE COMPANY
A Stock Company
This Group Contract, as issued to the Group Contract Owner by Us with any riders
or endorsements, alone makes up the agreement under which benefits are paid.
The Group Contract may be inspected at the office of the Group Contract Owner.
In consideration of any application for a Certificate and the payment of
purchase payments, We agree, subject to the terms and conditions of the Group
Contract, to provide the benefits described in the Certificate to the
Certificate Owner.
If a Certificate is In Force on the Income Date, We will begin making income
payments to the Annuitant. We will make such payments according to the terms of
the Certificate and Group Contract.
RIGHT TO EXAMINE CERTIFICATE: A Certificate Owner may return a Certificate to
Us or the agent through whom it was purchased within 10 days of receipt. If so
returned, We will treat the Certificate as though it were never issued. Upon
receipt We will promptly refund the Certificate Value as of the date the
returned Certificate is received by Us plus any charges We may have previously
deducted.
READ THIS CONTRACT CAREFULLY.
Secretary President
GROUP VARIABLE ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
ANNUITY PAYMENTS AND OTHER VALUES, WHEN BASED ON THE
<PAGE>
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. THIS
IS EXPLAINED FURTHER ON PAGES 11 AND 18.
TABLE OF CONTENTS
Page
Right to Examine Certificate
1
Definitions
2
Contract Schedule
3A
General Provisions
5
Variable Account Provisions
10
Transfers
13
Partial Withdrawals and Total Surrender
14
Death Provisions
15
Annuity Provisions
16
Endorsements (if any) are before page
22
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Income Date during which Purchase
Payments may be made by a Certificate Owner.
ACCUMULATION UNIT: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
ADJUSTED CERTIFICATE VALUE: The Certificate Value less any applicable taxes
relating to a Certificate and Certificate Maintenance Charge. This amount is
applied to the applicable Annuity Tables to determine Annuity Payments.
DVA(1) 2
<PAGE>
ANNUITANT: The natural person on whose life Annuity Payments are based, and
to whom any Annuity Payments will be made starting on the Income Date.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Annuitant, starting on
the Income Date, under the Annuity Option selected.
ANNUITY PERIOD: The period after the Income Date during which Annuity
Payments are made.
ANNUITY UNIT: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who controls the Certificate if any
Certificate Owner dies before the Income Date.
(Definitions continue on page 4)
KEYPORT LIFE INSURANCE COMPANY
125 HIGH STREET, BOSTON, MA 02110
CONTRACT SCHEDULE
GROUP CONTRACT OWNER [Keyport Insurance Trust]
GROUP CONTRACT NUMBER [678999]
GROUP CONTRACT ISSUE DATE [1/30/96]
MINIMUM INITIAL PAYMENT [$5,000]
MINIMUM ADDITIONAL PAYMENT [$1,000]
CHARGES
DISTRIBUTION CHARGE [We deduct [0.000411%] of the assets in each Variable
Account Sub-Account on a daily basis (equivalent to an annual rate of [0.15%]
) to compensate Us for a portion of Our distribution costs.]
DVA(1) 3
<PAGE>
ADMINISTRATIVE CHARGE [We deduct [0.000411%] of the assets in each Variable
Account Sub-account on a daily basis (equivalent to an annual rate of [0.15%])
to compensate Us for a portion of Our administrative expenses.]
MORTALITY AND EXPENSE RISK CHARGE [We deduct [0.003863%] of the assets in
each Variable Account Sub-account on a daily basis (equivalent to an annual
rate of [1.40%]) for Our mortality and expense risks.]
CERTIFICATE MAINTENANCE CHARGE [We charge [$36] to cover a portion of Our
ongoing Certificate maintenance expenses. The charge is incurred at the
beginning of the Certificate Year and is deducted on each Certificate
Anniversary and at the time of total surrender.]
TRANSFER CHARGE [Currently none, however, We reserve the right to charge [$25]
for a transfer if a Certificate Owner makes more than [12] transfers per
Certificate Year.]
SURRENDER CHARGE [At the time of each partial withdrawal or at total surrender
a contingent
DVA(1) PAGE 3A
<PAGE>
deferred sales charge is imposed as a percentage of each Purchase Payment
during the [seven]years after the date of its payment, as follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
7% 6% 5% 4% 3% 2% 1%
Thereafter 0%].
INITIAL PURCHASE PAYMENT ALLOCATION
Currently, Certificate Owners can select [7] Sub-accounts
[and the Fixed Account]. We reserve the right to increase or decrease the
number of available Sub-accounts. The minimum a Certificate Owner may
allocate to any Sub-account [or the Fixed Account] is [10%] of any Purchase
Payment. An initial Purchase Payment may be invested as follows:
[Manning & Napier Moderate Growth
Manning & Napier Growth
Manning & Napier Maximum Horizon
Manning & Napier Equity
Manning & Napier Small Cap
Manning & Napier Bond
SteinRoe Cash Income Fund
Fixed Account]
TRANSFER GUIDELINES
NUMBER OF TRANSFERS AND TRANSFER CHARGE: [Currently, Certificate Owners are
permitted [12]transfers per Certificate Year during the Accumulation Period
and [1] transfer every [6]months during the Annuity Period. We reserve the
right to change, upon notice, the frequency of transfers a Certificate Owner
can make. We also reserve the right to impose a charge for any transfer in
excess of [12] per Certificate Year. The transfer charge is shown in the
Charges section of the Schedule.]
MINIMUM AMOUNT TO BE TRANSFERRED: [None]
MINIMUM AMOUNT WHICH MUST REMAIN IN A SUB-ACCOUNT AFTER TRANSFER: [None]
[LIMITATIONS ON TRANSFERS FROM FIXED ACCOUNT: Transfers during a Certificate
Year from the Fixed Account to the Variable Account are limited to [25%] of
the Fixed Account Value at the beginning of the Certificate Year. This
limitation will be waived if a systematic program of monthly transfers has
been established.]
PARTIAL WITHDRAWALS
DVA(1) PAGE 3B
<PAGE>
A Certificate Owner may make partial withdrawals during the Accumulation
Period without incurring a Surrender Charge[, as follows:
(1) In any Certificate Year a Certificate Owner may withdraw an
aggregate amount not to exceed, at the time of withdrawal:
(a) the Certificate Value, less
(b) the portion of the Purchase Payments not previously
withdrawn by that Certificate Owner; and
(2) In any Certificate Year after the first, a Certificate Owner
may also withdraw the positive difference, if any, between
the amount withdrawn pursuant to (1) above in any such
subsequent year and 10% of the Certificate Value as of the
preceding Certificate Anniversary.
We will collect the Surrender Charge shown on the Schedule with respect to
partial withdrawals in excess of the amounts described in (1) and (2) above].
MINIMUM WITHDRAWAL AMOUNT: [$300], unless the withdrawal is made pursuant to
Our systematic withdrawal program, in which case the minimum withdrawal is
[$100].
MINIMUM CERTIFICATE VALUE WHICH MUST REMAIN AFTER A PARTIAL WITHDRAWAL:
[$2,500].
DEATH BENEFITS
ADJUSTMENT OF CERTIFICATE VALUE
When We receive due proof of death of the Certificate Owner,
[any Joint Certificate Owner,] or the Annuitant if the Certificate Owner is a
non-natural Person, We will compare, as of the date of death, the Certificate
Value to the Death Benefit amount defined in the Certificate Schedule. If the
Certificate Value is less than the Death Benefit, We will increase the
current Certificate Value by the amount of the difference. Any amount
credited will be allocated to the Variable Account [and/or the Fixed Account]
based on the Purchase Payment allocation selection that is in effect when We
receive due proof of death.
[WAIVER OF SURRENDER CHARGES
If the Certificate is surrendered within [90] days of the date of death of
the Certificate Owner, [any Joint Certificate Owner,] or the Annuitant if the
Certificate Owner is a non-natural Person, any applicable Surrender Charges
will not be deducted from the Certificate Withdrawal Value.]
DEATH BENEFIT AMOUNT
A Certificate Schedule will contain one [or more] of the following Death
Benefit provisions.
[PURCHASE PAYMENT DEATH BENEFIT
On the Certificate Date the Death Benefit is the initial Purchase Payment.
On subsequent Valuation Dates, the Death Benefit is calculated as follows:
DVA(1) PAGE 3C
<PAGE>
(1) Start with the Death Benefit from the prior Valuation Date;
(2) Add to (1) any additional Purchase Payments paid during the
current Valuation Period and subtract from (1) any partial
withdrawals (including any associated Surrender Charge
incurred) made during the current Valuation Period.]
[CERTIFICATE ANNIVERSARY DEATH BENEFIT
On the Certificate Date, the Death Benefit is the initial Purchase
Payment. On subsequent Valuation Dates, the Death Benefit is calculated as
follows:
(1) (a) Start with the Death Benefit from the Certificate Date;
(b) Add to (a) any additional Purchase Payments paid since
the Certificate Date and subtract from (a) any partial
withdrawals (including any associated Surrender Charge
incurred) made since the Certificate Date;
(2) (a) Determine the Certificate Value for each Certificate
Anniversary (the "Anniversary Value") before the [81st]
birthday of the Certificate Owner or, if the Certificate
Owner is a non-natural Person, the Annuitant;
(b) Increase each "Anniversary Value" by any Purchase
Payments made after that Value's Anniversary;
(c) Decrease each "Anniversary Value" by the following
amount calculated at the time of each partial
withdrawal made after that Value's Anniversary: (i) the
partial withdrawal amount (including any associated
Surrender Charge incurred) divided by the Certificate
Value immediately preceding the withdrawal, (ii)
multiplied by the "Anniversary Value" immediately
preceding the withdrawal;
(d) Select the highest "Anniversary Value" after the
adjustments in (b) and (c) above;
(3) Set the Death Benefit equal to the greater of (1) and (2).]
[If there is a change of Certificate Owner, the new Certificate Owner's age
will be used to determine the amount in (2) above.]
[INTEREST ACCUMULATING DEATH BENEFIT
On the Certificate Date, the Death Benefit is the initial Purchase Payment.
On subsequent Valuation Dates, the Death Benefit is calculated as follows:
(1) Start with the Death Benefit from the Prior Valuation
Date;
(2) Calculate interest on (1) for the current Valuation
Period at the Death Benefit Interest Rate;
(3) Add (1) and (2);
(4) Add any additional Purchase Payments paid during the
current Valuation Period to (3);
(5) Subtract partial withdrawals made during the current
Valuation Period from (4);
Each accumulated initial or additional Purchase Payment, reduced by any
partial withdrawals (including any associated Surrender Charge incurred)
allocated to such Purchase Payment, will
DVA(1) PAGE 3C
<PAGE>
continue to grow at the Death Benefit Interest Rate until reaching its
Maximum Guaranteed Death Benefit.
The Death Benefit is accumulated at the Death Benefit Interest Rate of
[7%] compounded annually, except:
(1) Amounts in the [CIF Sub-account] are accumulated at the net
rate of return for such Sub-account during the current
Valuation Period if less than [7%] compounded annually; and
(2) Amounts in the [Manning & Napier Bond Sub-account] are
accumulated at the net rate of return for such Sub-account
during the current Valuation Period if less than
[7%]compounded annually; and
(3) Amounts in a Fixed Allocation are accumulated at the
interest rate being credited to such Fixed Allocation during
the current Valuation Period if less than [7%] compounded
annually.
The net rate of return used in (1) and (2) equals the net investment factor
defined on page 11 less 1.0.
The Maximum Guaranteed Death Benefit is initially equal to [two] times the
initial or additional Purchase Payment paid. Thereafter, the Maximum
Guaranteed Death Benefit as of the effective date of a partial withdrawal is
reduced first by the amount of any partial withdrawal representing earnings
and second in proportion to the reduction in Certificate Value for any
partial withdrawal representing Purchase Payments (in each case, including
any associated Surrender Charge incurred).]
[If there is a change of Certificate Owner and the new Certificate Owner's age
is less than or equal to 75, the Death Benefit described above will remain in
effect. If the new Certificate Owner's age is greater than 75, the Death
Benefit in effect will not apply; the Death Benefit will be the sum of the
Purchase Payments less any partial withdrawals (including any associated
Surrender Charge incurred) made since the Certificate Date.]
THE VARIABLE SEPARATE ACCOUNT[S]
[SUB-ACCOUNTS INVESTING IN SHARES OF MUTUAL FUNDS
Variable Account [A] is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Rhode Island, Our state
of domicile. Variable Account [A]is divided into Sub-accounts. Each
Sub-account listed below invests in shares of the corresponding Portfolio of
the Eligible Fund shown.
<TABLE>
<CAPTION>
SUB-ACCOUNT ELIGIBLE FUND AND PORTFOLIO
- ------------------------------------------------------------------
<S> <C>
[MANNING & NAPIER INSURANCE FUND, INC.
MODERATE GROWTH Manning & Napier Moderate Growth Portfolio
</TABLE>
DVA(1) PAGE 3D
<PAGE>
<TABLE>
<S> <C>
SUB-ACCOUNT seeks with equal emphasis long-term growth and
preservation of capital.
GROWTH SUB-ACCOUNT Manning & Napier Growth Portfolio - seeks long
term growth of capital. The secondary objective
is the preservation of capital.
MAXIMUM HORIZON Manning & Napier Maximum Horizon Portfolio - seeks
SUB-ACCOUNT to achieve the high level of long-term capital growth
typically associated with the stock market.
EQUITY SUB-ACCOUNT Manning & Napier Equity Portfolio- seeks long-term
growth of capital.
SMALL CAP SUB- Manning & Napier Small Cap Portfolio - seeks to
ACCOUNT achieve long term growth of capital by investing principally
in the equity securities of small issuers.
BOND SUB-ACCOUNT Manning & Napier Bond Portfolio - seeks to maximize total return
in the form of both income and capital appreciation by investing
in fixed income securities without regard to
maturity.
STEINROE VARIABLE INVESTMENT TRUST
- --------------------------------------------------------------------------
CIF SUB-ACCOUNT CASH INCOME FUND - seeks high current income
("MONEY MARKET" SUB-ACCOUNT) from short-term money market investments while emphasizing
preservation of capital and maintaining excellent
liquidity.] ]
</TABLE>
[SUB-ACCOUNTS INVESTING DIRECTLY IN SECURITIES
Variable Account [B] is an investment company variable separate account which
invests directly in securities, organized in and governed by the laws of the
State of Rhode Island, Our state of domicile. Variable Account [B] is divided
into Sub-accounts. The investment advisor to each Sub-account is set forth
opposite each Sub-account shown below:
Sub-account Investment Advisor
DVA(1) PAGE 3E
<PAGE>
[Currently, none] [Currently, none] ]
THE FIXED ACCOUNT
[The Fixed Account is part of Our General Account, which consists of all of
Our assets except the assets of the Variable Account and the assets of other
separate accounts that We maintain. Subject to applicable law, We have sole
discretion over investments of the assets of the Fixed Account. If a
Certificate Owner allocates assets to the Fixed Account, the Certificate
Owner's accumulation values and annuity payments will have guaranteed minimums.
Before the Income Date, a Certificate Owner's interest in the Fixed Account is
measured by the Fixed Account Value. When annuity payments begin, the payee's
interest in the Fixed Account is measured by the amount of each periodic
payment.
Benefits from the Fixed Account will not be less than the minimum values
required by any law of the jurisdiction where the Certificate is delivered.
Purchase Payments will be allocated to the Fixed Account in accordance with a
Certificate Owner's selection at the Certificate Date. A Certificate Owner
may change such selection by Written Request.
The Fixed Account Value at any time is equal to:
(1) all Purchase Payments allocated to the Fixed Account
plus the interest subsequently credited on those
payments; plus
(2) any Variable Account value transferred to the Fixed
Account plus the interest subsequently credited on the
transferred value; less
(3) any prior partial withdrawals from the Fixed Account;
less
(4) any Fixed Account Value transferred to the Variable
Account.
We will credit interest to Purchase Payments allocated to the Fixed Account
at rates declared by Us for Guarantee Periods of one [or more] year[s] from
the month and day of allocation. The minimum Guaranteed Interest Rate is [3%]
per year.]
DVA(1) PAGE 3F
<PAGE>
DEFINITIONS (CONTINUED)
CERTIFICATE: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract.
CERTIFICATE ANNIVERSARY: An anniversary of the Certificate Date.
CERTIFICATE DATE: The date a Certificate is issued to a Certificate Owner.
The Certificate Date is shown on the Certificate Schedule.
CERTIFICATE OWNER: The person who owns a Certificate under the Group
Contract. Any Joint Certificate Owners and the Certificate Owner own the
Certificate equally with rights of survivorship. All Owners must exercise
ownership rights and privileges together, including the signing of Written
Requests.
CERTIFICATE VALUE: The sum of the Certificate Owner's interest in the
Sub-accounts of the Variable Account and the Fixed Account during the
Accumulation Period.
CERTIFICATE YEAR: The first Certificate Year is the annual period which
begins on the Certificate Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
ELIGIBLE FUND: An investment entity shown on the Certificate Schedule.
FIXED ACCOUNT: The account We establish to support Fixed Allocations. The
Contract Schedule shows whether the Fixed Account is available under the
Certificates.
FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated under
a Certificate prior to the Income Date.
FIXED ALLOCATION: An amount allocated to the Fixed Account that is credited
with a Guaranteed Interest Rate for a specified Guarantee Period.
FIXED ANNUITY: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
GENERAL ACCOUNT: Our general investment account which contains all of Our
assets except those in the Variable Account and Our other separate accounts.
GROUP CONTRACT OWNER: The person or entity to which the Group Contract is
issued.
GUARANTEED INTEREST RATE: The effective annual interest rate which We will
credit for a specified Guarantee Period.
DVA(1) 4
<PAGE>
GUARANTEE PERIOD: The period of year(s) a rate of interest is guaranteed to
be credited within the Fixed Account.
INCOME DATE: The date on which Annuity Payments begin. The Income Date is
shown on the Certificate Schedule.
IN FORCE: The status of a Certificate before the Income Date so long as it
has not been totally surrendered and there has not been a death of a
Certificate Owner or Joint Certificate Owner that will cause the Certificate
to end within five years of the date of death.
OFFICE: Our executive office shown on the Certificate Schedule.
PERSON: A human being, trust, corporation, or any other legally recognized
entity.
PORTFOLIO: A series of an Eligible Fund which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENT: A payment made by or on behalf of a Certificate Owner with
respect to a Certificate.
SUB-ACCOUNT: Variable Account assets are divided into Sub-accounts. Assets of
each Sub-account will be invested in shares of a Portfolio of an Eligible
Fund, or directly in portfolio securities.
VALUATION DATE: Each day on which We and the New York Stock Exchange ("NYSE")
are open for business, or any other day that the Securities and Exchange
Commission requires that mutual funds, unit investment trusts or other
investment portfolios be valued.
VALUATION PERIOD: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business on the
next succeeding Valuation Date.
VARIABLE ACCOUNT: Our Variable Account(s) shown on the Certificate Schedule.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-accounts of the
Variable Account.
