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As filed with the Securities and Exchange Commission on October 15, 1996
Registration Nos. 333-1043
811-7543
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [ ]
--
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 [X]
Variable Account A
--------------------------
(Exact name of Registrant)
Keyport Life Insurance Company
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(Name of Depositor)
125 High Street, Boston Massachusetts 02110
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(Address of Depositor's Principal Executive Offices (Zip Code)
Depositor's Telephone Number, including Area Code: 617-526-1400
Bernard R. Beckerlegge, Esq.
Senior Vice President and General Counsel
Keyport Life Insurance Company
125 High Street, Boston, Massachusetts 02110
(Name and Address of Agent for Service)
copy to:
Joan E. Boros, Esq.
Katten, Muchin & Zavis
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on [date] pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
( ) on [date] pursuant to paragraph (a) of Rule 485
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2 and the
Rule 24f-2 Notice for Registrant's fiscal year 1996 will be filed on or about
February 28, 1997.
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Exhibit Index on Page ___
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CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
-------
Prospectus
PART B
------
Statement of Additional Information
PART C
-------
Items 24 - 32
The Signatures
Exhibits
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VARIABLE ACCOUNT A
KEYPORT LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-4
N-4 Item Caption in Prospectus
- -------- -----------------------
1 . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . Glossary of Special Terms
3 . . . . . . . . . . . Summary of Expenses
4 . . . . . . . . . . . Performance Information
5 . . . . . . . . . . . Keyport and the Variable Account
Eligible Funds
6 . . . . . . . . . . . Deductions
7 . . . . . . . . . . . Allocations of Purchase Payments
Transfer of Variable Account Value
Substitution of Eligible Funds and Other Variable
Account Changes
Modification of the Certificate
Death Provisions for Non-Qualified Certificates
Death Provisions for Qualified Certificates
Certificate Ownership
Assignment
Partial Withdrawals and Surrender
Annuity Benefits
Suspension of Payments
Inquiries by Certificate Owners
8 . . . . . . . . . . . Annuity Provisions
9 . . . . . . . . . . . Death Provisions for Non-Qualified Certificates
Death Provisions for Qualified Certificates
Settlement Options
10 . . . . . . . . . . . Purchase Payments and Applications
Variable Account Value
Valuation Periods
Net Investment Factor
Distribution of the Certificates
11 . . . . . . . . . . . Partial Withdrawals and Surrender
Option 1: Income For a Fixed Number of Years
Right to Revoke
12 . . . . . . . . . . . Tax Status
13 . . . . . . . . . . . Legal Proceedings
14 . . . . . . . . . . . Table of Contents - Statement of Additional
Information
Caption in Statement of Additional Information
----------------------------------------------
15 . . . . . . . . . . . Cover Page
16 . . . . . . . . . . . Table of Contents
17 . . . . . . . . . . . Keyport Life Insurance Company
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18 . . . . . . . . . . . Experts
19 . . . . . . . . . . . Not applicable
20 . . . . . . . . . . . Principal Underwriter
21 . . . . . . . . . . . Investment Performance
22 . . . . . . . . . . . Variable Annuity Benefits
23 . . . . . . . . . . . Financial Statements
90232.3
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PART A
90232.3
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The information contained within double rows of asterisks is provided
at the request of the staff of the Securities and Exchange Commission.
It is not and will not be part of any documents delivered to
purchasers or existing owners, and is included solely for purposes of
clarifying the content of this registration statement. In addition,
throughout the prospectus and statement of additional information
("SAI") that follow there are similar inserts that specifically
summarize the parameters of change for the particular design feature.
This registration statement includes a prospectus and SAI that
describes a generic form of the Group Flexible Premium Deferred
Annuity Contracts (the "Contracts") that are the subject of the
registration statement. The prospectus and SAI contain numerous
bracketed portions to indicate those portions which may be included or
eliminated in any particular form of the Contracts, including but not
limited to those, as follows:
death benefits;
funding media;
withdrawal rights;
transfer privileges;
annuity options;
other features
such as dollar cost averaging,
asset allocation,
systematic withdrawals, and
Account rebalancing.
In all cases variations in other bracketed features, such as issue and
annuity ages and interest rates, will be in conformity with state
insurance law. Bracketed features representing maximum limits for which
a range is not provided will not exceed, but may be less than, the amount
shown. Bracketed features representing minimum limits for which a range
is not provided will not be less than, but may exceed, the amount shown.
The prospectus and SAI also include bracketed references to the fees and
charges to be imposed under the particular form of the Contract. Of course,
in each case, Keyport only will impose such charges in a manner and subject
to the conditions of applicable rules. In connection with the various
charges under the Contracts, Keyport and its separate accounts will rely
upon and be limited by such rules as 0-1(e), 6c-8, 22d-2, 26a-1 and 26a-2
under the Investment Company Act of 1940, as amended, and in compliance
with their respective requirements,
<PAGE>
including, but not limited to any "at-cost" standards. Any descriptions of
the potential range of fees and charges should be read in the context of
such rules requirements.
Each form of the Contracts will be offered pursuant to a separate
prospectus and a separate or combined SAI, as appropriate. The content of
all prospectuses and SAIs will be identical with respect to contractual and
securities law related features to those contained in this registration
statement, except for provisions that are bracketed and which will vary
within the parameters established herein, and except for non-material
changes consistent with the requirements of Rule 485(b) under the 1933 Act
("Rule 485(b)").
Except as provided for by Rule 485(b), each prospectus and SAI and
related exhibits will be filed pursuant to Rule 485(a) with a request for
expedited or selective review consistent with precedent and the fact that
all relevant disclosure is included in this Pre-Effective Amendment
No. 2.
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GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Variable Account A
OF
KEYPORT LIFE INSURANCE COMPANY
This Prospectus offers Group Variable Annuity Contracts (the "Contracts") and
the related Certificates (the "Certificates") that are designed to fund benefits
under certain group arrangements including those that qualify for special tax
treatment under the Internal Revenue Code of 1986 (the "Code"). As required by
certain states, the Certificates may be offered as individual contracts. Unless
otherwise noted or the context so requires all references to the Certificates
include the Contracts and the individual Contracts. The Certificates are
offered on a flexible payment basis.
The variable annuity Contract (form number DVA(1)) and the Certificates
described in this prospectus provide for accumulation of Certificate Values on a
variable basis, [and also on a fixed basis.], and payments of periodic annuity
payments [on either a variable or/a] fixed basis. The Certificates are designed
for use by individuals for retirement planning purposes.
This prospectus generally describes only the variable features of the
Certificate [(for a summary of the fixed features, see Appendix
2
<PAGE>
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").
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The terms XXXXX Trust, YYYYY Fund, and XX-1 Sub-Account are included
to indicate that disclosure relevant to an actual Eligible Fund will
be provided. The actual names of the Eligible Funds and corresponding
Sub-Accounts will be included in the subsequent forms of the
prospectus and SAI.
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The Variable Account invests in shares of the following Eligible Funds of [The
XXXXX Trust ("XXXXX Trust")] at their net asset value: [X-1, X-2 and X-3]. The
Variable Account also invests in shares of the following Eligible Funds of [The
YYYYY Fund ("YYYYY Fund")] at their net asset value: [Y-1, Y-2, Y-3].