WE, US, OUR: Keyport Life Insurance Company.
WRITTEN REQUEST: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
GENERAL PROVISIONS
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Certificate Date. It must be paid
at Our Office in United States currency. Coverage under a Certificate does
not take effect until We have
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accepted the initial Purchase Payment during a Certificate Owner's lifetime.
Each Purchase Payment after the Certificate Date must be at least the amount
shown on the Certificate Schedule. Provided the Certificate Value under a
Certificate does not go to zero, a Certificate will stay in force until the
Income Date even if a Certificate Owner make no payments after the initial
one. We reserve the right to reject any subsequent Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
An initial Purchase Payment is allocated to the Sub-accounts of the Variable
Account, and to the Fixed Account if available, in accordance with the
selections made by a Certificate Owner at the Certificate Date. Unless
otherwise changed by a Certificate Owner, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment. Allocation of
Purchase Payments is subject to the terms and conditions imposed by Us. We
reserve the right to allocate initial Purchase Payments to the Money Market
Sub-account until the expiration of the Right to Examine Certificate period
set forth on the first page of the Group Contract and the Certificate.
THE CONTRACT
The Group Contract, including the application, if any, and any attached rider
or endorsement constitute the entire contract between the Group Contract
Owner and Us. All statements made by the Group Contract Owner, any
Certificate Owner or any Annuitant will be deemed representations and not
warranties. No such statement will be used in any contest unless it is
contained in the application signed by the Group Contract Owner or in a
written instrument signed by the Certificate Owner, a copy of which has been
furnished to the Certificate Owner, the Beneficiary or to the Group Contract
Owner.
Only Our President or Secretary may agree to change any of the terms of the
Group Contract. Any changes must be in writing. Any change to the terms of a
Certificate must be in writing and with Certificate Owner's consent, unless
provided otherwise by the Group Contract and the Certificate.
To assure that the Group Contract and the Certificate will maintain their
status as a variable annuity under the Internal Revenue Code, We reserve the
right to change the Group Contract and any Certificate issued thereunder to
comply with future changes in the Internal Revenue Code, any regulations or
rulings issued thereunder, and any requirements otherwise imposed by the
Internal Revenue Service. The Group Contract Owner and the affected
Certificate Owner will be sent a copy of any such amendment.
We reserve the right, subject to compliance with the law as currently
applicable or subsequently changed, to: (a) operate the Variable Account in
any form permitted under the Investment Company Act of 1940, as amended, (the
"1940 Act"), or in any other form permitted by law; (b) take any action
necessary to comply with or obtain and continue any exemptions from the 1940
Act, or to comply with any other applicable law; (c) transfer any assets in
any Sub-account to another Sub-account, or to one or more separate investment
accounts, or the General Account; or to add, combine or remove Sub-accounts
in the Variable Account; and (d) change the way We assess charges, so long as
We do not increase the aggregate amount beyond that
DVA(1) 6
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currently charged to the Variable Account and the Eligible Funds in
connection with a Certificate. If the shares of any of the Eligible Funds
should become unavailable for investment by the Variable Account or if in Our
judgment further investment in such Portfolio shares should become
inappropriate in view of the purpose of the Certificate, We may add or
substitute shares of another mutual fund for the Portfolio shares already
purchased under the Certificate. No substitution of Portfolio shares in any
Sub-account may take place without prior approval of the Securities and
Exchange Commission and notice to the affected Certificate Owners, to the
extent required by the 1940 Act.
CERTIFICATE OWNER
A Certificate Owner has all rights and may receive all benefits under a
Certificate. A Certificate Owner is the person designated as such on the
Certificate Date, unless changed. A Certificate Owner may exercise all rights
of a Certificate while it is In Force, subject to the rights of (a) any
assignee under an assignment filed with Us, and (b) any irrevocably named
Beneficiary.
JOINT CERTIFICATE OWNER
A Certificate can be owned by Joint Certificate Owners. Upon the death of any
Certificate Owner or Joint Certificate Owner, the surviving owner(s) will be
the primary Beneficiary(ies). Any other beneficiary designation will be
treated as a Contingent Beneficiary unless otherwise indicated in a Written
Request filed with Us.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by a Certificate Owner at the Certificate
Date, unless changed prior to the Income Date. Any change of Annuitant is
subject to Our underwriting rules then in effect. The Annuitant may not be
changed in a Certificate which is owned by a non-natural person. A
Certificate Owner may name a Contingent Annuitant. The Contingent Annuitant
becomes the Annuitant if the Annuitant dies while a Certificate is In Force.
If the Annuitant dies and no Contingent Annuitant has been named, We will
allow a Certificate Owner sixty days to designate someone other than the
Certificate Owner as Annuitant. The Certificate Owner will be the Contingent
Annuitant unless the Certificate Owner names someone else. If the Certificate
is owned by a non-natural person, the death of the Annuitant will be treated
as the death of the Certificate Owner and a new Annuitant may not be
designated.
BENEFICIARY
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint
Certificate Owner, the surviving owner(s) will become the primary
Beneficiary. Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request filed
with Us. If a Certificate Owner names more than one Person as Primary
Beneficiary or as Contingent Beneficiary, and does not state otherwise on an
application or in a Written Request to Us, any non-survivors will not receive
a benefit. The survivors will receive equal shares. Subject to the rights of
any irrevocable Beneficiary(ies),
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a Certificate Owner may change primary or contingent Beneficiary(ies). A
change must be made by Written Request and will be effective as of the date
the Written Request is signed. We will not be liable for any payment We make
or action We take before We receive the Written Request.
GROUP CONTRACT OWNER
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the
claims of the Group Contract Owner or any of its creditors. The Group
Contract Owner may transfer ownership of this Group Contract. Any transfer of
ownership terminates the interest of any existing Group Contract Owner. It
does not change the rights of any Certificate Owner.
CHANGE OF CERTIFICATE OWNER, BENEFICIARY OR CONTINGENT ANNUITANT
While a Certificate is In Force, a Certificate Owner may by Written Request
change the primary Certificate Owner, Joint Certificate Owner, primary
Beneficiary, Contingent Beneficiary, Contingent Annuitant, or in certain
instances, the Annuitant. An irrevocably named Person may be changed only
with the written consent of such Person. The change will be effective,
following Our receipt of the Written Request, as of the date the Written
Request is signed. The change will not affect any payments We make or actions
We take prior to the time We receive the Written Request.
ASSIGNMENT OF THE CERTIFICATE
A Certificate Owner may assign a Certificate at any time while it is In
Force. The assignment must be in writing and a copy must be filed at Our
Office. A Certificate Owner's rights and those of any revocably named Person
will be subject to the assignment. An assignment will not affect any payments
We make or actions We take before We receive the assignment. We are not
responsible for the validity of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have begun, any underpayment(s) that have been made will be paid in
full with the next Annuity Payment. Any overpayment, unless repaid to Us in
one sum, will be deducted from future Annuity Payments otherwise due until We
are repaid in full.
NON-PARTICIPATING
A Certificate does not participate in Our divisible surplus.
EVIDENCE OF DEATH, AGE, SEX OR SURVIVAL
If a Certificate provision relates to the death of a natural Person, We will
require proof of death before We will act under that provision. Proof of
death shall be: (a) a certified death certificate; or (b) a certified decree
of a court of competent jurisdiction as to the finding of death; or (c) a
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written statement by a medical doctor who attended the deceased; or (d) any
other document constituting due proof of death under applicable state law. If
Our action under a Certificate provision is based on the age, sex, or
survival of any Person, We may require evidence of the particular fact before
We act under that provision.
PROTECTION OF PROCEEDS
No Beneficiary or payee may commute or assign any payments under a
Certificate before they are due. To the extent permitted by law, no payments
shall be subject to the debts of any Beneficiary or payee or to any judicial
process for payment of those debts.
REPORTS
We will send Certificate Owners a report that shows the Certificate Value at
least once each Certificate Year. We will send any other reports that may be
required by law.
TAXES
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Purchase Payments or Certificate Value. We may, in Our sole
discretion, delay the deduction until a later date. By not deducting tax
payments at the time of Our payment, We do not waive any right We may have to
deduct amounts at a later date. We will, in Our sole discretion, determine
when taxes relate to a Certificate or to the operation of the Variable
Account. We reserve the right to establish a provision for federal income
taxes if We determine, in Our sole discretion, that We will incur a tax as a
result of the operation of the Variable Account. Such a provision will be
reflected in the Accumulation and Annuity Unit Values. We will deduct for
any income taxes incurred by Us as a result of the operation of the Variable
Account whether or not there was a provision for taxes and whether or not it
was sufficient. We will deduct from any payment under a Certificate any
withholding taxes required by applicable law.
REGULATORY REQUIREMENTS
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
SUSPENSION OR DEFERRAL OF PAYMENTS
We reserve the right to suspend or postpone payments for a withdrawal,
transfer, surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
(3) an emergency exists as a result of which valuation or disposal of
the assets and securities of the Variable Account is not
reasonably practicable; or
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(4) the Securities and Exchange Commission, by order or
pronouncement, so permits for the protection of Certificate
Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission govern as to whether the conditions described in (2) and (3) above
exist.
We reserve the right to delay payment of amounts allocated to the Fixed
Account for up to six months.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT
The Variable Account(s) is designated on the Certificate Schedule and
consists of assets set aside by Us, which are kept separate from Our general
assets and all other variable account assets We maintain. We own the assets
of the Variable Account. Variable Account assets equal to reserves and other
contract liabilities will not be chargeable with liabilities arising out of
any other business We may conduct. We may transfer to Our General Account
assets which exceed the reserves and other liabilities of the Variable
Account. Income and realized and unrealized gains or losses from assets in
the Variable Account are credited to or charged against the account without
regard to other income, gains or losses in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The Sub-accounts
which are available under the Certificate are shown on the Certificate
Schedule. The assets of the Sub-accounts of the unit investment trust
variable separate account are allocated to the Eligible Fund(s) and the
Portfolio(s), if applicable, within an Eligible Fund shown on the Certificate
Schedule. The assets of the Sub-accounts of the investment company variable
separate account, if applicable, are invested in portfolios of securities
designed to meet the objectives of the Sub-Account shown on the Certificate
Schedule. We may, from time to time, add additional Sub-accounts, Eligible
Funds or Portfolios to those shown on the Certificate Schedule. A
Certificate Owner may be permitted to transfer Certificate Values or allocate
Purchase Payments to the additional Sub-Accounts, Eligible Funds or
Portfolios. However, the right to make such transfers or allocations will be
limited by the terms and conditions imposed by Us.
We also have the right to eliminate Sub-accounts from the Variable Account,
to combine two or more Sub-accounts or to substitute a new Portfolio for the
Portfolio in which a Sub-account invests. A substitution may become necessary
if, in Our discretion, a Portfolio or Sub-account no longer suits the
purposes of the Group Contract. This may happen: due to a change in laws or
regulations or a change in a Portfolio's investment objectives or
restrictions; because the Portfolio or Sub-account is no longer available for
investment; or for some other reason. We will obtain any prior approvals
that may be required from the insurance department of Our state of domicile,
and from the SEC or any other governmental entity before making such a
substitution.
When permitted by law, We reserve the right to:
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(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940
Act, if it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the
1940 Act, if it is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
VALUATION OF ASSETS
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
ACCUMULATION UNITS
A Certificate Owner's Variable Account value will fluctuate in accordance
with the investment results of the Sub-accounts to which the Certificate
Owner has allocated his or her Purchase Payments or Certificate Value. In
order to determine how these fluctuations affect a Certificate Owner's
Certificate Value, We use an Accumulation Unit value. Accumulation Units are
used to account for all amounts allocated to or withdrawn from the
Sub-accounts of the Variable Account as a result of Purchase Payments,
partial withdrawals, transfers, or charges deducted from the Certificate
Value. We determine the number of Accumulation Units of a Sub-account
purchased or cancelled by dividing the amount allocated to, or withdrawn
from, the Sub-account by the dollar value of one Accumulation Unit of the
Sub-account as of the end of the Valuation Period during which We receive the
request for the transaction.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-account was initially set at $10.
Subsequent Accumulation Unit Values for each Sub-account are determined by
multiplying the Accumulation Unit Value for the immediately preceding
Valuation Period by a net investment factor for the Sub-account for the
current period. This factor may be greater or less than 1.0; therefore, the
Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
We calculate the net investment factor for each Sub-account investing in
shares of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the
Sub-account invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio that has
an ex-dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of
the preceding Valuation Period.
(c) is equal to:
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(i) the sum of each Valuation Period equivalent of the annual
rate for the Mortality and Expense Risk Charge, for the
Administrative Charge, and for the Distribution Charge, if
any, which are shown on the Certificate Schedule; plus
(ii) a charge factor, if any, for any tax provision established
by Us a result of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing directly
in securities with the same formula, except:
(a) is equal to:
(i) the value of the assets in the Sub-account at the end of the
preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or
unrealized, credited to the assets during the current
Valuation Period; less
(iii) any capital losses, realized or unrealized, charged
against the assets during the current Valuation Period;
less
(iv) all operating and investment expenses relating to the assets
that are incurred during the current Valuation Period.
(b) is the value of the assets in the Sub-account at the end of the
preceding Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period We deduct a Mortality and Expense Risk Charge from each
Sub-account of the Variable Account which is equal, on an annual basis, to
the amount shown on the Certificate Schedule. The Mortality and Expense Risk
Charge compensates Us for assuming the mortality and expense risks with
respect to the Certificates We issue. We guarantee the dollar amount of each
Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
ADMINISTRATIVE CHARGE
Each Valuation Period We deduct an Administrative Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Administrative Charge compensates Us for the costs
associated with administration of the Variable Account and the Certificates
We issue.
DISTRIBUTION CHARGE
Each Valuation Period We deduct a Distribution Charge from the Variable Account
which is equal, on an annual basis, to the amount shown on the Certificate
Schedule. The Distribution Charge compensates Us for the costs associated with
the distribution of the Certificates We issue.
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CERTIFICATE MAINTENANCE CHARGE
We deduct a Certificate Maintenance Charge from the Certificate Value by
cancelling Accumulation Units from each applicable Sub-account to reimburse Us
for expenses relating to the maintenance of the Certificate. We will deduct the
Certificate Maintenance Charge from the Sub-accounts of the Variable Account in
the same proportion that the amount of Certificate Value in each Sub-account
bears to the Certificate Value. The Certificate Maintenance Charge is shown on
the Certificate Schedule. The Certificate Maintenance Charge will be deducted
from the Certificate Value on each Certificate Anniversary during the
Accumulation Period.
If a total surrender is made on a date other than a Certificate Anniversary, the
Certificate Maintenance Charge will be deducted at the time of surrender.
During the Annuity Period, the Certificate Maintenance Charge will be deducted
on a pro-rata basis from each Annuity Payment.
TRANSFERS
TRANSFERS: Subject to any limitation We impose on the number of transfers
permitted in a Certificate Year, a Certificate Owner may transfer all or part of
Certificate Owner's Certificate Value among the Sub-accounts and the Fixed
Account, if any, by Written Request or by telephone without the imposition of
any fees or charges. Transfers among the Sub-accounts and the Fixed Account are
permitted only during the Accumulation Period. The number of permitted
transfers, and the charge for transfers in excess of that number, are shown on
the Certificate Schedule. All transfers are subject to the following:
(1) If more than the number of free transfers, shown on the
Certificate Schedule, are made in a Certificate Year, We will deduct a transfer
charge, shown on the Certificate Schedule, for each subsequent transfer. The
transfer fee will be deducted from the Sub-account from which the transfer is
made. However, if Certificate Owner transfers his or her entire interest in a
Sub-account, the transfer fee will be deducted from the amount transferred. If
a Certificate Owner makes a transfer from more than one Sub-account, any
transfer fee will be allocated pro-rata among such Sub-accounts in proportion to
the amount transferred from each.
(2) During the Annuity Period, transfers of values between Sub-
accounts will be made by converting the number of Annuity Units being
transferred to the number of Annuity Units in the Sub-account to which a
transfer is made, so that the next Annuity Payment, if it were made at that
time, would be the same amount that it would have been without the transfer.
Thereafter, Annuity Payments will reflect changes in the value of the new
Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain in a Sub-account
after a transfer is shown on the Certificate Schedule.
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(4) If 100% of the value of any Sub-account is transferred and the
current allocation for Purchase Payments includes that Sub-account, the
allocation for future Purchase Payments will change to reflect a Certificate
Owner's allocation of Certificate Value following the transfer.
(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described above.
We will not be liable for transfers made in accordance with a Certificate
Owner's instructions. All amounts and Accumulation Units will be determined as
of the end of the Valuation Period in which We receive the request for transfer.
PARTIAL WITHDRAWALS AND TOTAL SURRENDER
PARTIAL WITHDRAWALS
During the Accumulation Period while the Certificate is In Force, a Certificate
Owner may, upon Written Request, make a partial withdrawal, subject to the
provisions and limitations shown on the Certificate Schedule. For purposes of
determining whether a Surrender Charge is applicable to a partial withdrawal:
(1) A partial withdrawal will first be taken from the portion of a
Certificate Owner's Certificate Value which is in excess of
Purchase Payments, and then from Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the
order in which the Purchase Payments were made, starting with the
first.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-account in the ratio that a Certificate Owner's interest in the
Sub-account bears to his or her Certificate Value in all the Sub-accounts. A
Certificate Owner must specify by Written Request in advance if he or she wants
Accumulation Units to be cancelled in a manner other than the method described
above. If there is no value or insufficient value in the Variable Account, then
the amount withdrawn, or the insufficient portion, will be deducted from the
Fixed Account. If a Certificate Owner has multiple Guarantee Periods, We will
deduct such amount from each Guarantee Period's values in the ratio that each
Period's values bears to the total Fixed Account Value. A Certificate Owner
must specify by Written Request in advance if he or she wants multiple Guarantee
Periods to be reduced in a manner other than the method described above.
Each partial withdrawal must be for an amount not less than the amount shown on
the Certificate Schedule. The Certificate Value which must remain in a
Certificate is shown on the Certificate Schedule. The Certificate Schedule also
shows any charge.
TOTAL SURRENDER
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During the Accumulation Period while the Certificate is In Force, a Certificate
Owner may, upon Written Request, make a total surrender of the Certificate
Withdrawal Value. The Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation Period
during which We receive a Written Request for a withdrawal or
surrender; less
(2) any applicable taxes not previously deducted; less
(3) any Surrender Charge; less
(4) any Certificate Maintenance Charge.
We will pay the amount of any withdrawal or surrender within seven days unless
the Suspension or Deferral of Payments Provision is in effect.
DEATH PROVISIONS
DEATH OF CERTIFICATE OWNER
These provisions apply if, during the Accumulation Period while the
Certificate is In Force, the Certificate Owner or any Joint Certificate Owner
dies (whether or not the decedent is also the Annuitant) or the Annuitant
dies under a Certificate owned by a non-natural Person. The "designated
beneficiary" will control the Certificate after such a death. This
"designated beneficiary" will be the first Person among the following who is
alive on the date of death: Certificate Owner; Joint Certificate Owner;
primary Beneficiary; Contingent Beneficiary; and Certificate Owner's estate.