The Variable Account may offer other forms of the Contracts and Certificates
with features, and fees and charges which vary from the Certificates, and
provide for investment in other Sub-accounts which may invest in different or
additional mutual funds. Other Contracts and Certificates will be described in
separate prospectuses and statements of additional information.
A Statement of Additional Information dated the same as this prospectus has been
filed with the Securities and Exchange Commission and is herein incorporated by
reference. It is available, at no charge, by writing Keyport at 125 High
Street, Boston, MA 02110, by calling (800) 437-4466, or by returning the
postcard on the back cover of this prospectus. A table of contents for the
Statement of Additional Information is on Page xx.
THE CERTIFICATES MAY BE SOLD BY OR THROUGH BANKS OR OTHER DEPOSITORY
INSTITUTIONS. THE CONTRACT AND CERTIFICATES: ARE NOT INSURED BY THE FDIC; ARE
NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, THE DEPOSITORY
INSTITUTION; AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
3
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY
KEYPORT TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING, AND IF GIVEN OR
MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON.
The date of this prospectus is _______________,1996
4
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TABLE OF CONTENTS
Page
Glossary of Special Terms
Summary of Expenses
Synopsis
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 Distribution Charge]
[Deductions for Daily Administrative Charge]
[Deductions for Contingent Deferred Sales Charge]
[Deductions for Transfers of Variable Account Value]
Deductions for Premium Taxes
Deductions for Income Taxes
Total Variable Account Expenses
Other Services
The Certificates
Variable Account Value
Valuation Periods
Net Investment Factor
Modification of the Certificate
Right to Revoke
Death Provisions for Non-Qualified Certificates
Death Provisions for Qualified Certificates
Ownership
Assignment
Partial Withdrawals and Surrender
Annuity Provisions
Annuity Benefits
Income Date and Annuity Option
Change in Income Date and Annuity Option
Annuity Options
Variable Annuity Payment Values
Proof of Age, Sex, and Survival of Annuitant
Suspension of Payments
Tax Status
Introduction
Taxation of Annuities in General
Qualified Plans
Tax-Sheltered Annuities
Individual Retirement Annuities
Corporate Pension and Profit-Sharing Plans
Deferred Compensation Plans with Respect to
5
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Service for State and Local Governments
Variable Account Voting Privileges
Sales of the Contract and Certificates
Legal Proceedings
Inquiries by Certificate Owners
Table of Contents--Statement of Additional Information
[Appendix A--The Fixed Account (also known as the Modified
Guaranteed Annuity Account)]
Appendix [B]--Telephone Instructions
6
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT: An accounting unit of measure used to calculate Variable
Account Value.
ANNUITANT: The Annuitant is the natural person to whom any annuity payments will
be made starting on the Income Date. The Annuitant may not be over age [80] on
the Certificate Date (age [75] for Qualified Certificates).
CERTIFICATE ANNIVERSARY: The same month and day as the Certificate Date in each
subsequent year of the Certificate.
CERTIFICATE DATE: The effective date of the Certificate; it is shown on the
Certificate Schedule.
CERTIFICATE OWNER: The person (or persons in the case of joint ownership) who
possesses all the ownership rights under the Certificate. The primary
Certificate Owner may not be over age [80] on the Certificate Date (age [75] for
Qualified Certificates and age [85] for a joint Owner).
CERTIFICATE VALUE: The [sum of the] Variable Account Value [and the Fixed
Account Value].
CERTIFICATE WITHDRAWAL VALUE: The Certificate Value [increased or decreased by
a limited Market Value Adjustment] less any premium taxes [and] [Certificate
Maintenance Charge] [and] [applicable Contingent Deferred Sales Charges].
CERTIFICATE YEAR: Any period of 12 months commencing with the Certificate Date
and each Certificate Anniversary thereafter shall be a Certificate Year.
[COVERED PERSON: The person(s) identified on the Certificate Schedule whose
death may result in an Adjustment of Certificate Value [and waiver of any
Contingent Deferred Sales Charges] [and a waiver of any Market Value
Adjustment] [or whose medically necessary stay in a hospital or nursing facility
may allow the Certificate Owner to be eligible for either a total or partial
waiver of the Contingent Deferred Sales Charge].]
DESIGNATED BENEFICIARY: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint Certificate
Owner. The Designated Beneficiary will be the first person among the following
who is alive on the date of death: primary Certificate Owner; joint Certificate
Owner; primary beneficiary; contingent beneficiary; and if none of the above is
alive, the primary Certificate Owner's estate. If the primary Certificate Owner
and joint Certificate Owner are both alive, they will be the Designated
Beneficiary together.
7
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ELIGIBLE FUNDS: The mutual funds that are eligible investments for the Variable
Account under the Certificates.
[FIXED ACCOUNT: Part of Keyport's general account to which Purchase Payments may
be allocated or Certificate Values may be transferred.]
[FIXED ACCOUNT VALUE: The value of all Fixed Account amounts accumulated under
the Certificate prior to the Income Date.]
[GUARANTEE PERIOD ANNIVERSARY: An anniversary of a Guarantee Period's Start
Date.]
[GUARANTEE PERIOD MONTH: The first Guarantee Period Month is the monthly period
which begins on the Start Date. Subsequent Guarantee Period Months begin on the
same day in the ensuing months.]
[GUARANTEE PERIOD YEAR: The first Guarantee Period Year is the annual period
which begins on the Start Date. Subsequent Guarantee Period Years begin on each
Guaranteed Period Anniversary.]
IN FORCE: The status of the Certificate before the Income Date so long as it is
not totally surrendered, the Certificate Value under a Certificate does not go
to zero, and there has not been a death of the Annuitant or any Certificate
Owner that will cause the Certificate to end within at most five years of the
date of death.
INCOME DATE: The date on which annuity payments are to begin.
NON-QUALIFIED CERTIFICATE: Any Certificate that is not issued under a Qualified
Plan.
OFFICE: Keyport's executive office, which is 125 High Street, Boston,
Massachusetts 02110.
QUALIFIED CERTIFICATE: Certificates issued under Qualified Plans.
QUALIFIED PLAN: A retirement plan established pursuant to the provisions of
Sections 401, 403(b) or 408(b) of the Internal Revenue Code. Keyport treats
Section 457 plans as Qualified Plans.
[START DATE: The date an amount is first allocated to a Guarantee Period].
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.
8
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VARIABLE ACCOUNT VALUE: The value of all Variable Account amounts accumulated
under the Certificate prior to the Income Date.
WRITTEN REQUEST: A request written on a form satisfactory to Keyport, signed by
the Certificate Owner and a disinterested witness, and filed at Keyport's
Office.
9
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SUMMARY OF EXPENSES
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SUMMARY OF EXPENSES WILL BE COMPLETED IN EACH RULE 497 OR 485(b) FILING.
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The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
certificate in understanding the transaction and operating expenses the owner
will directly or indirectly bear under a certificate. The values reflect
expenses of the Variable Account as well as the Eligible Funds under the
Certificates. The expenses shown for the Eligible Funds and the examples should
not be considered a representation of future expenses.