If the Certificate Owner and Joint Certificate Owner are both alive, they
shall be the "designated beneficiary" together.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE "DESIGNATED
BENEFICIARY", the surviving spouse will automatically become the new sole
Certificate Owner as of the date of the death. And, if the Annuitant is the
decedent, the new Annuitant will be any living Contingent Annuitant,
otherwise the surviving spouse. The Certificate may stay in force until
another death occurs (i.e., until the death of the Certificate Owner or Joint
Certificate Owner). Except for this paragraph, all of "Death Provisions" will
apply to that subsequent death.
IN ALL OTHER CASES, the Certificate may stay in force up to five years from
the date of death. During this period, the "designated beneficiary" may
exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to surrender the Certificate for its
Certificate Withdrawal Value. If this Certificate is still in force at the
end of the five-year period, We will automatically end it then by paying to
the "designated beneficiary" the Certificate Withdrawal Value without the
deduction of any applicable Surrender Charges. If the "designated
beneficiary" is not alive then, We will pay any Person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
DEATH OF ANNUITANT
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These provisions apply if during the Accumulation Period while the
Certificate is In Force, (a) the Annuitant dies, (b) the Annuitant is not an
Owner, and (c) the Owner is a natural person. The Certificate will continue
In Force after the Annuitant's death. The new Annuitant will be any living
Contingent Annuitant, otherwise the Certificate Owner.
PAYMENT OF BENEFITS
Instead of receiving a lump sum, a Certificate Owner or any "designated
beneficiary" may by Written Request direct that We pay any benefit of $5,000
or more under an Annuity Option that meets the following: (a) the first
payment to the "designated beneficiary" must be made no later than one year
after the date of death; (b) payments must be made over the life of the
"designated beneficiary" or over a period not extending beyond that person's
life expectancy; and (c) any Annuity Option that provides for payments to
continue after the death of the "designated beneficiary" will not allow the
successor payee to extend the period of time over which the remaining
payments are to be made.
ANNUITY PROVISIONS
GENERAL
If the Certificate is In Force on the Income Date, the Adjusted Certificate
Value will be applied under the Annuity Option selected by a Certificate Owner.
Annuity Payments may be made on a fixed or variable basis or both.
INCOME DATE
The Income Date may be selected by a Certificate Owner. It is shown on the
Certificate Schedule. The Income Date can be any time after the Certificate
Date for variable payments and any time after the first Certificate
Anniversary for fixed payments. The Income Date may not be later than the
earlier of when the Annuitant reaches attained age 90 or that required under
state law. If no Income Date is selected, it will be the earlier of when the
Annuitant reaches attained age 90 or the maximum date permitted under state
law, if any.
Prior to the Income Date, a Certificate Owner may change the Income Date by
Written Request. Any change must be requested at least 30 days prior to the
new Income Date.
SELECTION OF AN ANNUITY OPTION
An Annuity Option may be selected by a Certificate Owner. If no Annuity
Option is selected, Option B will automatically be applied. Prior to the
Income Date, a Certificate Owner can change the Annuity Option selected by
Written Request. Any change must be requested at least 30 days prior to the
Income Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
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Annuity Payments are paid in monthly installments unless quarterly,
semi-annual or annual payments are chosen. The Adjusted Certificate Value is
applied to the Annuity Table for the Annuity Option selected. If the Adjusted
Certificate Value to be applied under an Annuity Option is less than $5,000,
We reserve the right to make a lump sum payment in lieu of Annuity Payments.
If the Annuity Payment would be or becomes less than $100, We will reduce the
frequency of payments to a longer interval which will result in each payment
being at least $100.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to Us may
be selected:
OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to
continue for the remainder of the period, he/she may elect to have the
present value of the remaining payments commuted and paid in a lump
sum. During the payment period of a Variable Annuity, the payee may
elect by Written Request to receive the following amount: (a) the
present value of the remaining payments commuted; less (b) any
Surrender Charge that may be due by treating the value defined in (a)
as a surrender. Instead of receiving a lump sum, the payee may elect
another Annuity Option. The amount applied to that Option would not
be reduced by the charge defined in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity
Payments during the lifetime of the payee and in any event for 10
years certain. If the payee dies during the guaranteed payment period
and the Beneficiary does not desire payments to continue for the
remainder of the guaranteed period, he/she may elect to have the
present value of the guaranteed payments remaining commuted and paid
in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during
the joint lifetime of the payee and a designated second natural person
and then during the lifetime of the survivor.
Unless the Annuity Option provides for commutation by the payee, a payee may not
withdraw or otherwise end an Annuity Option after it begins. Payments will end
upon the payee's death unless the Annuity Option provides for payments
continuing to a successor payee. No successor payee may extend the period of
time over which the remaining payments are to be made.
ANNUITY
If a Certificate Owner selects a Fixed Annuity, the Adjusted Certificate Value
is allocated to the General Account and the Annuity is paid as a Fixed Annuity.
If the Certificate Owner selects a Variable Annuity, the Adjusted Certificate
Value will be allocated to the Sub-accounts of the Separate Account in
accordance with the selection he or she makes, and the Annuity will be paid as a
Variable Annuity. A Certificate Owner can also select a combination of a Fixed
and Variable Annuity and the Adjusted Certificate Value will be allocated
accordingly. If a Certificate Owner does not select between a Fixed Annuity and
a Variable Annuity, any Adjusted
DVA(1) 17
<PAGE>
Certificate Value in the Variable Account will be applied to a Variable
Annuity and any Adjusted Certificate Value in the Fixed Account will be
applied to a Fixed Annuity.
The Adjusted Certificate Value will be applied to the applicable Annuity
Table contained in the Certificate based upon the Annuity Option a
Certificate Owner selects. If, as of the Income Date, the current Annuity
Option rates applicable to the class of Certificates issued under the Group
Contract provide an initial Annuity Payment greater than the initial Annuity
Payment guaranteed under the applicable Annuity Table in the Certificate, the
greater payment will be made.
FIXED ANNUITY
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. After the initial
Fixed Annuity payment, the payments will not change regardless of investment,
mortality or expense experience.
VARIABLE ANNUITY
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value
to the Sub-accounts during the Annuity Period. Variable Annuity payments are
not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount
of Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is
divided by the value of an Annuity Unit for each applicable Sub-
account as of the Income Date. This sets the number of Annuity
Units for each monthly payment for the applicable Sub-account.
The number of Annuity Units for each applicable Sub-account
remains fixed during the Annuity Period;
(2) the fixed number of Annuity Units per payment in each Sub-account
is multiplied by the Annuity Unit Value for that Sub-account for
the Valuation Period for which the payment is due. This result
is the dollar amount of the payment for each applicable Sub-
account.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account Variable Annuity payments reduced by the applicable portion of
the Certificate Maintenance Charge.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account was
initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation Period
is determined as follows:
DVA(1) 18
<PAGE>
(1) the net investment factor calculated as set forth on pages 11-12
(but without the Distribution Charge, if any) for the current
Valuation Period is multiplied by the value of the Annuity Unit
for the Sub-account for the immediately preceding Valuation
Period.
(2) the result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Valuation Period equivalent of
the Assumed Investment Rate for the number of days in the current
Valuation Period. The Assumed Investment Rate is equal to 6% per
year.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
USING THE TABLES
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
DATE OF FIRST PAYMENT AGE SETBACK
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and
for any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next
section. Upon request, We will tell a Certificate Owner any such amount.
BASIS OF CALCULATION
Tables 1 and 4 are based on interest at 6% and 3%, respectively. Tables 2, 3,
5, and 6 are based on the 1983 Individual Annuity Valuation Tables, weighted
40% male and 60% female, with interest at 6% (Tables 2 and 3) and 3% (Tables
5 and 6), projected dynamically with Projection Scale G.
DVA(1) 19
<PAGE>
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION A FOR EACH
$1,000 APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
5 $19.17 12 $9.63 19 $7.24 25 $6.32
6 16.42 13 9.12 20 7.04 26 6.21
7 14.46 14 8.69 21 6.86 27 6.11
8 13.00 15 8.31 22 6.70 28 6.02
9 11.87 16 7.99 23 6.56 29 5.94
10 10.97 17 7.71 24 6.43 30 5.87
11 10.24 18 7.46
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION B FOR EACH
$1,000 APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
30 $5.09 43 $5.40 56 $6.06 69 $7.47 82 $ 9.72
31 5.11 44 5.44 57 6.13 70 7.63 83 9.87
32 5.13 45 5.47 58 6.21 71 7.79 84 10.02
33 5.14 46 5.51 59 6.30 72 7.95 85 10.15
34 5.16 47 5.55 60 6.39 73 8.12 86 10.27
35 5.18 48 5.60 61 6.48 74 8.30 87 10.38
36 5.20 49 5.64 62 6.59 75 8.48 88 10.48
37 5.23 50 5.69 63 6.69 76 8.66 89 10.57
38 5.25 51 5.74 64 6.81 77 8.84 90 10.65
39 5.28 52 5.80 65 6.93 78 9.03 91 10.72
40 5.31 53 5.86 66 7.05 79 9.21 92 10.77
41 5.34 54 5.92 67 7.19 80 9.38 93 10.82
42 5.37 55 5.99 68 7.33 81 9.55 94 10.86
95 10.89
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION C FOR EACH
$1,000 APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $4.97 $4.99 $5.00 $5.02 $5.04 $5.05 $5.06 $5.07 $5.08 $5.09 $5.09 $5.09 $5.10 $5.10
35 5.01 5.04 5.07 5.09 5.11 5.13 5.15 5.16 5.17 5.18 5.18 5.19 5.19
40 5.08 5.12 5.16 5.19 5.22 5.25 5.27 5.29 5.30 5.31 5.31 5.32
45 5.18 5.23 5.29 5.34 5.38 5.41 5.44 5.46 5.48 5.49 5.49
50 5.32 5.40 5.47 5.54 5.60 5.64 5.68 5.70 5.72 5.72
55 5.51 5.62 5.73 5.85 5.90 5.96 6.00 6.02 6.04
60 5.79 5.95 6.11 6.24 6.34 6.41 6.45 6.48
65 6.20 6.44 6.66 6.84 6.97 7.05 7.10
70 6.80 7.15 7.47 7.71 7.87 7.97
75 7.69 8.22 8.66 8.99 9.20
80 9.03 9.81 10.43 10.87
85 11.02 12.11 12.98
90 13.82 15.34
95 17.66
</TABLE>
DVA(1) 20
<PAGE>
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A FOR EACH
$1,000 APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18 5.96
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH
$1,000 APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
30 $3.05 43 $3.46 56 $4.24 69 $5.79 82 $8.24
31 3.07 44 3.50 57 4.32 70 5.96 83 8.41
32 3.09 45 3.55 58 4.41 71 6.13 84 8.57
33 3.12 46 3.60 59 4.51 72 6.31 85 8.72
34 3.15 47 3.65 60 4.61 73 6.50 86 8.85
35 3.18 48 3.70 61 4.71 74 6.69 87 8.97
36 3.21 49 3.76 62 4.82 75 6.88 88 9.08
37 3.24 50 3.82 63 4.94 76 7.08 89 9.18
38 3.27 51 3.88 64 5.07 77 7.28 90 9.27
39 3.31 52 3.94 65 5.20 78 7.48 91 9.34
40 3.34 53 4.01 66 5.34 79 7.68 92 9.40
41 3.38 54 4.08 67 5.48 80 7.87 93 9.46
42 3.42 55 4.16 68 5.63 81 8.06 94 9.50
95 9.53
<TABLE>
<CAPTION>
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C FOR EACH $1,000 APPLIED
COMBINATION OF AGES
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.88 $2.92 $2.95 $2.98 $3.00 $3.01 $3.02 $3.03 $3.04 $3.04 $3.04 $3.05 $3.05 $3.05
35 2.97 3.02 3.06 3.09 3.12 3.14 3.15 3.16 3.17 3.17 3.18 3.18 3.18
40 3.09 3.15 3.20 3.24 3.27 3.30 3.32 3.33 3.34 3.34 3.34 3.35
45 3.24 3.31 3.38 3.44 3.48 3.51 3.53 3.54 3.55 3.56 3.56
50 3.43 3.53 3.62 3.69 3.74 3.78 3.80 3.82 3.83 3.83
55 3.68 3.81 3.93 4.02 4.09 4.13 4.16 4.18 4.19
60 4.01 4.19 4.35 4.47 4.56 4.61 4.65 4.66
65 4.47 4.73 4.94 5.11 5.21 5.28 5.32
70 5.11 5.48 5.78 6.00 6.13 6.21
75 6.04 6.57 6.99 7.28 7.46
80 7.40 8.16 8.75 9.15
85 9.38 10.46 11.29
90 12.18 13.68
</TABLE>
DVA(1) 21
<PAGE>
95 16.02
DVA(1) 22
<PAGE>
ENDORSEMENTS
To be inserted only by Us
DVA(1) 23
<PAGE>
KEYPORT
LIFE INSURANCE COMPANY
PROVIDENCE, RHODE ISLAND
GROUP VARIABLE ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
_______________________________________8@________
DVA(1) 24
<PAGE>
EXHIBIT (4i)
<PAGE>
KEYPORT
LIFE INSURANCE COMPANY
A STOCK COMPANY
This Certificate describes the benefits and provisions of the Group Contract.
The Group Contract, as issued to the Group Contract Owner by Us with any riders
or endorsements, alone makes up the agreement under which benefits are paid.
The Group Contract may be inspected at the office of the Group Contract Owner.
In consideration of any application for this Certificate and the payment of
purchase payments, We agree, subject to the terms and conditions of the Group
Contract, to provide the benefits described in this Certificate to the
Certificate Owner.
If this Certificate is In Force on the Income Date, We will begin making income
payments to the Annuitant. We will make such payments according to the terms of
the Certificate and Group Contract.
RIGHT TO EXAMINE CERTIFICATE: You may return this Certificate to Us or the
agent through whom You purchased it within 10 days after You receive it. If so
returned, We will treat the Certificate as though it were never issued. Upon
receipt We will promptly refund the Certificate Value as of the date the
returned Certificate is received by Us plus any charges We may have previously
deducted.
READ THIS CERTIFICATE CAREFULLY.
SecretaryPresident
VARIABLE ANNUITY CERTIFICATE
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
<PAGE>
ANNUITY PAYMENTS AND OTHER VALUES, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
THIS IS EXPLAINED FURTHER ON PAGES 11 AND 18.
TABLE OF CONTENTS
Page
Right to Examine Certificate
1
Definitions
2
Certificate Schedule
3A
General Provisions
5
Variable Account Provisions
10
Transfers
13
Partial Withdrawals and Total Surrender
14
Death Provisions
15
Annuity Provisions
16
Endorsements (if any) are before page
22
DEFINITIONS
ACCUMULATION PERIOD: The period prior to the Income Date during which Purchase
Payments may be made by a Certificate Owner.
ACCUMULATION UNIT: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
ADJUSTED CERTIFICATE VALUE: The Certificate Value less any applicable
taxes relating to a Certificate and Certificate Maintenance Charge.
This amount is applied to the applicable Annuity Tables to determine Annuity
Payments.
DVA(1)/CERT
2
<PAGE>
ANNUITANT: The natural person on whose life Annuity Payments are based, and
to whom any Annuity Payments will be made starting on the Income Date.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Annuitant, starting
on the Income Date, under the Annuity Option selected.
ANNUITY PERIOD: The period after the Income Date during which Annuity
Payments are made.
ANNUITY UNIT: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who controls the Certificate if
any Certificate Owner dies before the Income Date.
(Definitions continue on page 4)
KEYPORT LIFE INSURANCE COMPANY
125 HIGH STREET, BOSTON, MA 02110
CERTIFICATE SCHEDULE
GROUP CONTRACT OWNER Keyport Insurance Trust
GROUP CONTRACT NUMBER DVA002
CERTIFICATE NUMBER 123455
CERTIFICATE OWNER John Q. Public
JOINT CERTIFICATE OWNER Jane Q. Public
CERTIFICATE OWNER DOB January 1, 1940
JOINT CERTIFICATE OWNER DOB February 29, 1940
ANNUITANT Thomas Doe
ANNUITANT DOB November 22, 1960
COVERED PERSON(S) Certificate Owner, Joint Certificate
Owner, Annuitant
CERTIFICATE DATE November 1, 1995
INCOME DATE November 1, 2010
INITIAL PURCHASE PAYMENT $10,000
MINIMUM INITIAL PAYMENT $5,000
MINIMUM ADDITIONAL PAYMENT $1,000
CHARGES
DVA(1)/CERT
3
<PAGE>
DISTRIBUTION CHARGE: We deduct 0.000411% of the assets in each Variable
Account Sub-Account on a daily basis (equivalent to an annual rate of
0.15%) to compensate Us for a portion of Our distribution costs.
ADMINISTRATIVE CHARGE: None.
MORTALITY AND EXPENSE RISK CHARGE: We deduct 0.003403% of the assets in
each Variable Account Sub-account on a daily basis (equivalent to an
annual rate of 1.25%) for Our mortality and expense risks.
CERTIFICATE MAINTENANCE CHARGE: We charge $36 to cover a portion of Our
ongoing Certificate maintenance expenses. The charge is incurred at the
beginning of the Certificate Year and is deducted on each Certificate
Anniversary and at the time of total surrender.
TRANSFER CHARGE: Currently none, however, We reserve the right to charge
$25 for a transfer if You make more than 12 transfers per Certificate Year.
SURRENDER CHARGE: At the time of each partial withdrawal or at total
surrender a contingent deferred sales charge is imposed as a percentage of
each Purchase Payment during the seven years after the date of its payment,
as follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
7% 6% 5% 4% 3% 2% 1%
Thereafter 0%.
INITIAL PURCHASE PAYMENT ALLOCATION
Currently, Certificate Owners can select 17 Sub-accounts and the Fixed
Account. We reserve the right to increase or decrease the number of
available Sub-accounts. The minimum You may allocate to any Sub-account or
the Fixed Account is 10% of any Purchase Payment. Your initial Purchase
Payment has been invested as follows:
Alger Growth x%
Alger Small Cap x%
Alliance Global Bond x%
Alliance Premier Growth x%
Colonial Growth & Income x%
Colonial Int'l Fund for Growth x%
Colonial Strategic Income x%
Colonial U.S. Fund for Growth x%
Colonial Utilities x%
DVA(1)/CERT
Page 3A
<PAGE>
MFS Emerging Growth x%
MFS Research x%
Newport Tiger x%
SteinRoe Cap Appreciation x%
SteinRoe Cash Income x%
SteinRoe Managed Assets x%
SteinRoe Managed Growth Stock x%
SteinRoe Mortgage Sec Income x%
Fixed Account - 1 Year x%
Fixed Account - 3 Years x%
Fixed Account - 5 Years x%
Fixed Account - 7 Years x%
TRANSFER GUIDELINES
NUMBER OF TRANSFERS AND TRANSFER CHARGE: Currently, Certificate Owners are
permitted unlimited transfers per Certificate Year during the Accumulation
Period and unlimited transfers every 12 months during the Annuity Period. We
reserve the right to change, upon notice, the frequency of transfers You can
make. We also reserve the right to impose a charge for any transfer in
excess of 12 per Certificate Year. The transfer charge is shown in
the Charges section of the Schedule.
MINIMUM AMOUNT TO BE TRANSFERRED: None.
MINIMUM AMOUNT WHICH MUST REMAIN IN A SUB-ACCOUNT AFTER TRANSFER: None.
PARTIAL WITHDRAWALS
You may make partial withdrawals during the Accumulation Period without
incurring a surrender charge, as follows:
(1) In any Certificate Year You may withdraw an aggregate amount
not to exceed, at the time of withdrawal:
(a) the Certificate Value, less
(b) the portion of Your Purchase Payments not previously
withdrawn; and
(2) In any Certificate Year after the
first, You may also withdraw the positive difference, if
any, between the amount withdrawn pursuant to (1) above
in any such subsequent year and 10% of Your Certificate
Value as of the preceding Certificate Anniversary.
DVA(1)/CERT PAGE 3B
<PAGE>
We will collect the surrender charge shown on the Schedule with respect to
partial withdrawals in excess of the amounts described in (1) and (2) above.
MINIMUM WITHDRAWAL AMOUNT: $300, unless the withdrawal is made pursuant to
Our systematic withdrawal program, in which case the minimum withdrawal is
$100.
MINIMUM CERTIFICATE VALUE WHICH MUST REMAIN AFTER A PARTIAL WITHDRAWAL:
$2,500.
DEATH BENEFITS
ADJUSTMENT OF CERTIFICATE VALUE
When We receive due proof of death of the Certificate Owner, any Joint
Certificate Owner, or the Annuitant if the Certificate Owner is a
non-natural Person, We will compare, as of the date of death, the
Certificate Value to the Death Benefit amount defined in this Schedule.
If the Certificate Value is less than the Death Benefit, We will increase the
current Certificate Value by the amount of the difference. Any amount
credited will be allocated to the Variable Account and/or the Fixed
Account based on the Purchase Payment allocation selection that is in effect
when We receive due proof of death.
WAIVER OF SURRENDER CHARGES
If the Certificate is surrendered within 90 days of the date of death of the
Certificate Owner, any Joint Certificate Owner, or the Annuitant if the
Certificate Owner is a non-natural Person, any applicable surrender charges
will not be deducted from the Certificate Withdrawal Value.
DEATH BENEFIT AMOUNT
CERTIFICATE ANNIVERSARY DEATH BENEFIT
On the Certificate Date, the Death Benefit is the initial Purchase
Payment. On subsequent Valuation Dates, the Death Benefit is calculated as
follows:
(1) (a) Start with the Death Benefit from the Certificate Date;
(b) Add to (a) any additional
Purchase Payments paid since the Certificate Date and
subtract from (a) any partial withdrawals
(including any associated surrender charge incurred)
made since the Certificate Date;
(2) (a) Determine the Certificate
Value for each Certificate Anniversary (the "Anniversary
Value") before the 81st birthday of the Certificate
Owner or, if the Certificate Owner is a non-natural
Person, the Annuitant;
(b) Increase each "Anniversary Value" by any Purchase
Payments made after that Value's Anniversary;
(c) Decrease each "Anniversary Value" by the following
amount calculated at the time of each partial withdrawal
made after that
DVA(1)/CERT PAGE 3C
<PAGE>
Value's Anniversary: (i) the partial withdrawal amount
(including any associated surrender charge incurred)
divided by the Certificate Value immediately preceding
the withdrawal, (ii) multiplied by the "Anniversary
Value" immediately preceding the withdrawal;
(d) Select the highest "Anniversary Value" after the
adjustments in (b) and (c) above;
(3) Set the Death Benefit equal to the greater of (1) and (2).
If there is a change of Certificate Owner, the new Certificate Owner's
age will be used to determine the amount in (2) above.
THE VARIABLE SEPARATE ACCOUNT
SUB-ACCOUNTS INVESTING IN SHARES OF MUTUAL FUNDS
Variable Account A is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Rhode Island, Our state
of domicile. Variable Account A is divided into Sub-accounts. Each
Sub-account listed below invests in shares of the corresponding Portfolio of
the Eligible Fund shown.
SUB-ACCOUNT ELIGIBLE FUND AND PORTFOLIO
THE ALGER AMERICAN FUND
ALGER GROWTH Alger American Growth Portfolio - seeks
SUB-ACCOUNT long-term capital appreciation.
ALGER SMALL CAP Alger American Small Capitalization
SUB-ACCOUNT Portfolio - seeks long-term capital
appreciation.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
ALLIANCE GLOBAL BOND Global Bond Portfolio - seeks a high level of
SUB-ACCOUNT return from a combination of current income
and capital appreciation by investing in a
globally diversified portfolio of high quality
debt securities denominated in the U.S. Dollar
and a range of foreign currencies.
ALLIANCE PREMIER GROWTH Premier Growth Portfolio - seeks growth of
SUB-ACCOUNT capital rather than current income.
DVA(1)/CERT PAGE 3D
<PAGE>
KEYPORT VARIABLE INVESTMENT TRUST
COLONIAL GROWTH & INCOME Colonial-Keyport Growth and Income
SUB-ACCOUNT Fund - seeks primarily income and long-term
capital growth and, secondarily, preservation
of capital.
COLONIAL STRATEGIC INCOME Colonial-Keyport Strategic Income Fund -
SUB-ACCOUNT seeks a high level of current income, as is
consistent with prudent risk and maximizing
total return, by diversifying investments
primarily in U.S. and foreign government and
high yield, high risk corporate debt
securities.
COLONIAL INT'L FUND FOR Colonial-Keyport International Fund for Growth
- -GROWTH SUB- ACCOUNT seeks long-term capital growth, primarily in
by investing non-U.S. equity securities.
COLONIAL U.S. FUND FOR Colonial-Keyport U.S. Fund for Growth
- -GROWTH SUB-ACCOUNT seeks growth exceeding over time the S&P
500 Index (Standard & Poor's Corporation
Composite Price Index) performance.
COLONIAL UTILITIES Colonial-Keyport Utilities Fund - seeks
SUB-ACCOUNT primarily current income and, secondarily,
long-term capital growth.
NEWPORT TIGER Newport-Keyport Tiger Fund - seeks long-
SUB-ACCOUNT term capital growth by investing in equity
primarily securities of companies located inthe four
Tigers of Asia (Hong Kong, Singapore, South
Korea and Taiwan) and the other mini-
Tigers of East Asia (Malaysia, Thailand,
Indonesia, China and the Philippines).
MFS VARIABLE INSURANCE TRUST
DVA(1)/CERT PAGE 3E
<PAGE>
MFS EMERGING GROWTH MFS Emerging Growth Series - seeks to provide
SUB-ACCOUNT long-term growth of capital.
MFS RESEARCH MFS Research Series - seeks to provide
SUB-ACCOUNT long-term growth of capital and future
income.
STEINROE VARIABLE INVESTMENT TRUST
STEINROE CAP APPRECIATION Capital Appreciation Fund - seeks capital
SUB-ACCOUNT growth by investing primarily in common
stocks, convertible secuities, and other
securities selected for prospective capital
growth.
STEINROE CASH INCOME CASH INCOME FUND - seeks high current income
SUB-ACCOUNT from short-term money market instruments
("MONEY MARKET" SUB-ACCOUNT) while emphasizing preservation of capital and
maintaining excellent liquidity.
STEINROE MANAGED ASSETS Managed Assets Fund - seeks high total
SUB-ACCOUNT investment return through investment in a
changing mix of securities.
STEINROE MANAGED GROWTH Managed Growth Stock Fund - seeks long-term
STOCK SUB-ACCOUNT growth of capital through investment
primarily in common stocks.
STEINROE MORTGAGE SECURITIES Mortgage Securities Income Fund - seeks
INCOME SUB-ACCOUNT highest possible level of current income
consistent with safety of principal and
maintenance of liquidity through investment
primarily in mortgage-backed securities.
DVA(1)/CERT PAGE 3E
<PAGE>
SUB-ACCOUNTS INVESTING DIRECTLY IN SECURITIES - None.
THE FIXED ACCOUNT
The Fixed Account is part of Our General Account, which consists of all of
Our assets except the assets of the Variable Account and the assets of other
separate accounts that We maintain. Subject to applicable law, We have sole
discretion over investments of the assets of the Fixed Account. If You
allocate assets to the Fixed Account, Your accumulation values and annuity
payments will have guaranteed minimums.
Before the Income Date, Your interest in the Fixed Account is measured by the
Fixed Account Value. When annuity payments begin, the payee's interest in
the Fixed Account is measured by the amount of each periodic payment.
Benefits from the Fixed Account will not be less than the minimum values
required by any law of the jurisdiction where the Certificate is delivered.
Purchase Payments will be allocated to the Fixed Account in accordance with
Your selection at the Certificate Date. You may change such selection by
Written Request.
The Fixed Account Value at any time is equal to:
(1) all Purchase Payments allocated to the Fixed Account
plus the interest subsequently credited on those
payments; plus
(2) any Variable Account value transferred to the Fixed Account
plus the interest subsequently credited on the transferred
value; less
(3) any prior partial withdrawals from the Fixed Account;less
(4) any Fixed Account Value transferred to the Variable Account.
We will credit interest to Purchase Payments allocated to the Fixed Account
at rates declared by Us for Guarantee Periods of one or more years from the
month and day of allocation. The minimum Guaranteed Interest Rate is 3% per
year.
DVA(1)/CERT PAGE 3F
<PAGE>
DEFINITIONS (CONTINUED)
CERTIFICATE: The document issued to a Certificate Owner to
evidence a Certificate Owner's participation under the Group Contract.
The Certificate summarizes the benefits and provisions of the Group Contract.
CERTIFICATE ANNIVERSARY: An anniversary of the Certificate Date.
CERTIFICATE DATE: The date a Certificate is issued to a Certificate Owner.
The Certificate Date is shown on the Certificate Schedule.
CERTIFICATE OWNER: The person who owns a Certificate under the Group
Contract. Any Joint Certificate Owners and the Certificate Owner own
the Certificate equally with rights of survivorship.
CERTIFICATE VALUE: The sum of the Certificate Owner's interest in the
Sub-accounts of the Variable Account and the Fixed Account during the
Accumulation Period.
CERTIFICATE YEAR: The first Certificate Year is the annual period which
begins on the Certificate Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
ELIGIBLE FUND: An investment entity shown on the Certificate Schedule.
FIXED ACCOUNT: The account We establish to support Fixed Allocations.
The Certificate Schedule shows whether the Fixed Account is available
under the Certificate.
FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated
under this Certificate prior to the Income Date.
FIXED ALLOCATION: An amount allocated to the Fixed Account that is
credited with a Guaranteed Interest Rate for a specified Guarantee Period.
FIXED ANNUITY: An annuity with a series of payments made during the
Annuity Period which are guaranteed as to dollar amount by Us.
GENERAL ACCOUNT: Our general investment account which contains all of
Our assets except those in the Variable Account and Our other separate
accounts.
GROUP CONTRACT OWNER: The person or entity to which the Group Contract
is issued.
GUARANTEED INTEREST RATE: The effective annual interest rate which We
will credit for a specified Guarantee Period.
GUARANTEE PERIOD: The period of year(s) a rate of interest is guaranteed to
be credited within the Fixed Account.
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INCOME DATE: The date on which Annuity Payments begin. The Income Date
is shown on the Certificate Schedule.
IN FORCE: The status of a Certificate before the Income Date so long as it
has not been totally surrendered and there has not been a death of a
Certificate Owner or Joint Certificate Owner that will cause the
Certificate to end within five years of the date of death.
OFFICE: Our executive office shown on the Certificate Schedule.
PERSON: A human being, trust, corporation, or any other legally
recognized entity.
PORTFOLIO: A series of an Eligible Fund which constitutes a separate
and distinct class of shares.
PURCHASE PAYMENT: A payment made by or on behalf of a Certificate Owner
with respect to a Certificate.
SUB-ACCOUNT: Variable Account assets are divided into Sub-accounts. Assets
of each Sub-account will be invested in shares of a Portfolio of an Eligible
Fund, or directly in portfolio securities.
VALUATION DATE: Each day on which We and the New York Stock Exchange
("NYSE") are open for business, or any other day that the Securities
and Exchange Commission requires that mutual funds, unit investment
trusts or other investment portfolios be valued.
VALUATION PERIOD: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business on
the next succeeding Valuation Date.
VARIABLE ACCOUNT: Our Variable Account(s) shown on the Certificate Schedule.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount
in relation to the investment performance of specified Sub-accounts of the
Variable Account.
WE, US, OUR: Keyport Life Insurance Company.
WRITTEN REQUEST: A request in writing, in a form satisfactory to Us,
and received by Us at Our Office.
YOU, YOUR: The Certificate Owner and any Joint Certificate Owners.
DVA(1)/CERT 5
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GENERAL PROVISIONS
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Certificate Date. It must be paid
at Our Office in United States currency. Coverage under a Certificate
does not take effect until We have accepted the initial Purchase Payment
during Your lifetime. Each Purchase Payment after the Certificate Date must
be at least the amount shown on the Certificate Schedule. Provided the
Certificate Value under a Certificate does not go to zero, a Certificate
will stay in force until the Income Date even if You make no payments after
the initial one. We reserve the right to reject any subsequent Purchase
Payment.
ALLOCATION OF PURCHASE PAYMENTS
Your initial Purchase Payment is allocated to the Sub-accounts of the
Variable Account, and to the Fixed Account if available, in
accordance with the selections made by You at the Certificate Date.
Unless otherwise changed by You, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment.
Allocation of Purchase Payments is subject to the terms and conditions
imposed by Us. We reserve the right to allocate initial Purchase Payments
to the Money Market Sub-account until the expiration of the Right to
Examine Certificate period set forth on the first page of the
Certificate.
THE CONTRACT
The Group Contract, including the application, if any, and any attached rider
or endorsement constitute the entire contract between the Group Contract
Owner and Us. All statements made by the Group Contract Owner, any
Certificate Owner or any Annuitant will be deemed representations and
not warranties. No such statement will be used in any contest unless it is
contained in the application signed by the Group Contract Owner or in a
written instrument signed by the Certificate Owner, a copy of which has been
furnished to the Certificate Owner, the Beneficiary or to the Group Contract
Owner.
Only Our President or Secretary may agree to change any of the terms of
the Group Contract. Any changes must be in writing. Any change to the
terms of a Certificate must be in writing and with Your consent, unless
provided otherwise by the Group Contract and the Certificate.
To assure that the Group Contract and the Certificate will maintain their
status as a variable annuity under the Internal Revenue Code, We reserve
the right to change the Group Contract and any Certificate issued
thereunder to comply with future changes in the Internal Revenue Code, any
regulations or rulings issued thereunder, and any requirements otherwise
imposed by the Internal Revenue Service. The Group Contract Owner and
the affected Certificate Owner will be sent a copy of any such amendment.
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We reserve the right, subject to compliance with the law as currently
applicable or subsequently changed, to: (a) operate the Variable
Account in any form permitted under the Investment Company Act of 1940,
as amended, (the "1940 Act"), or in any other form permitted by law; (b)
take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act, or to comply with any other applicable law; (c)
transfer any assets in any Sub-account to another Sub-account, or to one or
more separate investment accounts, or the General Account; or to add,
combine or remove Sub-accounts in the Variable Account; and (d) change the
way We assess charges, so long as We do not increase the aggregate amount
beyond that currently charged to the Variable Account and the Eligible Funds
in connection with this Certificate. If the shares of any of the Eligible
Funds should become unavailable for investment by the Variable Account or
if in Our judgment further investment in such Portfolio shares should become
inappropriate in view of the purpose of the Certificate, We may add or
substitute shares of another mutual fund for the Portfolio shares
already purchased under the Certificate. No substitution of Portfolio
shares in any Sub-account may take place without prior approval of the
Securities and Exchange Commission and notice to the affected Certificate
Owners, to the extent required by the 1940 Act.
CERTIFICATE OWNER
You are the Certificate Owner of this Certificate. You have all rights and
may receive all benefits under a Certificate. A Certificate Owner is the
person designated as such on the Certificate Date, unless changed. You
may exercise all rights of this Certificate while it is In Force, subject
to the rights of (a) any assignee under an assignment filed with Us, and
(b) any irrevocably named Beneficiary.
JOINT CERTIFICATE OWNER
A Certificate can be owned by Joint Certificate Owners. Upon the death of
any Certificate Owner or Joint Certificate Owner, the surviving owner(s) will
be the primary Beneficiary(ies). Any other beneficiary designation will be
treated as a Contingent Beneficiary unless otherwise indicated in a
Written Request filed with Us.
ANNUITANT
The Annuitant is the person on whose life Annuity Payments are based.
The Annuitant is the person designated by You at the Certificate Date,
unless changed prior to the Income Date. Any change of Annuitant is
subject to Our underwriting rules then in effect. The Annuitant may
not be changed in a Certificate which is owned by a non-natural person.
You may name a Contingent Annuitant. The Contingent Annuitant becomes the
Annuitant if the Annuitant dies while this Certificate is In Force. If
the Annuitant dies and no Contingent Annuitant has been named, We will
allow You sixty days to designate someone other than Yourself as
Annuitant. You will be the Contingent Annuitant unless You name someone
else. If the Certificate is owned by a non-natural person, the death of the
Annuitant will be treated as the death of the Certificate Owner and a new
Annuitant may not be designated.
DVA(1)/CERT 7
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BENEFICIARY
The Beneficiary is the person who controls the Certificate if any
Certificate Owner dies prior to the Income Date. If the Certificate is
owned by Joint Certificate Owners, upon the death of any Certificate Owner or
Joint Certificate Owner, the surviving owner(s) will become the primary
Beneficiary. Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request
filed with Us. If You name more than one Person as Primary Beneficiary or as
Contingent Beneficiary, and do not state otherwise on an application or
in a Written Request to Us, any non-survivors will not receive a benefit.
The survivors will receive equal shares. Subject to the rights of any
irrevocable Beneficiary(ies), You may change primary or contingent
Beneficiary(ies). A change must be made by Written Request and will be
effective as of the date the Written Request is signed. We will not be
liable for any payment We make or action We take before We receive the
Written Request.
GROUP CONTRACT OWNER
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the
claims of the Group Contract Owner or any of its creditors. The Group
Contract Owner may transfer ownership of this Group Contract. Any
transfer of ownership terminates the interest of any existing Group
Contract Owner. It does not change the rights of any Certificate Owner.
CHANGE OF CERTIFICATE OWNER, BENEFICIARY OR CONTINGENT ANNUITANT
While this Certificate is In Force, You may by Written Request change
the primary Certificate Owner, Joint Certificate Owner, primary
Beneficiary, Contingent Beneficiary, Contingent Annuitant, or in
certain instances, the Annuitant. An irrevocably named Person may be
changed only with the written consent of such Person. The change will be
effective, following Our receipt of the Written Request, as of the date the
Written Request is signed. The change will not affect any payments We
make or actions We take prior to the time We receive the Written Request.