CERTIFICATE OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): [7%(1)
YEARS FROM DATE OF PAYMENT SALES CHARGE
-------------------------- ------------
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%]
Maximum Total Certificate Owner Transaction Expenses
(as a percentage of Purchase Payments): [7%]
Annual Certificate Maintenance Charge(2) $[36]
[The Certificate Maintenance Charge will be waived 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
10
<PAGE>
(ii) Purchase Payments of at least [$2,500] have been made in the prior
Certificate Year and there has been no partial withdrawal in the prior
Certificate Year.]
[The Certificate Maintenance Charge will be waived on or after the Income Date
for the current years 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 years, the present value
of all remaining payments (See "Option A" on Page xx) is greater than or
equal to $40,000.]
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Mortality and Expense Risk Charge: [1.25%]
[Distribution Charge:] [ .15%]
[Administrative Charge:] [ .15%]
Total Variable Account Annual Expenses: [1.55%]
[XXXXX TRUST AND YYYYY FUND] ANNUAL EXPENSES(3)
(as a percentage of average net assets)
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES OPERATING EXPENSES(4)
- ---- ---------- -------- ------------------
[After Expense
Reimbursements]
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE FUNDS. KEYPORT
HAS NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION AND DISCLAIMS
ALL LIABILITY FOR ANY CLAIM, LOSS OR EXPENSE RESULTING FROM ANY INACCURATE
INFORMATION ABOUT THE ELIGIBLE FUNDS.
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
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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
- ----------- ------ ------- ------- --------
11
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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)[The XXXXX Trust] expenses are for 199[4]. [The YYYYY Fund] expenses are
estimated and reflect the [YYYYY Fund's] Manager's agreement to reimburse
expenses above certain limits (see footnote 4).
[(4)[YYYYY Fund's] manager has agreed until [a/bb/cc] to reimburse all expenses,
including management fees, in excess of the following percentage of the average
annual net assets of each Fund, so long as such reimbursement would not result
in the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code. The total percentages shown in the table for [YY-1, YY-2
and YY-3] are after expense reimbursement. Each percentage shown in the
parentheses is what the total for 199[ ] would be in the absence of expense
reimbursement: for [YY-1 - xxx%; for YY-2 - xxx%; and for YYY-3 - xxx%.]]
(5)The annuity is designed for retirement planning purposes. Surrenders prior
to the Income Date are not consistent with the long-term purposes of the
Certificate and the applicable tax laws.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND CHARGES OF THE SUB-ACCOUNTS. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. SIMILARLY, THE ASSUMED 5%
12
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ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A GUARANTEE OF FUTURE INVESTMENT
PERFORMANCE. See "Deductions" in this prospectus, ["How the Funds are Managed"]
in the prospectus for [XXXXX Trust], and ["Trust Management Organizations"] and
["Expenses of the Funds"] in the prospectus for [YYYYY Fund].
SYNOPSIS
The following Synopsis should be read in conjunction with the detailed
information in this prospectus and the Statement of Additional Information.
Please refer to the Glossary of Special Terms for the meaning of certain defined
terms. Variations from the information appearing in this prospectus due to
individual state requirements are described in supplements which are attached to
this prospectus, or in endorsements to the Certificates, as appropriate.
The Certificate allows Certificate Owners to allocate Purchase Payments to the
Variable Account [and also to the Fixed Account.] The Variable Account is a
separate investment account maintained by Keyport. [The Fixed Account is part
of Keyport's "general account", which consists of all Keyport's assets except
the Variable Account and the assets of other separate accounts maintained by
Keyport.] Certificate Owners may allocate payments to, and receive annuity
payments from the Variable Account [and/or the Fixed Account]. If the
Certificate Owner allocates payments to the Variable Account, the accumulation
values and annuity payments will fluctuate according to the investment
experience of the Sub-Accounts chosen. [If the Certificate Owner allocates
payments to the Fixed Account, the accumulation values will increase at
guaranteed interest rates and annuity payments will be of a fixed amount. [Fixed
Account Values are subject to a limited market value adjustment]. (See Appendix
A on Page xx for more information on the Fixed Account.)] [If the Certificate
Owner allocates payments to both Accounts, then the accumulation values and
annuity payments will be variable in part and fixed in part.]
The Certificate permits Purchase Payments to be made on a flexible Purchase
Payment basis. The minimum initial payment is $[5,000]. The minimum amount for
each subsequent payment is $[1,000]. (See "Purchase Payments" on Page x.)
There are no deductions made from Purchase Payments for sales charges at the
time of purchase. [A Contingent Deferred Sales Charge may be deducted in the
event of a total or partial surrender (see "Surrenders" on Page xx). The
Contingent Deferred Sales Charge is based on a graded table of charges. The
charge will not exceed [7]% of that portion of the amount surrendered that
represents Purchase Payments made during the [seven] years
13
<PAGE>
immediately preceding the request for surrender. (See "Deductions for
Contingent Deferred Sales Charge" on Page xx.)]
Keyport deducts a Mortality and Expense Risk Charge, which is equal on an annual
basis to [1.25]% of the average daily net asset values in the Variable Account
attributable to the Certificates. (See "Deductions for Mortality and Expense
Risk Charge" on Page xx.) [Keyport also deducts a daily distribution charge
which is equal on an annual basis to [.15%] of the same values. (See
"Deductions for Daily Sales Charge" on Page xx.)] [Keyport deducts a Daily
Administrative Charge which is equal on an annual basis to [.15]% of the same
values. (See "Deductions for Daily Administrative Charge" on Page xx.)]
[Keyport deducts an annual Certificate Maintenance Charge (currently $[36.00])
from the Variable Account Value for administrative expenses. Prior to the
Income Date, Keyport reserves the right to change this charge for future years.
[Keyport will in certain instances waive this charge.] (See "Deductions for
Certificate Maintenance Charge" on Page xx.)]
Keyport reserves the right to deduct a charge of $[50] for each transfer in
excess of [12] per Certificate Year.
Premium taxes will be charged against the Certificate Value. Currently such
premium taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes" on
Page xx.)
There are no federal income taxes on increases in the value of a Certificate
until a distribution occurs, in the form of a lump sum payment, annuity
payments, or the making of a gift or assignment of the Certificate. A federal
penalty tax (currently 10%) may also apply. (See "Tax Status" on Page xx.)
The Certificate allows the Certificate Owner to revoke the Certificate generally
within 10 days of delivery (see "Right to Revoke" on Page xx). For most states,
Keyport will refund the Certificate Value as of the date the returned
Certificate is received by Keyport, plus any distribution charges previously
deducted. The Certificate Owner thus will bear the investment risk during the
revocation period. In other states, Keyport will return Purchase Payments. In
such other states Purchase Payments will be allocated to the [XX-1] Sub-Account
during the "freelook" period plus an additional 10 days.
The full financial statements for [the Variable Account and] Keyport are in the
Statement of Additional Information.
PERFORMANCE INFORMATION
14
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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.]
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
15
<PAGE>
percentage will thus be higher under this method than the standard method
described above.]
[Second,] the Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a specified
time period by the Accumulation Unit value of that Sub-Account at the beginning
of the period. This computation results in a 12-month change rate or, for
longer periods, a total rate for the period which Keyport annualizes in order to
obtain the average annual percentage change in the Accumulation Unit value for
that period. The change percentages do not take into account [the Contingent
Deferred Sales Charge, the Certificate Maintenance Charge and] premium tax
charges. The percentages would be lower if these charges were included.