ASSIGNMENT OF THE CERTIFICATE
You may assign this Certificate at any time while it is In Force.
The assignment must be in writing and a copy must be filed at Our
Office. Your rights and those of any revocably named Person will be
subject to the assignment. An assignment will not affect any payments
We make or actions We take before We receive the assignment. We are not
responsible for the validity of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have
DVA(1)/CERT 8
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begun, any underpayment(s) that have been made will be paid in full with
the next Annuity Payment. Any overpayment, unless repaid to Us in one sum,
will be deducted from future Annuity Payments otherwise due until We are
repaid in full.
NON-PARTICIPATING
This Certificate does not participate in Our divisible surplus.
EVIDENCE OF DEATH, AGE, SEX OR SURVIVAL
If a Certificate provision relates to the death of a natural Person, We
will require proof of death before We will act under that provision. Proof
of death shall be: (a) a certified death certificate; or (b) a certified
decree of a court of competent jurisdiction as to the finding of death;
or (c) a written statement by a medical doctor who attended the
deceased; or (d) any other document constituting due proof of death under
applicable state law. If Our action under a Certificate provision is
based on the age, sex, or survival of any Person, We may require evidence of
the particular fact before We act under that provision.
PROTECTION OF PROCEEDS
No Beneficiary or payee may commute or assign any payments under a
Certificate before they are due. To the extent permitted by law, no
payments shall be subject to the debts of any Beneficiary or payee or to any
judicial process for payment of those debts.
REPORTS
We will send Certificate Owners a report that shows the Certificate Value
at least once each Certificate Year. We will send any other reports that
may be required by law.
TAXES
Any taxes paid to any governmental entity relating to a Certificate will
be deducted from the Purchase Payments or Certificate Value. We may, in
Our sole discretion, delay the deduction until a later date. By not
deducting tax payments at the time of Our payment, We do not waive any
right We may have to deduct amounts at a later date. We will, in Our sole
discretion, determine when taxes relate to a Certificate or to the
operation of the Variable Account. We reserve the right to establish a
provision for federal income taxes if We determine, in Our sole
discretion, that We will incur a tax as a result of the operation of the
Variable Account. Such a provision will be reflected in the Accumulation
and Annuity Unit Values. We will deduct for any income taxes incurred
by Us as a result of the operation of the Variable Account whether or not
there was a provision for taxes and whether or not it was sufficient. We
will deduct from any payment under this Certificate any withholding
taxes required by applicable law.
DVA(1)/CERT 9
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REGULATORY REQUIREMENTS
All values payable under a Certificate will not be less than the
minimum benefits required by the laws and regulations of the states
in which the Certificate is delivered.
SUSPENSION OR DEFERRAL OF PAYMENTS
We reserve the right to suspend or postpone payments for a withdrawal, transfer,
surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
(3) an emergency exists as a result of which valuation or disposal of
the assets and securities of the Variable Account is not
reasonably practicable; or
(4) the Securities and Exchange Commission, by order or
pronouncement, so permits for the protection of Certificate
Owners;
provided that applicable rules and regulations of the Securities and
Exchange Commission govern as to whether the conditions described in (2)
and (3) above exist.
We reserve the right to delay payment of amounts allocated to the Fixed
Account for up to six months.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT
The Variable Account(s) is designated on the Certificate Schedule and
consists of assets set aside by Us, which are kept separate from Our
general assets and all other variable account assets We maintain. We
own the assets of the Variable Account. Variable Account assets equal to
reserves and other contract liabilities will not be chargeable with
liabilities arising out of any other business We may conduct. We may
transfer to Our General Account assets which exceed the reserves and other
liabilities of the Variable Account. Income and realized and unrealized
gains or losses from assets in the Variable Account are credited to or
charged against the account without regard to other income, gains or losses
in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The
Sub-accounts which are available under the Certificate are shown on the
Certificate Schedule. The assets of the Sub-accounts of the unit
investment trust variable separate account are allocated to the Eligible
Fund(s) and the Portfolio(s), if applicable, within an Eligible
DVA(1)/CERT 10
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Fund shown on the Certificate Schedule. The assets of the Sub-accounts of
the investment company variable separate account, if applicable, are
invested in portfolios of securities designed to meet the objectives of
the Sub-Account shown on the Certificate Schedule. We may, from time to
time, add additional Sub-accounts, Eligible Funds or Portfolios to those
shown on the Certificate Schedule. You may be permitted to transfer
Certificate Values or allocate Purchase Payments to the additional
Sub-Accounts, Eligible Funds or Portfolios. However, the right to make
such transfers or allocations will be limited by the terms and conditions
imposed by Us.
We also have the right to eliminate Sub-accounts from the Variable Account,
to combine two or more Sub-accounts or to substitute a new Portfolio
for the Portfolio in which a Sub-account invests. A substitution may
become necessary if, in Our discretion, a Portfolio or Sub-account no
longer suits the purposes of the Group Contract. This may happen: due to a
change in laws or regulations or a change in a Portfolio's investment
objectives or restrictions; because the Portfolio or Sub-account is no
longer available for investment; or for some other reason. We will obtain
any prior approvals that may be required from the insurance department of
Our state of domicile, and from the SEC or any other governmental entity
before making such a substitution.
When permitted by law, We reserve the right to:
(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940
Act, if it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the
1940 Act, if it is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
VALUATION OF ASSETS
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
ACCUMULATION UNITS
Your Variable Account value will fluctuate in accordance with the
investment results of the Sub-accounts to which You have allocated Your
Purchase Payments or Certificate Value. In order to determine how these
fluctuations affect Your Certificate Value, We use an Accumulation Unit
value. Accumulation Units are used to account for all amounts allocated to
or withdrawn from the Sub-accounts of the Variable Account as a result of
Purchase Payments, partial withdrawals, transfers, or charges deducted
from the Certificate Value. We determine the number of Accumulation Units of
a Sub-account purchased or cancelled by dividing the amount allocated to, or
withdrawn from, the Sub-account by the dollar value of one Accumulation
Unit of the
DVA(1)/CERT 11
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Sub-account as of the end of the Valuation Period during which We receive the
request for the transaction.
ACCUMULATION UNIT VALUE
The Accumulation Unit Value for each Sub-account was initially set at
$10. Subsequent Accumulation Unit Values for each Sub-account are
determined by multiplying the Accumulation Unit Value for the immediately
preceding Valuation Period by a net investment factor for the Sub-account
for the current period. This factor may be greater or less than 1.0;
therefore, the Accumulation Unit Value may increase or decrease from
Valuation Period to Valuation Period.
We calculate the net investment factor for each Sub-account investing in
shares of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the
Sub-account invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio that
has an ex-dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of
the preceding Valuation Period.
(c) is equal to:
(i) the sum of each Valuation Period equivalent of the annual
rate for the Mortality and Expense Risk Charge, for the
Administrative Charge, and for the Distribution Charge, if
any, which are shown on the Certificate Schedule; plus
(ii) a charge factor, if any, for any tax provision established
by Us a result of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing
directly in securities with the same formula, except:
(a) is equal to:
(i) the value of the assets in the Sub-account at the end of the
preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or
unrealized, credited to the assets during the current
Valuation Period; less
(iii) any capital losses, realized or unrealized, charged
against the assets during the current Valuation Period;
less
(iv) all operating and investment expenses relating to the assets
that are incurred during the current Valuation Period.
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(b) is the value of the assets in the Sub-account at the end of the
preceding Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE
Each Valuation Period We deduct a Mortality and Expense Risk Charge from
each Sub-account of the Variable Account which is equal, on an annual
basis, to the amount shown on the Certificate Schedule. The Mortality and
Expense Risk Charge compensates Us for assuming the mortality and expense
risks with respect to the Certificates We issue. We guarantee the dollar
amount of each Annuity Payment after the first Annuity Payment will not be
affected by variations in mortality or expense experience.
ADMINISTRATIVE CHARGE
Each Valuation Period We deduct an Administrative Charge from the
Variable Account which is equal, on an annual basis, to the amount
shown on the Certificate Schedule. The Administrative Charge compensates
Us for the costs associated with administration of the Variable Account and
the Certificates We issue.
DISTRIBUTION CHARGE
Each Valuation Period We deduct a Distribution Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Distribution Charge compensates Us for the costs
associated with the distribution of the Certificates We issue.
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CERTIFICATE MAINTENANCE CHARGE
We deduct a Certificate Maintenance Charge from the Certificate Value
by cancelling Accumulation Units from each applicable Sub-account to
reimburse Us for expenses relating to the maintenance of the Certificate.
We will deduct the Certificate Maintenance Charge from the Sub-accounts of
the Variable Account in the same proportion that the amount of
Certificate Value in each Sub-account bears to the Certificate Value. The
Certificate Maintenance Charge is shown on the Certificate Schedule. The
Certificate Maintenance Charge will be deducted f r om the Certificate
Value on each Certificate Anniversary during the Accumulation Period.
If a total surrender is made on a date other than a Certificate Anniversary,
the Certificate Maintenance Charge will be deducted at the time of surrender.
During the Annuity Period, the Certificate Maintenance Charge will be
deducted on a pro-rata basis from each Annuity Payment.
TRANSFERS
Subject to any limitation We impose on the number of transfers permitted
in a Certificate Year, You may transfer all or part of Your Certificate
Value among the Sub-accounts and the Fixed Account, if any, by
Written Request or by telephone without the imposition of any fees or
charges. Transfers among the Sub-accounts and the Fixed Account are
permitted only during the Accumulation Period. The number of permitted
transfers, and the charge for transfers in excess of that number, are shown
on the Certificate Schedule. All transfers are subject to the following:
(1) If more than the number of free transfers, shown on the
Certificate Schedule, are made in a Certificate Year, We will deduct a transfer
charge, shown on the Certificate Schedule, for each subsequent transfer. The
transfer fee will be deducted from the Sub-account from which the transfer is
made. However, if You transfer Your entire interest in a Sub-account, the
transfer fee will be deducted from the amount transferred. If You make a
transfer from more than one Sub-account, any transfer fee will be allocated pro-
rata among such Sub-accounts in proportion to the amount transferred from each.
(2) During the Annuity Period, transfers of values between
Sub-accounts will be made by converting the number of Annuity Units
being transferred to the number of Annuity Units in the Sub-account
to which a transfer is made, so that the next Annuity Payment, if it
were made at that time, would be the same amount that it would have been
without the transfer. Thereafter, Annuity Payments will reflect changes
in the value of the new Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain in a
Sub-account after a transfer is shown on the Certificate Schedule.
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(4) If 100% of the value of any Sub-account is transferred and the
current allocation for Purchase Payments includes that Sub-account,
the allocation for future Purchase Payments will change to reflect Your
allocation of Certificate Value following the transfer.
(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described
above.
We will not be liable for transfers made in accordance with Your
instructions. All amounts and Accumulation Units will be determined as
of the end of the Valuation Period in which We receive the request for
transfer.
PARTIAL WITHDRAWALS AND TOTAL SURRENDER
PARTIAL WITHDRAWALS
During the Accumulation Period while the Certificate is In Force, You may,
upon Written Request, make a partial withdrawal, subject to the
provisions and limitations shown on the Certificate Schedule. For
purposes of determining whether a surrender charge is applicable to Your
partial withdrawal:
(1) Your partial withdrawal will first be taken from the portion of
Your Certificate Value which is in excess of Your Purchase
Payments, and then from Your Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the
order in which the Purchase Payments were made, starting with the
first.
A withdrawal will result in the cancellation of Accumulation Units from
each applicable Sub-account in the ratio that Your interest in the
Sub-account bears to Your Certificate Value in all the Sub-accounts. You
must specify by Written Request in advance if You want Accumulation Units
to be cancelled in a manner other than the method described above. If
there is no value or insufficient value in the Variable Account, then the
amount withdrawn, or the insufficient portion, will be deducted from the
Fixed Account. If You have multiple Guarantee Periods, We will
deduct such amount from each Guarantee Period's values in the ratio that
each Period's values bears to the total Fixed Account Value. You must
specify by Written Request in advance if You want multiple Guarantee
Periods to be reduced in a manner other than the method described above.
Each partial withdrawal must be for an amount not less than the amount shown
on the Certificate Schedule. The Certificate Value which must
remain in a Certificate is shown on the Certificate Schedule. The
Certificate Schedule also shows any charge.
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TOTAL SURRENDER
During the Accumulation Period while the Certificate is In Force, You may,
upon Written Request, make a total surrender of the Certificate Withdrawal
Value. The Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation
Period during which We receive a Written Request for a withdrawal
or surrender; less
(2) any applicable taxes not previously deducted; less
(3) any Surrender Charge; less
(4) any Certificate Maintenance Charge.
We will pay the amount of any withdrawal or surrender within seven days
unless the Suspension or Deferral of Payments Provision is in effect.
DEATH PROVISIONS
DEATH OF CERTIFICATE OWNER
These provisions apply if, during the Accumulation Period while the
Certificate is In Force, the Certificate Owner or any Joint Certificate
Owner dies (whether or not the decedent is also the Annuitant) or the
Annuitant dies under a Certificate owned by a non-natural Person. The
"designated beneficiary" will control the Certificate after such a death.
This "designated beneficiary" will be the first Person among the
following who is alive on the date of death: Certificate Owner; Joint
Certificate Owner; primary Beneficiary; Contingent Beneficiary; and
Certificate Owner's estate. If the Certificate Owner and Joint Certificate
Owner are both alive, they shall be the "designated beneficiary" together.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE "DESIGNATED
BENEFICIARY", the surviving spouse will automatically become the new
sole Certificate Owner as of the date of the death. And, if the
Annuitant is the decedent, the new Annuitant will be any living Contingent
Annuitant, otherwise the surviving spouse. The Certificate may stay in
force until another death occurs (i.e., until the death of the
Certificate Owner or Joint Certificate Owner). Except for this paragraph,
all of "Death Provisions" will apply to that subsequent death.
IN ALL OTHER CASES, the Certificate may stay in force up to five years from the
date of death. During this period, the "designated beneficiary" may exercise all
ownership rights, including the right to make transfers or partial withdrawals
or the right to surrender the Certificate for its Certificate Withdrawal Value.
If this Certificate is still in force at the end of the five-year period, We
will automatically end it then by paying
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to the "designated beneficiary" the Certificate Withdrawal Value without
the deduction of any applicable surrender charges. If the "designated
beneficiary" is not alive then, We will pay any Person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
DEATH OF ANNUITANT
These provisions apply if during the Accumulation Period while the
Certificate is In Force, (a) the Annuitant dies, (b) the Annuitant is not an
Owner, and (c) the Owner is a natural person. The Certificate will continue
In Force after the Annuitant's death. The new Annuitant will be any living
Contingent Annuitant, otherwise the Certificate Owner.
PAYMENT OF BENEFITS
Instead of receiving a lump sum, You or any "designated beneficiary" may
by Written Request direct that We pay any benefit of $5,000 or more
under an Annuity Option that meets the following: (a) the first
payment to the "designated beneficiary" must be made no later than one
year after the date of death; (b) payments must be made over the life of
the "designated beneficiary" or over a period not extending beyond that
person's life expectancy; and (c) any Annuity Option that provides for
payments to continue after the death of the "designated beneficiary" will not
allow the successor payee to extend the period of time over which the
remaining payments are to be made.
ANNUITY PROVISIONS
GENERAL
If the Certificate is In Force on the Income Date, the Adjusted
Certificate Value will be applied under the Annuity Option selected
by You. Annuity Payments may be made on a fixed or variable basis or both.
INCOME DATE
The Income Date may be selected by You. It is shown on the
Certificate Schedule. The Income Date can be any time after the
Certificate Date for variable payments and any time after the first
Certificate Anniversary for fixed payments. The Income Date may not
be later than the earlier of when the Annuitant reaches attained age 90
or that required under state law. If no Income Date is selected, it will
be the earlier of when the Annuitant reaches attained age 90 or the maximum
date permitted under state law, if any.
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Prior to the Income Date, You may change the Income Date by Written
Request. Any change must be requested at least 30 days prior to the new
Income Date.
SELECTION OF AN ANNUITY OPTION
An Annuity Option may be selected by You. If no Annuity Option is
selected, Option B will automatically be applied. Prior to the Income
Date, You may change the Annuity Option selected by Written Request.
Any change must be requested at least 30 days prior to the Income Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity Payments are paid in monthly installments unless quarterly,
semi-annual or annual payments are chosen. The Adjusted Certificate Value is
applied to the Annuity Table for the Annuity Option selected. If the
Adjusted Certificate Value to be applied under an Annuity Option is less
than $5,000, We reserve the right to make a lump sum payment in lieu of
Annuity Payments. If the Annuity Payment would be or becomes less than
$100, We will reduce the frequency of payments to a longer interval which
will result in each payment being at least $100.
ANNUITY OPTIONS
The following Annuity Options or any other Annuity Option acceptable to Us
may be selected:
OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to
continue for the remainder of the period, he/she may elect to have the
present value of the remaining payments commuted and paid in a lump
sum. During the payment period of a Variable Annuity, the payee may
elect by Written Request to receive the following amount: (a) the
present value of the remaining payments commuted; less (b) any
surrender charge that may be due by treating the value defined in (a)
as a surrender. Instead of receiving a lump sum, the payee may elect
another Annuity Option. The amount applied to that Option would not
be reduced by the charge defined in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity
Payments during the lifetime of the payee and in any event for 10
years certain. If the payee dies during the guaranteed payment period
and the Beneficiary does not desire payments to continue for the
remainder of the guaranteed period, he/she may elect to have the
present value of the guaranteed payments remaining commuted and paid
in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during
the joint lifetime of the payee and a designated second natural person
and then during the lifetime of the survivor.
DVA(1)/CERT 18
<PAGE>
Unless the Annuity Option provides for commutation by the payee, a payee may not
withdraw or otherwise end an Annuity Option after it begins. Payments will end
upon the payee's death unless the Annuity Option provides for payments
continuing to a successor payee. No successor payee may extend the period of
time over which the remaining payments are to be made.
ANNUITY
If You select a Fixed Annuity, the Adjusted Certificate Value is allocated to
the General Account and the Annuity is paid as a Fixed Annuity. If You select a
Variable Annuity, the Adjusted Certificate Value will be allocated to the Sub-
accounts of the Separate Account in accordance with the selection You make, and
the Annuity will be paid as a Variable Annuity. You can also select a
combination of a Fixed and Variable Annuity and the Adjusted Certificate Value
will be allocated accordingly. If You don't select between a Fixed Annuity and
a Variable Annuity, any Adjusted Certificate Value in the Variable Account will
be applied to a Variable Annuity and any Adjusted Certificate Value in the Fixed
Account will be applied to a Fixed Annuity.
The Adjusted Certificate Value will be applied to the applicable Annuity Table
contained in the Certificate based upon the Annuity Option You select. If, as
of the Income Date, the current Annuity Option rates applicable to the class of
Certificates issued under the Group Contract provide an initial Annuity Payment
greater than the initial Annuity Payment guaranteed under the applicable Annuity
Table in the Certificate, the greater payment will be made.
FIXED ANNUITY
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. After the initial
Fixed Annuity payment, the payments will not change regardless of investment,
mortality or expense experience.
VARIABLE ANNUITY
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value to
the Sub-accounts during the Annuity Period. Variable Annuity payments are not
guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount of
Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is
divided by the value of an Annuity Unit for each applicable Sub-
account as of the Income Date. This sets the number of Annuity
Units for each monthly
DVA(1)/CERT 19
<PAGE>
payment for the applicable Sub-account. The number of Annuity
Units for each applicable Sub-account remains fixed during the
Annuity Period;
(2) the fixed number of Annuity Units per payment in each Sub-account
is multiplied by the Annuity Unit Value for that Sub-account for
the Valuation Period for which the payment is due. This result
is the dollar amount of the payment for each applicable Sub-
account.
The total dollar amount of each Variable Annuity payment is the sum of all Sub-
account Variable Annuity payments reduced by the applicable portion of the
Certificate Maintenance Charge.
ANNUITY UNIT
The value of any Annuity Unit for each Sub-Account of the Separate Account was
initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation Period
is determined as follows:
(1) the net investment factor calculated as set forth on pages 11-12
(but without the Distribution Charge, if any) for the current
Valuation Period is multiplied by the value of the Annuity Unit
for the Sub-account for the immediately preceding Valuation
Period.
(2) the result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Valuation Period equivalent of
the Assumed Investment Rate for the number of days in the current
Valuation Period. The Assumed Investment Rate is equal to 6% per
year.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
USING THE TABLES
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
DATE OF FIRST PAYMENT AGE SETBACK
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and for
any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next section.
Upon request, We will tell You any such amount.
DVA(1)/CERT 20
<PAGE>
BASIS OF CALCULATION
Tables 1 and 4 are based on interest at 6% and 3%, respectively. Tables 2, 3,
5, and 6 are based on the 1983 Individual Annuity Valuation Tables, weighted 40%
male and 60% female, with interest at 6% (Tables 2 and 3) and 3% (Tables 5 and
6), projected dynamically with Projection Scale G.
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION A
FOR EACH $1,000 APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
5 $19.17 12 $9.63 19 $7.24 25 $6.32
6 16.42 13 9.12 20 .04 26 .21
7 14.46 14 8.69 21 .86 27 .11
8 13.00 15 8.31 22 .70 28 .02
9 11.87 16 7.99 23 .56 29 .94
10 10.97 17 7.71 24 .43 30 .87
11 10.24 18 7.46
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION B
FOR EACH $1,000 APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
30 $5.09 43 $5.40 56 $6.06 69 $7.47 82 $9.72
31 5.11 44 5.44 57 6.13 70 7.63 83 .87
32 5.13 45 5.47 58 6.21 71 7.79 84 .02
33 5.14 46 5.51 59 6.30 72 7.95 85 .15
34 5.16 47 5.55 60 6.39 73 8.12 86 .27
35 5.18 48 5.60 61 6.48 74 8.30 87 .38
36 5.20 49 5.64 62 6.59 75 8.48 88 .48
37 5.23 50 5.69 63 6.69 76 8.66 89 .57
38 5.25 51 5.74 64 6.81 77 8.84 90 .65
39 5.28 52 5.80 65 6.93 78 9.03 91 .72
40 5.31 53 5.86 66 7.05 79 9.21 92 .77
41 5.34 54 5.92 67 7.19 80 9.38 93 .82
42 5.37 55 5.99 68 7.33 81 9.55 94 .86
95 10.89
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION C
FOR EACH $1,000 APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $4.97 $4.99 $5.00 $5.02 $5.04 $5.05 $5.06 $5.07 $5.08 $5.09 $5.09 $5.09 $5.10 $5.10
35 5.01 5.04 5.07 5.09 5.11 5.13 5.15 5.16 5.17 5.18 5.18 5.19 5.19
40 5.08 5.12 5.16 5.19 5.22 5.25 5.27 5.29 5.30 5.31 5.31 5.32
45 5.18 5.23 5.29 5.34 5.38 5.41 5.44 5.46 5.48 5.49 5.49
50 5.32 5.40 5.47 5.54 5.60 5.64 5.68 5.70 5.72 5.72
55 5.51 5.62 5.73 5.85 5.90 5.96 6.00 6.02 6.04
60 5.79 5.95 6.11 6.24 6.34 6.41 6.45 6.48
65 6.20 6.44 6.66 6.84 6.97 7.05 7.10
70 6.80 7.15 7.47 7.71 7.87 7.97
75 7.69 8.22 8.66 8.99 9.20
80 9.03 9.81 10.43 10.87
85 11.02 12.11 12.98
90 13.82 15.34
95 17.66
</TABLE>
DVA(1)/CERT 21
<PAGE>
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A
FOR EACH $1,000 APPLIED
YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT YEARS PAYMENT
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B
FOR EACH $1,000 APPLIED
AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT AGE PAYMENT
30 $3.05 43 $3.46 56 $4.24 69 $5.79 82 $8.24
31 3.07 44 3.50 57 4.32 70 5.96 83 8.41
32 3.09 45 3.55 58 4.41 71 6.13 84 8.57
33 3.12 46 3.60 59 4.51 72 6.31 85 8.72
34 3.15 47 3.65 60 4.61 73 6.50 86 8.85
35 3.18 48 3.70 61 4.71 74 6.69 87 8.97
36 3.21 49 3.76 62 4.82 75 6.88 88 9.08
37 3.24 50 3.82 63 4.94 76 7.08 89 9.18
38 3.27 51 3.88 64 5.07 77 7.28 90 9.27
39 3.31 52 3.94 65 5.20 78 7.48 91 9.34
40 3.34 53 4.01 66 5.34 79 7.68 92 9.40
41 3.38 54 4.08 67 5.48 80 7.87 93 9.46
42 3.42 55 4.16 68 5.63 81 8.06 94 9.50
95 9.53
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C
FOR EACH $1,000 APPLIED
COMBINATION OF AGES
<TABLE>
<CAPTION>
30 35 40 45 50 55 60 65 70 75 80 85 90 95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 $2.88 $2.92 $2.95 $2.98 $3.00 $3.01 $3.02 $3.03 $3.04 $3.04 $3.04 $3.05 $3.05 $3.05
35 2.97 3.02 3.06 3.09 3.12 3.14 3.15 3.16 3.17 3.17 3.18 3.18 3.18
40 3.09 3.15 3.20 3.24 3.27 3.30 3.32 3.33 3.34 3.34 3.34 3.35
45 3.24 3.31 3.38 3.44 3.48 3.51 3.53 3.54 3.55 3.56 3.56
50 3.43 3.53 3.62 3.69 3.74 3.78 3.80 3.82 3.83 3.83
55 3.68 3.81 3.93 4.02 4.09 4.13 4.16 4.18 4.19
60 4.01 4.19 4.35 4.47 4.56 4.61 4.65 4.66
65 4.47 4.73 4.94 5.11 5.21 5.28 5.32
70 5.11 5.48 5.78 6.00 6.13 6.21
75 6.04 6.57 6.99 7.28 7.46
80 7.40 8.16 8.75 9.15
85 9.38 10.46 11.29
90 12.18 13.68
95 16.02
</TABLE>
DVA(1)/CERT 22
<PAGE>
ENDORSEMENTS
To be inserted only by Us
DVA(1)/CERT 24
<PAGE>
KEYPORT
LIFE INSURANCE COMPANY
PROVIDENCE, RHODE ISLAND
VARIABLE ANNUITY CERTIFICATE
FLEXIBLE PURCHASE PAYMENTS
DEFERRED INCOME PAYMENTS
NONPARTICIPATING -- NO DIVIDENDS
DVA(1)/CERT 25
<PAGE>
EXHIBIT (8c)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
KEYPORT LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 2nd day of July, 1996, by and
among MFS Variable Insurance Trust, a Massachusetts business trust (the
"Trust"), Keyport Life Insurance Company, a Rhode Island corporation (the
"Company"), on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and Massachusetts Financial Services Company, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares beneficial interest of the Trust are divided into several
series of shares, each representing the interests in a particular managed pool
of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's
<PAGE>
investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Keyport Financial Services Corp., 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 one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf
of the Accounts to fund the Policies, and the Trust
3
<PAGE>
intends to sell such Shares to the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company, agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business Day,
as defined below) and which are available for purchase by such Accounts,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the order for Shares. For
purposes of this Section 1.1, the Company shall be the designee of the Trust for
receipt of such orders from Policy owners and receipt by such designee shall
constitute receipt by the Trust; PROVIDED that the Trust receives notice of such
orders by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the "NYSE")
is open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the SEC.
1.2 The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate the
offering of the Shares 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
4
<PAGE>
state laws, necessary in the best interests of the
Shareholders of such Portfolio.
1.3 The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with the
Trust and MFS (the "Participating Insurance Companies") and their separate
accounts, qualified pension and retirement plans and MFS or its affiliates. The
Trust and MFS will not sell Trust shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles III and VII of this Agreement is in effect to govern such sales. The
Company will not resell the Shares except to the Trust or its agents.
1.4 The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by Policy
holders on that Business Day), executing such requests on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
request for redemptions. For Purposes of this Section 1.4, the Company shall be
the designee of the Trust for receipt of requests for redemption from Policy
owners and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5 Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company and
the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6 hereof.
5
<PAGE>
1.6 In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to purchase
the Shares is made in accordance with the provisions of Section 1.1 hereof. In
the event of net redemptions, the Trust shall pay the redemption proceeds by
2:00 p.m. New York time on the next Business Day after an order to redeem the
Shares is made in accordance with the provisions of Section 1.4 hereof. All
such payments shall be in federal funds transmitted by wire;
1.7 Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from the Trust will be recorded in an appropriate title for the
Accounts or the appropriate subaccounts of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any dividends or capital
gain distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Trust shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.9 The Trust or its custodian shall make the net asset value per
share for each Portfolio available to the Company on each Business Day 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 6:30 p.m. New York time. In the event that the Trust is
unable to meet the 6:30 p.m. time stated herein, it shall provide additional
time for the Company to place orders for the purchase and redemption of
Shares. Such additional time shall be equal to the additional time which the
Trust takes to make the net asset value available to the Company. If the
Trust provides materially incorrect share net asset value information, the
Trust shall make
6
<PAGE>
an adjustment to the number of shares purchased or redeemed
for the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon
discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES, AND COVENANTS
2.1 The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to registration
thereunder, and that the Policies will be issued, sold, and distributed in
compliance in all material respects with all applicable state and federal laws,
including without limitation, the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act. The Company further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the
Accounts as a segregated asset under applicable law and has registered or, prior
to any issuance or sale of the Policies, will register the Accounts as unit
investment trusts in accordance with the provisions of the 1940 Act (unless
exempt therefrom) to serve as segregated investment accounts for the Policies,
and that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the 1933
Act for the Policies and the registration statements under the 1940 Act for the
Accounts from time to time as required in order to effect the continuous
offering of the Policies or as may otherwise be required by applicable law. The
Company shall register and qualify the Policies for sales accordance with the
securities laws of the various states only if and to the extent deemed necessary
by the Company.
7
<PAGE>
2.2 The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), that it will maintain such treatment and that it
will notify the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they might not
be so treated in the future.
2.3 The Company represents and warrants that Keyport Financial Services
Corp., 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 Keyport Financial Services Corp. will sell 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.
2.4 The Trust and MFS represent and warrant that Shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Trust is and shall remain registered under the 1940 Act. The Trust 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 Trust shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed necessary
by the Trust.
2.5 MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent
8
<PAGE>
that the Trust and the Underwriter will sell and
distribute the Shares 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.
2.6 The Trust represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and any applicable
regulations thereunder.
2.7 MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material respects
with any applicable federal securities laws and with the securities laws of the
Commonwealth of Massachusetts. MFS represents and warrants that it is not
subject to state securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8 No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so that
it may carry out fully the obligations imposed upon it by the conditions
contained in the exemptive application pursuant to which the SEC has granted
exemptive relief to permit mixed and shared funding (the "Mixed and Shared
Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At lease annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in
9
<PAGE>
Schedule A hereto) for the Shares as the Company may reasonably request for
distribution to existing Policy owners whose Policies are funded by such
Shares. The Trust or its designee shall provide the Company, at the
Company's expense, with as many of the current prospectus for the Shares as
the Company may reasonably request for distribution to prospective purchasers
of Policies. If requested by the Company in lieu thereof, the Trust or its
designee 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 Policies and the prospectus for the Shares
printed together in one document; the expenses of such printing will be
apportioned between (a) the Company and (b) the Trust or its designee in
proportion to the number of pages of the Policy and Shares' prospectuses,
taking account of other relevant factors affecting the expense of printing,
such as covers, columns, graphs, and charts; the Trust or its designee to
bear the cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED, however, that the Company shall bear all
printing expenses of such combined documents where used for distribution to
prospective purchasers or to owners of existing Policies not funded by the
Shares. In the event that the Company requests that the Trust or its
designee provides the Trust's prospectus in a "camera ready" or diskette
format, the Trust shall be responsible for providing the prospectus in the
format in which it or MFS is accustomed to formatting prospectuses and shall
bear the expense of providing the prospectus in such format
10
<PAGE>
(E.G., typesetting expenses), and the Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.2 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any owner
of a Policy funded by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement or to an owner of a Policy not
funded by the Shares.
3.3 The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to Policy
owners.
3.4 Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or providing
documents to the extent such cost is considered a distribution expense.
Distribution expenses would include by way of illustration, but are not limited
to, the printing of the Shares' prospectus or prospectuses for distribution to
prospective purchasers or to owners of existing Policies not funded by such
Shares.
3.5 The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of
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mixed and shared funding.
3.6 If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
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 will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such Policy
owners. The Company reserves the right to vote 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 holding Shares calculates voting privileges in the manner
required by the Mixed and Shared Funding Exemptive Order. The Trust and MFS
will notify the Company of any changes of interpretations or amendments to the
Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, and other investment adviser to the Trust or
any affiliate of MFS are named, at least three (3)
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Business Days prior to its use. No such material shall be used if the Trust,
MFS, or their respective designees reasonably objects to such use within
three (3) Business Days after receipt of such material.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Trust, MFS, any other investment adviser to the
Trust or any affiliate of MFS, or concerning the Trust or any other such entity
in connection with the sale of the Policies other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust, MFS
or their respective designees, except with the permission of the Trust, MFS or
their respective designees. The Trust, MFS or their respective designees each
agrees to respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure that
information concerning the Trust, MFS or any of their affiliates which is
intended for use only by brokers or agents selling the Policies (I.E.,
information that is not intended for distribution to Policy holders or
prospective Policy holders) is so used, and neither the Trust, MFS nor any of
their affiliates shall be liable for any losses, damages or expenses relating to
the improper use of such broker only materials.
4.3 The Trust 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 the Accounts, is named at
least three (3) Business Days prior to its use.
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No such material shall be used if the Company or its designee reasonably
objects to such use within three (3) Business Days after receipt of such
material.
4.4 The Trust and MFS shall not give, and agree that the Underwriter shall
not give, any information or make any representations on behalf of the Company
or concerning the Company, the Accounts, or the Policies in connection with the
sale of the Policies other than the information or representations contained in
a registration statement, prospectus, or statement of additional information for
the Policies, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company. The Company or its designee agrees to respond to any request for
approval on a prompt and timely basis. The parties hereto agree that this
Section 4.4 is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5 The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other 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 Policies, or to the Trust or
its Shares, prior to or contemporaneously with the filing of such document with
the SEC or other regulatory authorities. The Company and the Trust shall also
each promptly inform the other of the results of any examination by the SEC (or
other regulatory authorities) that relates to the Policies, the Trust or its
Shares, and the party that was the subject of the examination shall
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<PAGE>
provide the other party with a copy of relevant portions of any "deficiency
letter" or other correspondence or written report regarding any such
examination.
4.6 The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of any
material change in the Trust's registration statement, particularly any change
resulting in change to the registration statement or prospectus or statement of
additional information for any Account. The Trust and MFS will cooperate with
the Company so as to enable the Company to solicit proxies from Policy owners or
to make changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will make
reasonable efforts to attempt to have changes affecting Policy prospectuses
become effective simultaneously with the annual updates for such prospectuses.
4.7 For purposes of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
and sales literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published article), distributed or
made generally available to customers or the public, educational or training
materials or other communications distributed or made generally available to
some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1 The Trust shall pay no fee or other compensation to the Company
under this
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Agreement, and the Company shall pay no fee or other compensation to the
Trust, except that if the Trust or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution and
Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to the
Company or to the underwriter for the Policies if and in amounts agreed to by
the Trust in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof, reimburse other
parties for expense initially paid by one party but allocated to another party.
In addition, nothing herein shall prevent the parties hereto from otherwise
agreeing to perform, and arranging for appropriate compensation for, other
services relating to the Trust and/or to the Accounts.
5.2 The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Trust's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Trust's proxy materials and reports to Shareholders; setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses
16
<PAGE>
of marketing the Policies.
5.3 The Company shall bear the expenses of distributing the Share's
prospectus or prospectuses in connection with new sales of the Policies and of
distributing the Trust's Shareholder reports and proxy materials and reports to
the Policy owners. The Company shall bear all expenses associated with the
registration, qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional information; and
the cost of preparing, printing and distributing annual individual account
statements for Policy owners as required by state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1 The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817(h)(1) of the
Code and Treas.Reg. 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices, and
other published announcements of the Internal Revenue Service interpreting these
sections), as if those requirements applied directly to each such Portfolio.
6.2 The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code and
that they will maintain such qualification (under Subchapter M or any successor
or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
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7.1 The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy owners
of the Company and/or affiliated companies ("contract owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2 The Company agrees that it will be responsible for assisting the Board
in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the Mixed
and Shared Funding Exemptive Order by providing the Board, as it may reasonably
request, with all information necessary for the Board to consider any issues
raised and agrees that it will be responsible for promptly reporting any
potential or existing conflicts of which it is aware to the Board including, but
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded. The Company also agrees
that, if a material irreconcilable conflict arises, it will at its own cost
remedy such conflict up to and including (a) withdrawing the assets allocable
to some or all of the Accounts from the Trust or any Portfolio and reinvesting
such assets in a different investment medium, including (but not limited to)
another Portfolio of the Trust, or submitting to a vote of all affected contract
owners whether to withdraw assets from the Trust or any Portfolio and
reinvesting such assets in a different investment medium and, as
18
<PAGE>
appropriate, segregating the assets attributable to any appropriate group of
contract owners that votes in favor of such segregation, or offering to any
of the affected contract owners the option of segregating the assets
attributable to their contracts or policies, and (b) establishing a new
registered management investment company and segregating the assets
underlying the Policies, unless a majority of Policy owners materially
adversely affected by the conflict have voted to decline the offer to
establish a new registered management investment company.