The [XX-1] Sub-Account is a money market Sub-Account that also may advertise
yield and effective yield information. The yield of the Sub-Account refers to
the income generated by an investment in the Sub-Account over a specifically
identified 7-day period. This income is annualized by assuming that the amount
of income generated by the investment during that week is generated each week
over a 52-week period and is shown as a percentage. The yield reflects the
deduction of all charges assessed against the Sub-Account and a Certificate but
does not take into account [Contingent Deferred Sales Charges and] premium tax
charges. The yield would be lower if these charges were included.
The effective yield of the [XX-1] Sub-Account is calculated in a similar manner
but, when annualizing such yield, income earned by the Sub-Account is assumed to
be reinvested. This compounding effect causes effective yield to be higher than
yield.
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
16
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A+ rating is in the highest rating category, which also includes A++. S & P and
Duff & Phelps have one rating category above AA and Moody's has two rating
categories above A. The Moody's "1" modifier signifies that Keyport is in the
higher end of the A category while the S&P and Duff & Phelps "-" modifier
signifies that Keyport is at the lower end of the AA category. These ratings
merely reflect the opinion of the rating company as to the relative financial
strength of Keyport and Keyport's ability to meet its contractual obligations to
its policyholders. Even though assets in the Variable Account are held
separately from Keyport's other assets, ratings of Keyport may still be relevant
to Certificate Owners since not all of Keyport's contractual obligations relate
to payments based on those segregated assets (e.g., see "Death Provisions" for
Keyport's obligation after certain deaths to increase the Certificate Value if
it is less than Death Benefit Amount or otherwise enhance the death benefit with
interest).
Keyport is one of the Liberty Financial Companies. Keyport is ultimately
controlled by Liberty Mutual Insurance Company of Boston, Massachusetts, a
multi-line insurance and financial services institution.
The Variable Account was established by Keyport pursuant to the provisions of
Rhode Island Law on January 30, 1996. The Variable Account meets the definition
of "separate account" under the federal securities laws. The Variable Account
is registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Such registration does not
involve supervision of the management of the Variable Account or Keyport by the
Securities and Exchange Commission.
Obligations under the Certificates are the obligations of Keyport. Although the
assets of the Variable Account are the property of Keyport, these assets are
held separately from the other assets of Keyport and are not chargeable with
liabilities arising out of any other business Keyport may conduct. Income,
capital gains and/or capital losses, whether or not realized, from assets
allocated to the Variable Account are credited to or charged against the
Variable Account without regard to the income, capital gains, and/or capital
losses arising out of any other 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
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17
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The minimums and maximums described in the following paragraph may
vary within any limits permitted under state insurance law and
Keyport's administrative guidelines in existence at the time of
issuance of the Certificate.
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********************************************************************************
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $[5,000]. Additional Purchase Payments can be made
at the Certificate Owner's option. Each subsequent Purchase Payment must be at
least $[1,000] or such lesser amount as Keyport may permit from time to time
[(currently $250)]. Keyport may reject any Purchase Payment.
If the application for a Certificate is in good order and it calls for amounts
to be allocated to the Variable Account, Keyport will apply the initial Purchase
Payment to the Variable Account and credit the Certificate with Accumulation
Units within two business days of receipt. If the application for a Certificate
is not in good order, Keyport will attempt to get it in good order within five
business days. If it is not complete at the end of this period, Keyport will
inform the applicant of the reason for the delay and that the Purchase Payment
will be returned immediately unless the applicant specifically consents to
Keyport's keeping the Purchase Payment until the application is complete. Once
the application is complete, the Purchase Payment will be applied within two
business days of its completion. Keyport has reserved the right to reject any
application.
Keyport confirms, in writing, to the Certificate Owner the allocation of all
Purchase Payments and the re-allocation of values after any requested transfer.
Keyport must be notified immediately by the Certificate Owner of any processing
error.
Keyport will permit others to act on behalf of an applicant in certain
instances, including the following two examples. First, Keyport will accept an
application for a Certificate that contains a signature signed under a power of
attorney if a copy of that power of attorney is submitted with the application.
Second, Keyport will issue a Certificate that is not replacing an unaffiliated
company's existing life insurance or annuity policy without having previously
received a signed application from the applicant. Certain dealers or other
authorized persons such as employers and Qualified Plan fiduciaries will inform
Keyport of an applicant's answers to the questions in the application by
telephone or by order ticket and cause the initial 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
18
<PAGE>
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
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********************************************************************************
The percentage of required allocations to each Sub-Account may vary from 1%
to 10%.
********************************************************************************
********************************************************************************
Purchase Payments applied to the Variable Account will be invested in one or
more of the Eligible Fund Sub-Accounts designated as permissible investments in
accordance with the selection made by the Certificate Owner in the application.
Any selection must specify the percentage of the Purchase Payment that is
allocated to each Sub-Account [or must specify the asset allocation model
selected. (See Other Services, the Programs on Page xx).] The percentage for
each Sub-Account, if not zero, must be at least [10]% and must be a whole
number. A Certificate Owner may change the allocation percentages without fee,
penalty or other charge. Allocation changes must be made by Written Request
unless the Certificate Owner has by Written Request authorized Keyport to accept
telephone allocation instructions from the Certificate Owner or from a person
acting for the Certificate Owner as an attorney-in-fact under a power of
attorney. By authorizing Keyport to accept telephone changes, a Certificate
Owner agrees to accept and be bound by the conditions and procedures established
by Keyport from time to time. The current conditions and procedures are in
Appendix [B] and Certificate Owners authorizing telephone allocation
instructions will be notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account contains
the shares of one of the Eligible Funds and such shares are purchased at net
asset value. Eligible Funds and Sub-accounts may be added or withdrawn as
permitted by applicable
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law. The Sub-Accounts in the Variable Account and the corresponding Eligible
Funds currently are as follows:
20
<PAGE>
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TEXT HERE WILL DESCRIBE ELIGIBLE FUNDS AND CORRESPONDING SUB-ACCOUNTS
********************************************************************************
********************************************************************************
ELIGIBLE FUNDS OF [XXXXX TRUST] SUB-ACCOUNTS
- ------------------------------- ------------
[XX-1] [XX-1 Sub-Account]
[XX-2] [XX-2 Sub-Account]
[XX-3] [XX-3 Sub-Account]
ELIGIBLE FUNDS OF [YYYYY FUND] SUB-ACCOUNTS
- ------------------------------ ------------
[YY-1] [YY-1 Sub-Account]
[YY-2] [YY-2 Sub-Account]
[YY-3] [YY-3 Sub-Account]
ELIGIBLE FUNDS
The Eligible Funds which are the permissible investments of the Variable Account
are the separate funds of [XXXXX Trust, the separate funds of YYYYY Fund], and
any other mutual funds with which Keyport and the Variable Account may enter
into a participation agreement for the purpose of making such mutual funds
available as Eligible Funds under certain Certificates.
********************************************************************************
********************************************************************************
TEXT HERE WILL DESCRIBE INDIVIDUAL INVESTMENT ADVISERS
********************************************************************************
********************************************************************************
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a fund for investing. The prospectus is available, at no
charge, from a salesperson or by writing Keyport at the address shown on Page 1
or by calling (800) 437-4466.