7.3 A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
the Company will withdraw from investment in the Trust each of the Accounts
designated by the disinterested trustees and terminate this Agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, HOWEVER, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees of the Board.
7.4 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Trust 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
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Rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, and
7.4 of this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees), to which an Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the
Policies or contained in the Policies or sales literature or other
promotional material for the Policies (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
20
<PAGE>
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 reasonable
reliance upon and in conformity with information furnished to the
Company or its designee by or on behalf of the Trust or MFS for use in
the registration statement, prospectus, or statement of additional
information for the Policies or in the Policies or sales literature or
other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Policies or
Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information, or sales
literature or other promotional material of the Trust not supplied by
the Company or its designee, or persons under its control and on which
the Company has reasonably relied) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution
of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus,
statement of additional information, or sales literature or other
promotional literature of the Trust, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was
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<PAGE>
made in reliance upon information furnished
to the Trust by or on behalf of the Company; or
(d) 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; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2 INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company, and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
the Indemnified Party 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 Shares or the Policies and:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
22
<PAGE>
omission or the alleged omission to state
therein a material fact required to be
stated therein or necessary to make the statement 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 reasonable reliance upon and
in conformity with information furnished to the Trust, MFS, the
Underwriter, or their respective designees by or on behalf of the
Company for use in the registration statement, prospectus, or
statement of additional information for the Trust or in sales
literature or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material for the Policies not supplied
by the Trust, MFS, the Underwriter or any of their respective
designees, or persons under their respective control and on which any
such entity has reasonably relied) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or distribution of
the Policies or Shares; or
(c) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI
of this Agreement) or arise out of or result
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<PAGE>
from any other material breach of this Agreement by the Trust; or
(d) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate; or
(e) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the Agreement.
as limited by and in accordance with the provisions of this Article VIII.
8.3 In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including
without limitation, the Company, or any Participating Insurance Company or any
policy holder, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by the Company hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the Company or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) the failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable provisions of the
Code.
8.4 Neither the Company nor the Trust shall be liable under the
indemnification
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<PAGE>
provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, willful misconduct, 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.
8.5 Promptly upon receipt by an Indemnified Party under this Section 8.5.
of commencement of action, such Indemnified Party will, if a claim in respect
thereof is to be made against the indemnifying party under this section, notify
the indemnifying party of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any Indemnified Party otherwise than under this section. In case
any such action is brought against any Indemnified Party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying party shall not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation.
8.6 Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its respective
officers, directors, trustees, employees or 1933 Act control persons in
connection with the Agreement,
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<PAGE>
the issuance or sale of the Policies, the
operation of Accounts, or the sale or acquisition of Shares.
8.7 A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
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<PAGE>
ARTICLE XI. TERMINATION
11.1 This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements
of the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions
pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and an
explanation of such cause shall be furnished to the Trust by the
Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of
the Policies, the operation of the Accounts, or the purchase of
the Shares; or
(d) at the option of the Company upon institution of formal
proceedings
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<PAGE>
against the Trust by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body
regarding the Trust's or MFS' duties under this Agreement or
related to the sale of the Shares; or
(e) at the option of the Company, the Trust, or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the Policy
owners having an interest in the accounts (or any subaccounts) to
substitute the shares of another investment company for the
corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected
to serve as the underlying investment media. The Company will
give thirty (30) days' prior written notice to the trust of the
Date of any proposed vote or other action taken to replace the
Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively,
shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust and
MFS, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or MFS has suffered a
material adverse change in its
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business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2 The notice shall specify the Portfolio or Portfolios, Policies and, if
applicable, the Accounts as to which the Agreement is to be terminated.
11.3 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for cause
or for no cause.
11.4 Except as necessary to implement Policy owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem the Shares attributable to the Policies (as opposed to the Shares
attributable to the Company's assets held in the Accounts), and the Company
shall not prevent Policy owners from allocating payments to a Portfolio that was
otherwise available under the Policies, until thirty (30) days after the Company
shall have notified the Trust of its intention to do so.
11.5 Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate investments under
the Policies, redeem
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<PAGE>
investments in any Portfolio and/or invest in the Trust upon the making of
additional purchase payments under the Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, MA 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attn: Bernard R. Beckerlegge, General Counsel
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1 Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
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as permitted by this Agreement or as otherwise required by applicable law or
regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the public
domain.
13.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3 This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.5 The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6 Each party hereto shall cooperate with each other party in connection
with inquiries by appropriate governmental authorities (including without
limitation the SEC, the NASD, and state insurance regulators) relating to this
Agreement or the transactions contemplated hereby.
13.7 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.
13.8 A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of
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or arising out of this instrument are not binding upon any of the Trust's
trustees, officers, employees, agents or shareholders individually, but are
binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. The Company further acknowledges that
the assets and liabilities of each Portfolio are separate and distinct and
that the obligations of or arising out of this instrument are binding solely
upon the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations of
each Portfolio hereunder shall be several and not joint, in accordance with
its proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
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 above.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Jacob M. Herschler
Title: VICE PRESIDENT
--------------------
MFS VARIABLE INSURANCE TRUST, on behalf of
the Portfolios
By its authorized officer and not individually,
By: /s/ A. Keith Brodkin
------------------------
A. Keith Brodkin
Chairman and President
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MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ Arnold D. Scott
------------------------
Arnold D. Scott
Senior Executive Vice President
33
<PAGE>
As of 7/2/96
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
- --------------------------------------------------------------------------------
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY POLICIES FUNDED BY PORTFOLIOS APPLICABLE TO
BOARD OF DIRECTORS SEPARATE ACCOUNT POLICIES
- --------------------------------------------------------------------------------
Variable Account A Variable Annuity Research Series
(Est. 1/9/80) Emerging Growth Series
-- -- --
KMA Variable Account Variable Annuity Same as above
(Est. 9/13/89)
- --------------------------------------------------------------------------------
34
<PAGE>
EXHIBIT (8d)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
ALGER AMERICAN FUND,
KEYPORT LIFE INSURANCE COMPANY
AND
FRED ALGER AND COMPANY, INCORPORATED
THIS AGREEMENT is made this 27th day of June, 1996, by and among The
Alger American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Keyport Life Insurance Company,
a life insurance company organized as a corporation under the laws of the
State of Rhode Island, (the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company set forth in Schedule A, as may
be amended from time to time (the "Accounts"), and Fred Alger and Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an opened management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and
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<PAGE>
variable annuity contracts to be offered by life insurance companies which
have entered into fund participation agreements with the Trust (the
"Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into the
following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised:
WHEREAS, the Company desires to use shares of one or more Portfolios as
investment vehicles for the Accounts;
3
<PAGE>
NOW THEREFORE, in consideration of their mutual promises the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be
the Trust's agent for the receipt from each account of
purchase orders and requests for redemption pursuant to the
Contracts relating to each Portfolio, provided that the
Company notifies the Trust of such purchase Orders and
requests for redemption by 9:30 a.m. Eastern time on the next
following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios
available to the Accounts at the net asset value next computed
after receipt of a purchase order by the Trust (or its agent),
as established in accordance with the provisions of the then
current prospectus of the Trust describing Portfolio purchase
procedures. The Company will transmit orders from time to
time to the Trust for the purchase and redemption of shares of
the Portfolios. The Trustees of the Trust (the "Trustees")
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 if, in the sole discretion of the
Trustees acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of
such Portfolio.
1.3 The Company shall pay for the purchase of shares of a
Portfolio on behalf of an Account with federal funds to be
transmitted by wire to the Trust, with the reasonable
expectation
4
<PAGE>
of receipt by the Trust by 2:00 p.m. Eastern time on the next
Business Day after the Trust (or its agent) receives the
purchase order. Upon receipt by the Trust of the federal
funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day"
shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional
shares of any Portfolio, when requested by the Company on
behalf of an Account, at the net asset value next computed
after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions
of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment
for such shares in the manner established from time to time by
the Trust. Proceeds of redemption with respect to a Portfolio
will normally be paid to the Company for an Account in federal
funds transmitted by wire to the Company by order of the Trust
with the reasonable expectation of receipt by the Company by
2:00 p.m. Eastern time on the next Business Day after the
receipt by the Trust (or its agent) of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary
market conditions exist, but in no event shall payment be
delayed for a greater period than is permitted by the 1940
Act. The Trust reserves the right to suspend the right of
redemption, consistent with Section 22(e) of the 1940 Act and
any rules thereunder.
1.5 Payments for the purchase of shares of the Trust's
Portfolios by the Company under Section 1.3 and payments for
the redemption of shares of the Trust's Portfolios under
5
<PAGE>
Section 1.4 on any Business Day may be netted against one
another for the purpose of determining the amount of any wire
transfer.
1.6. Insurance and transfer of the Trust's Portfolio
shares will be by book entry only. Stock certificates will
not be issued to the Company or the Accounts. Portfolio
Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate
subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend
date, notice to the Company of any income dividends or capital
gain distributions payable on the shares of any Portfolio of
the Trust. The Company hereby elects to receive all such
income dividends and capital gain distributions as are payable
on a Portfolio's shares in additional shares of that
Portfolio. The Trust shall notify the Company of the number of
shares so issued as payment of such dividends and
distributions.
1.8. The Trust shall calculate the net asset value of each
Portfolio on each Business Day, as defined in Section 1.3.
The Trust shall make the net asset value per share for each
Portfolio available to the Company or its designated agent 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 to
the Company by 6:30 p.m. Eastern time each Business Day.
1 9. The Trust agrees that its Portfolio shares will be
sold only to Participating Insurance Companies and their
segregated asset accounts, to the Fund Sponsor or its
affiliates and to such other entities as may be permitted by
Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares
of any
6
<PAGE>
Portfolio will be sold directly to the general public. The
Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed
in Schedule A, as amended from time to time.
1.10 The Trust agrees that all Participating Insurance
Companies shall have the obligations and responsibilities
regarding pass-through voting and conflicts of interest
corresponding materially to those contained in Section 2.9 and
Article IV of this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing
with the Commission and any state regulators requiring such
filings all shareholder reports, notices, proxy materials (or
similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of
registration and qualification of shares of the Portfolios,
preparation and filing of the documents listed in this Section
2.1 and all taxes to which an issuer is subject on the
issuance and transfer of its shares.
2.2 The Company shall distribute such prospectuses, proxy
statements and periodic reports of the Trust to the Contract
owners as required to be distributed to such Contract owners
under applicable federal or state law.
2.3 The Trust shall provide such documentation (including
a final copy of the Trust's prospectus as set in type or in
camera-ready copy) and other assistance as is reasonably
necessary in order for the company to print together in one
document the current prospectus for the Contracts issued by
the Company and the current prospectus for the
7
<PAGE>
Trust. The Trust shall bear the expense of printing copies of
its current prospectus that will be distributed to existing
Contract owners, and the Company shall bear the expense of
printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at
the Trust's expense, one copy of the Trust's current Statement
of Additional Information ("SAI") to the Company and to any
Contract owner who requests such SAI, (2) at the Company's
expense, such additional copies of the Trust's current SAI as
the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection
with offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company
with copies of its proxy material, periodic reports to
shareholders and other communications to shareholders in such
quantity as the Company shall reasonably require for purposes
of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of
its periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall
reasonably request for use in connection with offering the
Contracts issued by the Company. If requested by the Company
in lieu thereof, the Trust shall provide such documentation
(including a final copy of the Trust's proxy materials,
periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and
other assistance as reasonably necessary in order for the
Company to print such shareholder communications for
distribution to Contract owners.
8
<PAGE>
2.6 The Company agrees and acknowledges that the
Distributor is the sole owner of the name and mark "Alger" and
that all use of any designation comprised in whole or part of
such name or mark under this Agreement shall inure to the
benefit of the Distributor. Except as provided in Section
2.5, the Company shall not use any such name or mark on its
own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or
other materials relating to the Accounts or Contracts without
the prior written consent of the Distributor. Upon
termination of this Agreement for any reason, the Company
shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish or cause to be furnished,
to the Trust or its designee a copy of each Contract
prospectus and/or statement of additional information
describing the Contracts, each report to Contract owners,
proxy statement, application for exemption or request for
no-action letter in which the Trust or the Distributor is
named contemporaneously with the filing of such document with
the Commission. The Company shall furnish, or shall cause to
be furnished, to the Trust or its designee each piece of sales
literature or other promotional material in which the Trust or
the Distributor is named, at least five Business Days prior to
its use. No such material shall be used if the Trust or its
designee reasonably objects to such use within three Business
Days after receipt of such material.
2.8. The Company shall not give any information or make
any representations or statements on behalf of the Trust or
concerning the Trust or the Distributor in connection with the
sale of the Contracts other than information or
representations contained in and
9
<PAGE>
accurately derived from the registration statement or
prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or
other promotional material approved by the Trust or its
designee, except as required by legal process or regulatory
authorities or with the prior written permission of the Trust,
the Distributor or their respective designees. The Trust and
the Distributor agree to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that
"broker only" materials including information therein about
the Trust or the Distributor are not distributed to existing
or prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the
company, on a timely basis, with such information about the
Trust, the Portfolios and the Distributor, in such form as the
Company may reasonably require, as the Company shall
reasonably request in connection with the preparation of
registration statements, prospectuses and annual and
semi-annual reports pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and
agree that no affiliate of either of them shall give any
information or make any representations or statements on
behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations
contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such
registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by
the Company for distribution including sales literature or
other promotional materials, except
10
<PAGE>
as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company
agrees to respond to any request for approval on a prompt and
timely basis.
2.11. So long as, and to the extent that, the Commission
interprets the 1940 Act to require pass-through voting
privileges for Contract owners, the Company will provide
pass-through voting privileges to Contract owners whose cash
values are invested, through the registered Accounts, in
shares of one or more Portfolios of the Trust. The Trust
shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate
voting privileges in the manner established by the Trust.
With respect to each registered Account, the Company will vote
shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those
shares for which voting instructions are received. The
Company and its agents will in no way recommend or oppose or
interfere with the solicitation of proxies for Portfolio
shares held to fund the Contracts without the prior written
consent of thee Trust, which consent may be withheld in the
Trust's sole discretion. The Company reserves the right, to
the extent permitted by law, to vote shares held in any
Account in its sole discretion.
2.12. The Company and the Trust will each provide to the
other information about the results of any regulatory
examination relating to the Contracts or the Trust, including
relevant portions of any "deficiency letter" and any response
thereto.
11
<PAGE>
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified
expense reimbursements). However, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust,
the Accounts or both.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an
insurance company duly organized and in good standing under
the laws of the State of Rhode Island and that it has legally
and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A,
and that Keyport Financial Services Corp., the principal
underwriter for the Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is
a member in good standing of the National Association of
Securities Dealers, Inc.
3.2. The Company represents and warrants that it has
registered or, prior to any issuance or sale of the Contracts,
will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act and cause each
Account to remain so registered to serve as a segregated asset
account for the Contracts, unless an exemption from
registration is available.
3.3. The Company represents and warrants that the
Contracts will be registered under the 1933 Act unless an
exemption from registration is available prior to any issuance
or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material
12
<PAGE>
respects with all applicable federal and state laws; and the
sale of the Contracts shall comply in all material respects
with state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly
organized and validly existing under the laws of the
Commonwealth of Massachusetts and that it does and will comply
in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5. The Trust and the Distributor represent and warrant
that the Portfolio shares offered and sold pursuant to this
Agreement will be registered under the 1933 Act and sold in
accordance with all applicable federal and state laws, and the
Trust shall be registered under the 1940 Act prior to and at
the time of any issuance or sale of such shares. The Trust
shall amend its registration statement 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 Trust shall
register and qualify its shares for sale in accordance with
the laws of the various states only if and to the extend
deemed advisable by the Trust.
3.6 The Trust represents and warrants that the
investments of each Portfolio will comply with the
diversification requirements for variable annuity, endowment
or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), and
the 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 Portfolio has ceased to comply or might not so
comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance
within the grace period afforded by Regulation 1.817-5.
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<PAGE>
3.7. The Trust represents and warrants that it is
currently qualified as a "regulated investment company" under
Subchapter M of the Code, that it will make every effort to
maintain such qualification and will notify the Company
immediately upon having a seasonable basis for believing it
has ceased to so qualify or might not so qualify in the
future.
3.8. The Trust represents and warrants that it, its
directors, officers, employees and others dealing with the
money or securities, or both, of a Portfolio shall at all
times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less
than the minimum coverage required by Rule 17g-1 or other
applicable regulations under the 1940 Act. Such bond shall
include coverage for larceny and embezzlement and be issued by
a reputable bonding company.
3.9. The Distributor represents that it is duly organized
and validly existing under the laws of the State of Delaware
and that it is registered, and will remain registered, during
the term of this Agreement, as a broker-dealer under the
Securities Exchange Act of 1934 and is a member in good
standing of the National Association of Securities Dealers,
Inc.
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<PAGE>
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may
be made available for investment to other Participating
Insurance Companies. In such event, the Trustees will monitor
the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all
Participating Insurance Companies. 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 contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any
determination by the Trustees that a material irreconcilable
conflict exists and of the implications thereof.
4.2. The Company agrees to report promptly any potential
or existing conflicts of which it is aware to the Trustees.
The Company will assist the Trustees in carrying out their
responsibilities under the Shared Funding Exemptive Order by
providing the Trustees with all information reasonably
necessary for and requested by the Trustees to consider any
issues raised including, but not limited to, information as to
a decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the
Trustees may be made in care of the Trust.
15
<PAGE>
4.3. If it is determined by a majority of the Trustees, or
a majority of the disinterested Trustees, that a material
irreconcilable conflict exists that affects the interests of
contract owners, the Company shall, in cooperation with other
Participating Insurance Companies whose contract owners are
also affected, at its own expense and to the extent reasonably
practicable (as determined by the Trustees) take whatever
steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the
Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the
question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group
(i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the
option of making such a change; and (b) establishing a new
registered management investment company or managed separate
account.
4.4. If a material irreconcilable conflict arises because
of a decision by the Company to disregard Contract owner
voting instructions and that decision represents a minority
position or would preclude a majority vote, the Company may be
required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement
with respect to such Account; provided, however that such
withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any
such withdrawal
16
<PAGE>
and termination must take place within six (6) months after
the Trust gives written notice that this provision is being
implemented. Until the end of such six (6) month period, the
Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the
Trust.
4.5. If a material irreconcilable conflict arises because
a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state
regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement
with respect to such Account within six (6) months after the
Trustees inform the Company in writing that the Trust has
determined that such decision has created a material
irreconcilable conflict; provided, however, that such
withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Until
the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase
and redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this
Agreement, a majority of the disinterested Trustees shall
determine whether any proposed action adequately remedies any
material irreconcilable conflict, but in no event will the
Trust be required to establish a new funding medium for any
Contract. The Company shall not be required to establish a
new funding medium for any Contracts if an offer to do so has
been declined by vote of a majority of Contract owners
materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material
irreconcilable conflict, then the Company will
17
<PAGE>
withdraw the Account's investment in the Trust and terminate
this Agreement within six (6) months after the Trustees inform
the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall
be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7. The Company shall at least annually submit to the
Trustees such reports, materials or data as the Trustees may
reasonably request so that the Trustees may fully carry out
the duties imposed upon them by the Shared Funding Exemptive
Order, and said reports, materials and data shall be submitted
more frequently if reasonably deemed appropriate by the
Trustees.