ELIGIBLE FUNDS OF [XXXXX TRUST]
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
- --------------------------------- --------------------
21
<PAGE>
********************************************************************************
********************************************************************************
TEXT HERE WILL DESCRIBE FUNDS AND INVESTMENT OBJECTIVES
********************************************************************************
********************************************************************************
ELIGIBLE FUNDS OF [YYYYY FUND]
AND VARIABLE ACCOUNT SUB-ACCOUNTS INVESTMENT OBJECTIVE
- --------------------------------- --------------------
THERE IS NO ASSURANCE THAT THE ELIGIBLE FUNDS WILL ACHIEVE THEIR STATED
OBJECTIVES.
[XXXXX and YYYYY] Funds are funding vehicles for variable annuity contracts and
variable life insurance policies offered by separate accounts of Keyport and of
insurance companies affiliated and unaffiliated with Keyport. The risks
involved in this "mixed and shared funding" are disclosed in the Trust's and
Fund's prospectus under the caption ["The Trust"] and [SALES AND REDEMPTIONS,]
respectively.
TRANSFER OF VARIABLE ACCOUNT VALUE
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********************************************************************************
The number of transfers will vary between zero (0) and the maximum
number that Keyport determines is consistent with interpretations of
applicable tax law restrictions on contract owner control which may
permit an unlimited number of transfers. The transfer charge, if any,
imposed on transfers in excess of the stipulated number will not exceed
the lesser of $50 or the administrative cost for each transfer in excess
of that number. The maximum number of free transfers, assuming the
imposition of a transfer charge, will be 12. The minimum amount that may
be transferred will range between $0 and $500, and the minimum required
remaining Sub-Account Value ranges between $0 and $100.
********************************************************************************
********************************************************************************
Certificate Owners may transfer Variable Account Value from one Sub-Account
to another Sub-Account [and/or to the Fixed Account]. Currently [x] transfers
are permitted. The minimum amount of Variable Account Value that may be
transferred is [$500] and the remaining Variable Account Value in the
Sub-Account is [$100].
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
22
<PAGE>
would have been had the transfer been made on the desired date. Currently,
Keyport is [not] charging a transfer fee [of [x] for each transfer in excess of
[xx] per Certificate Year.] For transfers under different Certificates that are
being requested under powers of attorney with a common attorney-in-fact or that
are, in Keyport's determination, based on the recommendation of a common
investment adviser or broker/dealer, there is a transfer limitation of one
transfer every 30 days.
Keyport is also limiting each transfer to a maximum of $500,000. All transfers
requested for a Certificate on the same day will be treated as a single transfer
and the total combined transfer amount will be subject to the $500,000
limitation. If the $500,000 limitation is exceeded, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation, Keyport may treat as one transfer all
transfers requested by a Certificate Owner for multiple Certificates he or she
owns. If the $500,000 limitation is exceeded for multiple transfers requested
on the same day that are treated as a single transfer, no amount of the transfer
will be executed by Keyport.
In applying the $500,000 limitation to transfers requested by a common attorney-
in-fact or investment adviser, Keyport will treat as one transfer all transfers
requested under different Certificates that are being requested under powers of
attorney with a common attorney-in-fact or that are, in Keyport's determination,
based on the recommendation of a common investment adviser or broker/dealer. If
the $500,000 limitation is exceeded for multiple transfers requested on the same
day that are treated as a single transfer, no amount of the transfer will be
executed by Keyport. If a transfer is executed under one Certificate and,
within the next 30 days, a transfer request for another Certificate is
determined by Keyport to be related to the executed transfer under this
paragraph's rules, the transfer request will not be executed by Keyport. In
order for it to be executed, it would need to be requested again after the 30
day period has expired and it, along with any other transfer requests that are
collectively treated as a single transfer, would need to total less than
$500,000.
Keyport's interest in applying these limitations is to protect the interests of
both Certificate Owners who are not engaging in significant transfer activity
and Certificate Owners who are engaging in such activity. Keyport has
determined that the actions of Certificate Owners engaging in significant
transfer activity among Sub-Accounts may cause an adverse affect on the
performance of the Eligible Fund for the Sub-Account involved. The movement of
Sub-Account values from one Sub-Account to another may prevent the appropriate
Eligible Fund from taking advantage of investment opportunities because it must
maintain a
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<PAGE>
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 $[50] and the cost of effecting a transfer.
Transfers must be made by Written Request unless the Certificate Owner has by
Written Request authorized Keyport to accept telephone transfer requests from
the Certificate Owner or from a person acting for the Certificate Owner as an
attorney-in-fact under a power of attorney. By authorizing Keyport to accept
telephone transfer instructions, a Certificate Owner agrees to accept and be
bound by the conditions and procedures established by Keyport from time to time.
The current conditions and procedures are in Appendix [B] and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any changes.
Written transfer requests may be made by a person acting for the Certificate
Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be initiated at the
close of business that day. Any requests received later will be initiated at
the close of the next business day. Each request from a Certificate Owner to
transfer value will be executed by both redeeming and acquiring Accumulation
Units on the day Keyport initiates the transfer.
If 100% of any Sub-Account's value is transferred and the allocation formula for
Purchase Payments includes that Sub-Account, then the allocation formula for
future Purchase Payments will automatically change unless the Certificate Owner
instructs otherwise. For example, if the allocation formula is 50% to Sub-
Account A and 50% to Sub-Account B and all of Sub-Account A's value is
transferred to Sub-Account B, the allocation formula will change to 100% to Sub-
Account B unless the Certificate Owner instructs otherwise.
SUBSTITUTION OF ELIGIBLE FUNDS AND OTHER VARIABLE ACCOUNT CHANGES
If the shares of any of the Eligible Funds should no longer be available for
investment by the Variable Account or if in the judgment of Keyport's management
further investment in such fund shares should become inappropriate in view of
the purpose of the Certificate, Keyport may add or substitute shares of another
Eligible Fund or of another mutual fund for Eligible Fund shares already
purchased under the Certificate. No substitution of Fund shares in any Sub-
Account may take place without prior approval
24
<PAGE>
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
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********************************************************************************
The Certificate Maintenance Charge, as stated in the body of the
prospectus never will exceed the anticipated costs of administering
the Certificates. Moreover, it will not exceed a maximum dollar amount
of $100. Under certain forms of the Certificate Keyport may not impose
any Certificate Maintenance Charge. The amount of purchase payments
necessary to support a waiver of the charge ranges between $1000 and $5000.
********************************************************************************
********************************************************************************
Keyport has responsibility for all administration of the Certificates and the
Variable Account. This administration includes, but is not limited to,
preparation of the Certificates, maintenance of Certificate Owners' records, and
all accounting, valuation, regulatory and reporting requirements. Keyport makes
a Certificate Maintenance Charge for such services during the accumulation and
annuity payment periods. At the present time the Certificate Maintenance Charge
is $[36] per Certificate Year. PRIOR TO THE INCOME DATE THE CERTIFICATE
MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED BY KEYPORT. The charge
will not exceed the anticipated costs of administering the Certificate.
[The Certificate Maintenance Charge will be waived if:
(i) the Certificate Value is greater than $40,000 on the date this
charge is imposed, or
(ii) Purchase Payments of at least [$2,500] have been made in the prior
Certificate Year and there has been no partial withdrawal in the
prior Certificate Year.]
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
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<PAGE>
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.]
********************************************************************************
********************************************************************************
The Mortality and Expense Risk Charge as stated in the body of the
prospectus will vary between 35 and 125 basis points. The variations
will depend upon the precise combination of features and are designed
to compensate Keyport for the costs it expects to incur, based on
those particular benefits and features incorporated into the
particular form of the Certificate, over the period the Certificate is
in force.
********************************************************************************
********************************************************************************
Deductions for Mortality and Expense Risk Charge
Although variable annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of the Variable Account, they
will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. Keyport guarantees the
Death Benefits described below (see "Death Benefits"). [Keyport assumes an
expense risk that the asset-based Administrative Charge will be insufficient to
cover the anticipated portion of Keyport's administrative expenses.] [Keyport
assumes an expense risk since the Certificate Maintenance Charge after the
Income Date will stay the same and not be affected by variations in expenses.]
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To compensate it for assuming mortality and expense risks, for each Valuation
Period Keyport deducts from each Sub-Account a Mortality and Expense Risk Charge
equal on an annual basis to [.35 - 1.25]% of the average daily net asset value
of the Sub-Account. The charge is deducted during both the accumulation and
annuity periods (i.e., both before and after the Income Date). Less than the
full charge will be deducted from Sub-Account values attributable to
Certificates issued to employees of Keyport and other persons specified in
"Sales of the Certificate".
[DEDUCTIONS FOR DAILY DISTRIBUTION CHARGE
********************************************************************************
********************************************************************************
A daily Distribution Charge may not apply to all forms of the
Certificate. It will be imposed at a maximum rate of 15 basis points
of net assets when such imposition combined with any contingent
deferred sales charge does not result in the imposition of sales
charges that exceed 9% of Purchase Payments.
********************************************************************************
********************************************************************************
Keyport also deducts from each Sub-Account each Valuation Period a daily
Distribution Charge equal on an annual basis to 0.[15]% of the average daily net
asset value of the Sub-Account. This charge compensates Keyport for certain
sales distribution expenses relating to the Certificate.
This charge will not be deducted from Sub-Account values attributable to
Certificates that have reached the maximum cumulative distribution charge limit
defined below and to Certificates issued to employees of Keyport and other
persons specified in "Sales of the Certificate". The charge is also not
deducted from Sub-Account values attributable to Annuity Units. Keyport may
decide not to deduct the charge from Sub-Account values attributable to a
Certificate issued in an internal exchange or transfer of an annuity contract of
Keyport's general account.]
[DEDUCTIONS FOR DAILY ADMINISTRATIVE CHARGE
********************************************************************************
********************************************************************************
A daily Administrative Charge may not apply to all forms of the
Certificate. The maximum daily Administrative Charge will be 15 basis
points. This charge may be adjusted giving
27
<PAGE>
consideration to the amount of the Certificate Maintenance Charge, but in
no event greater than anticipated costs for the Certificates.
********************************************************************************
********************************************************************************
Keyport also deducts from each Sub-Account each Valuation Period an
Administrative Charge equal on an annual basis to 0.[15]% of the average daily
net asset value of the Sub-Account. This charge compensates Keyport for a
portion of the administrative expenses relating to the Certificate.]
[DEDUCTIONS FOR CONTINGENT DEFERRED SALES CHARGE
********************************************************************************
********************************************************************************
The Contingent Deferred Sales Charge may not apply to all forms of the
Certificate. The Contingent Deferred Sales Charge, including any
amounts deducted through the daily Sales Charge, will not exceed 9% of
Purchase Payments. The Contingent Deferred Sales Charge, not including
any amount deducted through the daily Sales Charge, will in no event
exceed a duration of 7 years and 7%.
********************************************************************************
********************************************************************************
A sales charge is not deducted from the Certificate's Purchase Payments when
initially received. However, a Contingent Deferred Sales Charge may be deducted
upon a surrender.
In order to determine whether a Contingent Deferred Sales Charge will be due
upon a partial or total surrender, Keyport maintains a separate set of records.
These records identify the date and amount of each Purchase Payment made to the
Certificate and the Certificate Value over time.
Certificate Owners will be permitted to make partial surrenders during the
Accumulation Period without incurring a Contingent Deferred Sales Charge, as
follows:
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.
28
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2. In any Certificate Year after the first, Certificate Owners may
withdraw, in addition to the amount available in 1., the amount by which 10% of
the Certificate Value as of the preceding Certificate Anniversary exceeds the
amount available in 1.
Contingent Deferred Sales Charges, as discussed below, will be deducted with
respect to withdrawals in excess of these amounts.
In computing the applicable charge amounts, the amount of any surrender in any
Certificate Year after the first as set forth in 2. above, will be deducted from
the Purchase Payments in chronological order from the oldest to the most recent
until the amount is fully deducted. Any amount so deducted will not be subject
to a charge.
The following additional amounts will be deducted from the Purchase Payments in
the same chronological order: the amount of any surrender in the first
Certificate Year in excess of the amount set forth in 1. above and the amount of
any surrender in any later Certificate Year in excess of the combined amount set
forth in 1. and 2. above. The Contingent Deferred Sales Charge for each
Purchase Payment from which a deduction is made will be equal to (a) multiplied
by (b), where:
(a) is the amount so deducted; and
(b) is the applicable percentage for the number of years that have elapsed from
the date of that payment to the date of surrender. Years are measured from
the month and day of payment to the same month and day in each subsequent
calendar year. The percentages applicable to each Purchase Payment during
the [seven] years after the date of its payment are: [7% during year 1; 6%
during year 2; 5% during year 3; 4% during year 4; 3% during year 5; 2%
during year 6; 1% during year 7;] and 0% thereafter.
The applicable Contingent Deferred Sales Charges for each Purchase Payment are
then totalled. The lesser of this total amount and the Certificate's maximum
cumulative distribution charge will be deducted from the Certificate Value in
the same manner as the surrender amount. The maximum cumulative distribution
charge is equal to (a) less (b), where (a) is 9% of the total Purchase Payments
made to the Certificate and (b) is the sum of all prior Contingent Deferred Sale
Charge deductions from the Certificate Value [and all prior Variable Account
daily distribution charges applicable to the Certificate from the 0.15%
distribution charge factor.] After each surrender, Keyport's records will be
adjusted to reflect any deductions made from the applicable Purchase Payments.
29
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Example: Two Purchase Payments were made one year apart for $5,000 and $7,000.
The Certificate Value has grown to an assumed $13,200 when the Certificate Owner
decides to withdraw $8,000. The Certificate Value at the beginning of the
Certificate Year of surrender was $13,000. The Contingent Deferred Sales Charge
percentages at the time of surrender are an assumed 5% for the $5,000 payment
and 6% for the $7,000 payment. The portion of the surrender representing the
Certificate's earnings ($13,200 less $12,000, or $1,200) would not be subject to
charges. Since $1,200 is less than the amount guaranteed not to have charges
(10% of $13,000, or $1,300), an additional $100 would not be subject to charges.