4.8. If and to the extent that Rule 6e-3(T) is 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 the Trust and/or the
Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-3(T), as
amended, or Rule 6e-3, as adopted, to the extent such rules
are applicable.
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ARTICLE V.
INDEMNIFICATION
5.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the Distributor, the Trust and
each of its Trustees, officers, employees and agents and each
person, if any, who controls the trust within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 5.1) against any and all
losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company, which
consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending
any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or
at common law or otherwise, insofar as such Losses are related
to the sale or acquisition of the Contracts or Trust shares
and:
(a) arise out of or are based upon any untrue
statements or alleged true statements of any material
fact contained in a registration statement or prospectus
for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on
behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V),
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
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance
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<PAGE>
upon and was accurately derived from written information
furnished to the Company by or on behalf of the Trust for
use in Company documents or otherwise for use in
connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents
as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control with respect to the
sale or acquisition of the Contracts or Trust shares;
(c) arise out of or result from any untrue
statement or alleged untrue statement of a material fact
contained in Trust Documents as defined in Section 5.2(a)
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading if such
statement or omission was made in reliance upon and
accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by
the Company to provide the services or furnish the
materials required under the terms of this Agreement; or
(e) 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; or
(f) arise out of or result from the provision
by the Company to the Trust of insufficient or incorrect
information regarding the purchase or sale of shares of
any Portfolio, or the failure of the Company to provide
such information on a timely basis.
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5.2 INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor
agrees to indemnify and hold harmless the Company and each of
its directors, officers, employees, and agents and each
person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for the purposes of this Section 5.2) against any and
all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the
Distributor, which consent shall not be unreasonably withheld)
or expenses (including the reasonable costs of investigating
or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such
Losses are related to the sale or acquisition of the Contracts
or Trust shares and:
(a) 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 Trust (or any amendment or supplement
thereto) (collectively, "Trust Documents" for the
purposes of this Article V), 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 indemnity 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 was accurately derived from written information
furnished to the Distributor or the Trust by or on behalf
of the Company for use in Trust Documents or
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otherwise for use in connection with the
sale of the Contracts or Trust shares and; or
(b) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Company
Documents) or wrongful conduct of the Distributor or
persons under its control, with respect to the sale or
acquisition of the Contracts or Portfolio shares; or
(c) arise our of or result from any untrue
statement or alleged untrue statement of a material fact
contained in Company Documents or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written
information furnished to the Company by or on behalf of
the Trust; or
(d) arise out of or result from any failure by
the Distributor or the Trust to provide the services or
furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material
breach of any representation and/or warranty made by the
Distributor or the Trust in this Agreement or arise out
of or result from any other material breach of this
Agreement by the Distributor or the Trust.
5.3. None of the Company, the Trusts or the Distributor
shall be liable under the indemnification provisions of
Sections 5.1 or 5.2, as applicable, with respect to any Losses
incurred or assessed against an Indemnified Party that arise
from such
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Indemnified Party's willful misfeasance, bad faith or
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.
5.4. None of the Company, the Trust or the Distributor
shall be liable under the indemnification provisions of
Sections 5.1 or 5.2, as applicable, with respect to any claim
made against an Indemnified party unless such Indemnified
Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written
notification, giving information of the nature of the claim
shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any
designated agent), but failure to notify the party against
whom indemnification is sought of any such claim shall not
relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against an
Indemnified Party, the indemnifying party shall be entitled to
participate, at its own expense, in the defense of such
action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice
from the indemnifying party to the Indemnified Party of an
election to assume such defense, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained
by it, and the indemnifying party will not be liable to the
Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such party
23
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independently in connection with the defense thereof other
than reasonable costs of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days
advance written notice to the other parties, unless a
shorter time is agreed to by the parties;
(b) at the option of the Trust or the
Distributor if the Contracts issued by the company cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code or if the
Contracts are not registered, issued or sold in
accordance with applicable state and/or federal law; or
(c) at the option of any party upon a
determination by a majority of the Trustees of the Trust,
or a majority of its disinterested Trustees, that a
material irreconcilable conflict exists; or
(d) at the option of the Company upon
institution of formal proceedings against the Trust or
the Distributor by the NASD, the SEC or any state
securities or insurance department or any other
regulatory body regarding the Trust's or the
Distributor's duties under this Agreement or related to
the sale of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust
or a Portfolio fails to meet the diversification
requirements specified in Section 3.6 hereof; or
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(f) at the option of the Company if shares of
the Series are not reasonably available to meet the
requirements of the Variable Contracts issued by the
Company, as determined by the Company, and upon prompt
notice by the Company to the other parties; or
(g) at the option of the Company in the event
any of the shares of the Portfolio are not registered,
issued or sold in accordance with applicable state and/or
federal law, or such law precludes the use of such shares
as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the
Portfolio fails to qualify as a Regulated Investment
Company under Subchapter M of the Code; or
(i) at the option of the Distributor if it
shall determine in its sole judgment exercised in good
faith, that the Company and/or its affiliated companies
has suffered a material adverse change in its business,
operations, financial condition or prospects since the
date of this Agreement or is the subject of material
adverse publicity.
6.2. Notwithstanding any termination of this Agreement,
the Trust shall, at the option of the Company, continue to
make available additional shares of any Portfolio and redeem
shares of any Portfolio pursuant to the terms and conditions
of this Agreement for all Contracts in effect on the effective
date of termination of this Agreement.
6.3. The provisions of Article V shall survive the
termination of this Agreement, and the provisions of Article
IV and Section 2.9 shall survive the termination of this
Agreement
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as long as shares of the Trust are held on behalf of Contract
owners in accordance with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, 07302
Attn: Gregory S. Duch
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attn: Bernard R. Beckerlegge, General Counsel
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.
8.2. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute
one and the same instrument.
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8.3. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of
the State of New York. It shall also be subject to the
provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such
orders. Copies of any such orders shall be promptly forwarded
by the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or
indirectly, under this Agreement, of any and every nature
whatsoever, shall be satisfied solely out of the assets of the
Trust and no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable
for any such liabilities.
8.6. Each party shall cooperate with each other party and
all appropriate governmental authorities (including without
limitation the Commission, the National Association of
Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiries
relating to this Agreement or the transactions contemplated
hereby.
8.7 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.
8.8. This Agreement shall not be exclusive in any respect.
27
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8.9. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior
written approval of the other party.
8.10. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement properly
authorized and executed by both parties.
8.11. Each party hereto shall, except as required by law or
otherwise permitted by this Agreement, treat as confidential
the names and addresses of the owners of the Contracts and all
information reasonably identified as confidential in writing
by any other party hereto, and shall not disclose such
confidential information without the written consent of the
affected party unless such information has become publicly
available.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
Fred Alger and Company, Incorporated
By: /s/ Gregory S. Duch
-------------------
Name: Gregory S. Duch
Title: Executive Vice President
Alger American Fund
By: /s/ Gregory S. Duch
-------------------
Name: Gregory S. Duch
Title: Treasurer
Keyport Life Insurance Company
By: /s/ Jacob M. Herschler
----------------------
Name: Jacob M. Herschler
Title: Vice President
<PAGE>
EXHIBIT (8e)
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PARTICIPATION AGREEMENT
AMONG
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
ALLIANCE FUND DISTRIBUTORS, INC.
ALLIANCE CAPITAL MANAGEMENT L.P.
AND
KEYPORT LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 21st day of August, 1996 by and
among Keyport Life Insurance Company, a Rhode Island corporation, (referred to
as the "Company"), each on its own behalf and on behalf of its Separate Account,
which is a segregated asset account of the Company; Alliance Variable Products
Series Fund, Inc. (the "Fund"), a corporation organized under the laws of the
State of Maryland; Alliance Capital Management L.P., ("Adviser"), a Delaware
limited partnership and Alliance Fund Distributors, Inc. ("Underwriter"), a
Delaware 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 Adviser on substantially
the same terms as in this Agreement (hereinafter "Participating Insurance
Companies"); and
2
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WHEREAS, the shares of the Fund are divided into several series of shares
(such series being hereinafter referred to individually as a "Portfolio" or
collectively as the "Portfolios") as shown on Schedule A attached hereto; and
WHEREAS, the Fund has been granted or 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(b)(15) and 6e-3(T)(b)(15) thereunder
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (hereinafter the "Shared
Funding Exemptive Order"); and
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, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940, as amended 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 Board 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
3
<PAGE>
WHEREAS, the Company has registered or will register the certain Separate
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, Keyport Financial Services Corporation ("KFSC"), the underwriter
for the individual variable annuity and the variable life policies, is
registered as a broker-dealer with the SEC under the 1934 Act and is a member in
good standing of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Separate Account to fund certain Variable Insurance Products.
Underwriter 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, the Adviser and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter 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
4
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Fund provided that 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 Company and the Separate Account on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC and the Fund shall
use reasonable efforts to calculate such net asset value on each day on which
the New York Stock Exchange is open for trading. Notwithstanding the foregoing,
the Board of Directors of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.3 The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts which have agreed
to participate in the Fund to fund their Separate Accounts and/or certain
qualified plans, all in accordance with the requirement 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 Adviser 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).
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 Fund's 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.
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
7
<PAGE>
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 al 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 with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Company represents and warrants that KFSC, the underwriter for the
individual variable annuity and the variable life policies, is a member in good
standing of the NASD and is a registered broker-dealer with the SEC. The
Company represents and warrants that the Company and KFSC will issue and
distribute such policies in accordance in all material
8
<PAGE>
respects with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.3 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland, and all
applicable federal and any state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Adviser.
2.4 The Fund represents that it does or intends to qualify as a Regulated
Investment Company under the 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 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
9
<PAGE>
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 the Adviser 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 believes it currently complies in all
material respects and intends at all times to comply in all material respects
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 The Adviser represents and warrants that the Underwriter is a member
in good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund's
shares in accordance with applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
10
<PAGE>
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 Delaware and any
applicable state and federal securities laws.
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
(describing only the Portfolios listed in Schedule A) as the Company may
reasonably request in connection with delivery of the prospectus to shareholders
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 (a) the Company (b) Fund in proportion to the number of
pages of the Policy and Shares prospectuses, taking into account other relevant
factors affecting the cost of printing such as covers, columns, graphs, and
charts; the Fund to bear the cost with printing the Shares's prospectus portion
of such document and the company to bear the expenses of printing the portion
with such documents relating to the Accounts. the Company will bear all
printing costs when the prospectuses are used for distribution to prospective
purchasers. In the event that the Company requests that the Fund or the Adviser
provide the Fund's prospectus in
11
<PAGE>
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
prospectuses.
3.2 The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from Fund and the Company, and
at the Fund's expense, the Fund shall provide a final copy of such Statement of
Additional Information to Company for duplication and provision to any Owner of
a Variable Insurance Product or prospective owner who requests it.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy materials, reports to shareholders and other communications (except for
prospectus and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distribution to Owners.
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,
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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)
with respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, the form of each piece of sales literature or other promotional
material in which the Fund or its investment adviser is named, at least three
(3) Business Days prior to its use. No such materials shall be used unless the
Fund or its designee approves such use within three (3) Business Days after
receipt of its material, which approval shall not be unreasonably withheld.
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
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<PAGE>
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 three (3) Business Days prior to its use. No such material
shall be used unless the Company or its designee approves of such use within
three (3) Business Days after receipt of such material, which approval shall not
be unreasonably withheld.
4.4 The Fund shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, each Separate
Account, or the Variable Insurance Products other than the information or
representations contained in or accurately derived from a registration statement
or prospectus for such Variable Insurance Products, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for such Separate Account which are in the public domain or
approved by the Company for distribution to Owners, or in sales literature or
other promotional material approved by the Company or its designee, except with
the permission of the Company.
4.5 The Fund shall provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests
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<PAGE>
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 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 articles), 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
15
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5.1 The Fund shall pay no compensation to the Company under this Agreement
(except for items covered in Article III).
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3 The Company shall bear the expense of distributing the Share's
prospectus or prospectuses in connection with new sales of the Policies and of
distributing the Fund's Shareholder reports and proxy materials to Policy
owners. The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal securities
and individual account statements for Policy owners as required by state
insurance laws.
5.4 Nothing herein shall prevent the parties hereto from otherwise
agreeing to perform, and arranging appropriate compensation for, other services
relating to the Fund, the Separate Accounts or both.
ARTICLE VI. POTENTIAL CONFLICTS
16
<PAGE>
6.1 The Fund agrees that the Board, constituted with a majority of
disinterested directors, 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.
6.2 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 only to the interests of the Owners.
17
<PAGE>
6.3 If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expenses 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.
6.4 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) and no charge or penalty will
be imposed as a result of such withdrawal; 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
18
<PAGE>
responsibility to take such remedial action in the event of a Board
determination of a material irreconcilable conflict and to bear the cost of
such remedial action as the obligation of each Participating Insurance
Company and the Company agrees to carry out its responsibilities with a view
only to the interests of the Owners.
6.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Fund and terminate this Agreement
promptly 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.
6.6 For purposes of Sections 6.3 through 6.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the 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 terminate this Agreement promptly
provided, however, that such withdrawal and termination
19
<PAGE>
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.
6.7 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, 6.1, 6.2, 6.3, 6.4, and 6.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY
7.1(a) The Company shall indemnify and hold harmless the
Underwriter, 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 statute, regulation, at common law or
otherwise, insofar as such
20
<PAGE>
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 contained in the Registration Statement,
prospectus, or sales literature of the Fund
21
<PAGE>
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 he 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 (or after such Indemnified Party shall have received notice of
such service on
22
<PAGE>
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
names 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 expense 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 FUND
7.2(a) The Fund shall indemnify and hold harmless the Company, and
each of its directors and offices and each person, if any, who controls the
Company within a meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or
23
<PAGE>
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 the Adviser, Underwriter 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, Underwriter 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 contained in a Registration Statement,
prospectus, or sales literature of the
24
<PAGE>
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 Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article 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 Section 7.2(b) and 7.2(c)
hereof.
7.2(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Separate Account, whichever is
applicable.
7.2(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have
25
<PAGE>
notified the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against an Indemnified Party,
the Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Fund to such party of the Fund's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.2(d) The Company agrees promptly to notify the Fund 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 Fund may
otherwise have.
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<PAGE>
7.3 INDEMNIFICATION BY THE UNDERWRITER
7.3(a) The Underwriter shall indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.3)
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Variable Insurance
Products not supplied by the Underwriter, Advisor, Fund or persons
under its control) or wrongful conduct of the Underwriter 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
Underwriter; or
27
<PAGE>
(iii) arise out of or result from any failure by the Underwriter 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 Underwriter in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Section 7.3(b) and 7.3(c)
hereof.
7.3(b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Separate Account, whichever is
applicable.
7.3(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Underwriter in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such services on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the Underwriter
from any liability which it may have to the Indemnified Party against 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 Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled
28
<PAGE>
to assume the defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Underwriter to such party of the
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 Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation.
7.3(d) The Company agrees promptly to notify the Underwriter 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 Underwriter
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 Massachusetts.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
29
<PAGE>
ARTICLE XI. TERMINATION
9.1 This Agreement shall continue in full force and affect until the first
to occur of:
(a) termination by any party for any reason by sixty days' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund with
respect to any Portfolio based upon the Company's determination
that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts or not consistent with the
Company's obligations to Owners; or
(c) termination by the Company by written notice to the Fund 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 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 believes that the Fund may
fail to so qualify; or
(e) termination by either the Fund or the Adviser by written notice
to the Company, if either one or both of the Fund or the Adviser
respectively,
30
<PAGE>
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 Adviser concerning the reason for notice of termination
hereunder; or
(f) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgement
exercised in good faith, that either the Fund or the Adviser 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 Fund or Adviser has been afforded a reasonable opportunity to
respond to a statement by the Company concerning the reason for
notice of termination hereunder; or
(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, or if the Fund
reasonably believes that the Variable Insurance Products may fail
to so qualify; or
31
<PAGE>
(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; or
(j) upon assignment of this Agreement, unless made with the written
consent of the parties hereto; or
(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 Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all 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 the Underwriter be
required to make additional shares available to Existing Contracts for more than
six (6) months after the date of termination of the Agreement).
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<PAGE>
9.3 The Company shall not redeem Fund shares attributable to the Variable
Insurance Products (as opposed to Fund shares attributable to the Company's
assets held in the Separate Account) except (i) as necessary to implement Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to 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 Underwriter sixty (60) 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); Section 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).
33
<PAGE>
Further, notwithstanding any termination of this Agreement for any reason,
the terms and conditions of the following provisions of this Agreement shall
remain in effect with regard to Variable Insurance Products previously
invested in the Fund; Article II (Representations and Warranties); and
Article VIII (Indemnification).
ARTICLE X. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Attn: Edmund Bergen
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attn: General Counsel
If to Adviser:
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, NY 10105
Attn: Edmund Bergen
If to Underwriter:
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York, NY 10105
Attn: Edmund Bergen
34
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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 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
35
<PAGE>
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 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
Adviser and the Company.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Jacob M. Herschler
-----------------------
Title: VICE PRESIDENT
--------------
Date: 8/21/96
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
By its authorized officer,
By: /s/ John Carifa
----------------
Title: CHAIRMAN AND PRESIDENT
----------------------
Date: 8/20/96
-------
36
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
By its authorized officer,
By: /s/ John Carifa
----------------
Title: PRESIDENT AND CHIEF OPER. OFFICER
---------------------------------
Date: 8/20/96
-------
ALLIANCE FUND DISTRIBUTORS, INC.
By its authorized officer,
By: /s/ Richard A Winge
--------------------
Title: MANAGING DIRECTOR
-----------------
Date: 8/20/96
-------
37
<PAGE>
Schedule A
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Premier Growth Portfolio
Global Bond Portfolio
38
<PAGE>
As of ________________
Schedule B
SEPARATE ACCOUNTS SELECTED FUNDS
Variable Account A Premier Growth Portfolio
(Est. 1/9/80)
Global Bond Portfolio
KMA Variable Account Same as above
(Est. 1/9/80)
39
<PAGE>
EXHIBIT 9
<PAGE>
October 23, 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 Post-Effective Amendment No. 1 (File No. 333-1043).
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 of
Keyport Life Insurance Company
We consent to the use of our report dated February 16, 1996, included herein
and to the reference to our Firm under the heading "Experts" in the Statement
of Additional Information.
Our report dated February 16, 1996 contains an explanatory paragraph that
refers to a change in accounting by the Company to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994.
Boston, Massachusetts /s/ KPMG Peat Marwick LLP
October 24, 1996