This $100 would be deducted from the oldest Purchase Payment, reducing it from
$5,000 to $4,900. The $1,200 increase in value plus the additional $100 leaves
$6,700 ($8,000 - 1,200 - 100) to be deducted. This $6,700 would be deducted
from the $4,900 of the first payment still left and $1,800 of the second
payment. The total Contingent Deferred Sales Charge would be $4,900 multiplied
by the applicable 5% and $1,800 times the applicable 6%, or a total of $353.
The distribution charge records would now reflect $0 for the 1st payment and
$5,200 for the 2nd payment. The $8,000 requested plus the $353 charge would be
deducted from Certificate Values under the rules specified in the "Surrenders"
section.
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The maximum compensation payable on the sale of Certificates is 6.50%.
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The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover the expenses of selling the Certificate, including compensation paid to
selling dealers and the cost of sales literature. Any expenses not covered by
the charge will be paid from Keyport's general account, which may include monies
deducted from the Variable Account for the Mortality and Expense Risk Charge. A
dealer selling the Certificate may receive up to [6.25%] of Purchase Payments
[with additional compensation later based on the Certificate Value of those
payments. During certain time periods selected by Keyport and [KFSC], the
percentage may increase to [6.50]%.]
The Contingent Deferred Sales Charge will be waived in the event a Covered
Person is confined in a medical facility in accordance with the provisions and
conditions of an endorsement relating to such confinements.
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The Contingent Deferred Sales Charge will be eliminated under Certificates
issued to employees of Keyport and other persons specified in "Sales of the
Certificate".
[Keyport may reduce or change to 0% any Contingent Deferred Sales Charge
percentage under a Certificate issued in an internal exchange or transfer of an
annuity contract of Keyport's general account.]
[DEDUCTIONS FOR TRANSFERS OF VARIABLE ACCOUNT VALUE
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The charge for transfers will range from zero to an amount equal to
the administrative costs of effecting the transfer, as described
below, not to exceed $50.
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The Certificate allows Keyport to charge a transfer fee. Currently no fee is
being charged. Certificate Owners will be notified, in advance, of the
imposition of any fee. The fee will not exceed the lesser of $[50] and the cost
of effecting a transfer.]
DEDUCTIONS FOR PREMIUM TAXES
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Keyport elects to defer such deduction. It
is not possible to describe precisely the amount of premium tax payable on any
transaction involving the Certificate offered hereby. Such premium taxes
depend, among other things, on the type of Certificate (Qualified or Non-
Qualified), on the state of residence of the Certificate Owner, the state of
residence of the Annuitant, the status of Keyport within such states, and the
insurance tax laws of such states. Currently such premium taxes range from 0%
to 5.0% of either total Purchase Payments or Certificate Value.
DEDUCTIONS FOR INCOME TAXES
Keyport will deduct from any amount payable under the Certificate any income
taxes that a governmental authority requires Keyport to withhold with respect to
that amount. See "Income Tax Withholding" and "Tax-Sheltered Annuities".
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TOTAL ACCOUNT EXPENSES
Total Variable Account expenses in relation to the Certificate will be [the
Certificate Maintenance Charge,] the Mortality and Expense Risk Charge, [the
Daily Sales Charge, and the Daily Administrative Charge.]
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out of
the assets of the Eligible Funds. These deductions and expenses are described
in the Eligible Fund prospectus.
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OTHER SERVICES
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Each of the following Programs may or may not be offered under any
form of the Certificate. The minimum amount that may be transfered
under the Dollar Cost Averaging Program ranges between $75 and $750.
The required notice period for the Rebalancing Program will not exceed
thirty days. The minimum Purchase Payment for the Systematic Investment
Program ranges between $100 and $1000. The minimum amount that may be
withdrawn under the Systematic Withdrawal Program ranges between
$100 and $250.
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THE PROGRAMS. Keyport offers several investment related programs which are
available only prior to the Income Date: [Asset Allocation]; [Dollar Cost
Averaging]; [Systematic Investment]; and [Systematic Withdrawal] Programs. [A
Rebalancing Program is available prior to and after the Income Date.] Under
each Program, the related transfers between and among Sub-Accounts [and the
Fixed Account] are not counted as one of the [twelve] free transfers. Each of
the Programs has its own requirements, as discussed below. Keyport reserves the
right to terminate any Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. For those Programs involving
transfers, Owners may change instructions by telephone with regard to which Sub-
Accounts [or the Fixed Account] Certificate Value may be transferred. The
current conditions and procedures are described in Appendix [B].
[DOLLAR COST AVERAGING PROGRAM. Keyport offers a Dollar Cost Averaging Program
that Certificate Owners may participate in by Written Request. The program
periodically transfers Accumulation Units from the [XX-1] Sub-Account [or the
One-Year Guarantee Period of the Fixed Account] to other Sub-Accounts selected
by the Certificate Owner. The program allows a Certificate Owner to invest in
Variable Sub-Accounts over time rather than having to invest in those Sub-
Accounts all at once. The program is available for initial and subsequent
Purchase Payments and for Certificate Value transferred into the [XX-1] Sub-
Account [or the One-Year Guarantee Period.] Under the program, Keyport makes
automatic transfers on a periodic basis out of the [XX-1] Sub-Account [or the
One-Year Guarantee Period] into one or more of the other available Sub-Accounts
(Keyport reserves the right to
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limit the number of Sub-Accounts the Certificate Owner may choose but there are
currently no limits).
The Certificate Owner by Written Request must specify the [XX-1] Sub-Account [or
the One Year Guarantee Period] from which the transfers are to be made, the
monthly amount to be transferred [(minimum $750)] 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 Certificate Owner's Written Request. Each succeeding transfer will
occur one month later (e.g., if the 30th day after the receipt date is April 8,
the second transfer will occur at the close of the Valuation Period that
includes May 8). When the remaining value is less than the monthly transfer
amount, that remaining value will be transferred and the program will end.
Before this final transfer, the Certificate Owner may extend the program by
allocating additional Purchase Payments to the [XX-1] Sub-Account [or the One
Year Guarantee Period] or by transferring Certificate Value to the [XX-1] Sub-
Account [or the One Year Guarantee Period.] The Certificate Owner may, by
Written Request or by telephone, change the monthly amount to be transferred,
change the Sub-Account(s) to which the transfers are to be made, or end the
program. The program will automatically end if the Income Date occurs. Keyport
reserves the right to end the program at any time by sending the Certificate
Owner a notice one month in advance.
Written or telephone instructions must be received by Keyport by the end
(currently 4:00 PM Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by Keyport
from time to time. The current conditions and procedures appear in Appendix
[B], and Certificate Owners in a dollar cost averaging program will be notified,
in advance, of any changes.]
[Asset Allocation Program
Certificate Owners may select from five asset allocation model portfolios
developed by Ibbotoson Associates. 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 allocations among those
Sub-Accounts is appropriate. Certificate Owners will receive notification prior
of any reconfiguration.
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[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 [thirty
(30)] 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 that has completed and
returned to Keyport a Systematic Investment Program application and
authorization form. The application and authorization form may be obtained from
Keyport or from the sales representative. Each Systematic Investment Program
Purchase Payment is subject to a minimum of [$250.]
[SYSTEMATIC WITHDRAWAL PROGRAM. To the extent permitted by law, Keyport will
make monthly, quarterly, semi-annually or annual distributions of a
predetermined dollar amount to the Certificate Owner that has enrolled in the
Systematic Withdrawal Program. Under the Program, all distributions will be
made directly to the Certificate Owner and will be treated for federal tax
purposes as any other withdrawal or distribution of Certificate Value. (SEE
"TAX STATUS".) The Certificate Owner may specify the amount of each partial
withdrawal, subject to a minimum of [$100]. [Systematic withdrawals may only be
made from the Sub-Accounts [and the [One] Year Guarantee Period of the Fixed
Account.]] [In each Certificate Year, portions of Certificate Value may be
withdrawn without the imposition of any Contingent Deferred Sales Charge ("Free
Withdrawal Amount"). If withdrawals pursuant to the Program are greater than
the Free Withdrawal Amount, the amount of the withdrawals greater than the Free
Withdrawal Amount will be subject to the applicable Contingent Deferred Sales
Charge. Any unrelated voluntary partial withdrawal a Certificate Owner makes
during a Certificate Year will be aggregated with withdrawals pursuant to the
Program to determine the applicability of any Contingent Deferred Sales Charge
under the Certificate provisions regarding partial withdrawals.
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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 day that the New York Stock Exchange is open for
business. The New York Stock Exchange is currently closed on
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weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
37
<PAGE>
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 DIVIDED BY b) - c),
where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the Mortality and Expense
Risk Charge; plus
[(ii) the Valuation Period equivalent of the daily Distribution
Charge; plus]
[(iii) the Valuation Period equivalent of the daily Administrative
Charge; plus]
[(iv)] a charge factor, if any, for any tax provision established
by Keyport as a result of the operations of that Sub-
Account.
[If a Certificate ever reaches the maximum cumulative sales charge limit defined
in "Deductions for Contingent Deferred Sales Charge", Unit values without
(c)(ii) above will be used
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thereafter.] For Certificates issued to employees of Keyport and other persons
specified in "Sales of the Certificate", Unit values with [.35]% in (c)(i) above
[and without (c)(ii) above will be used. Unit values without (c)(ii) above may
be used for certain Certificates issued in an internal exchange or transfer (see
"Deductions for Daily Distribution Charges".]
MODIFICATION OF THE CERTIFICATE
Only Keyport's President or Secretary may agree to alter the Certificate or
waive any of its terms. Any changes must be made in writing and with the
Certificate Owner's consent, except as may be required by applicable law.
RIGHT TO REVOKE
The Certificate Owner may return the Certificate within 10 days after he or she
receives it by delivering or mailing it to Keyport's Office. The return of the
Certificate by mail will be effective when the postmark is affixed to a properly
addressed and postage-prepaid envelope. The returned Certificate will be
treated as if Keyport never issued it and Keyport will refund either the
Certificate Value or Purchase Payments, as required by state law. If the
Certificate is delivered in a state that requires the return of Certificate
Value, Certificate Value will immediately be allocated to the Sub-Accounts
selected in the application. If the Certificate is delivered in a state that
requires the return of Purchase Payments, Certificate Value will be allocated to
the [XX-1] Sub-Account (a Money Market Sub-Account) for a period of 20 or 30
days if the particular state requires a "free-look" period of 10 or 20 days,
respectively. Thereafter the Certificate Value will be allocated to the Sub-
Accounts selected in the application.
For Certificates delivered in California to a Certificate Owner age 60 or older,
the Certificate Owner may return the Certificate to Keyport's Office or to the
agent from whom the Certificate was purchased. If the Certificate is received
at Keyport's Office or by the agent within 30 days after the Certificate Owner
receives the Certificate, Keyport will refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
DEATH OF PRIMARY OWNER, JOINT OWNER OR CERTAIN NON-OWNER ANNUITANT
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One or more of the Death Benefit options described below may be
included under any form of the Certificate.
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These provisions apply if, before the Income Date while the Certificate is In
Force, the primary Certificate Owner or any joint Certificate Owner dies
(whether or not the decedent is also the Annuitant) or the Annuitant dies under
a Certificate with a non-natural Certificate Owner such as a trust. The
Designated Beneficiary will control the Certificate after such a death.
IF THE DECEDENT'S SURVIVING SPOUSE (IF ANY) IS THE SOLE DESIGNATED BENEFICIARY,
the surviving spouse will automatically become the new sole primary Certificate
Owner as of the decedent's date of death. And, if the Annuitant is the
decedent, the new Annuitant will be any living contingent annuitant, otherwise
the surviving spouse. The Certificate may continue until another death occurs
(i.e., until the death of the Annuitant, primary Certificate Owner or joint
Certificate Owner). Except for this paragraph, all of "Death Provisions" will
apply to that subsequent death.
IN ALL OTHER CASES, the Certificate may continue up to five years from the date
of death. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial surrenders or
the right to totally surrender the Certificate for its Surrender Value. If the
Certificate is still in effect at the end of the five-year period, Keyport will
automatically end it then by paying the Certificate Value to the Designated
Beneficiary. If the Designated Beneficiary is not then alive, 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:
[Death Benefit [1]. The DBA at issue is the initial Purchase Payment.
Thereafter, it is the prior death benefit plus any additional Purchase Payments,
less any partial withdrawals, including any applicable surrender charge.]
[Death Benefit [2]. The DBA at issue is the initial Purchase Payment.
Thereafter, the DBA is calculated for each Valuation
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period by adding any additional Purchase Payments, and deducting any partial
withdrawals, including any applicable surrender charge. This resulting amount
is the "net Purchase Payment death benefit". The Certificate Value for each
Certificate Anniversary (the "Anniversary Value") before the [81st] birthday of
the Covered Person is determined. Each Anniversary Value is increased by any
Purchase Payments made after that anniversary. This resultant value is then
decreased by an amount calculated at the time of any partial withdrawal made
after that anniversary. The amount is calculated by taking the amount of any
partial withdrawal, and dividing by the Certificate Value immediately preceding
the partial withdrawal, and then multiplying by the Anniversary Value
immediately preceding the withdrawal. The greatest Anniversary Value, as so
adjusted, (the "greatest Anniversary Value") is the DBA unless the net Purchase
Payment death benefit is higher. The net Purchase Payment death benefit will be
the DBA if such amount is higher than the greatest Anniversary Value.]
[Death Benefit [3]. The DBA at issue is the initial Purchase Payment.
Thereafter, the DBA is calculated for each Valuation Period by applying a death
benefit interest rate to the previously calculated DBA, adding any Purchase
Payments made during the current Valuation Period and deducting any partial
withdrawals, including any applicable surrender charge, taken during the current
Valuation Period. The death benefit interest rate is applied to each Purchase
Payment until it equals the Maximum Guaranteed Death Benefit. Initially, the
Maximum Guaranteed Death Benefit will be a multiple of the initial and
additional Purchase Payments made, each computed separately, determined as of
the date of death based on such factors as the then stipulated interest rate or
the net rate of return of certain Sub-Accounts [or the Fixed Account], as
described below. Thereafter, the Maximum Guaranteed Death Benefit as of the
effective date of a partial withdrawal is reduced first by the amount of the
withdrawal representing earnings and second in proportion to the reduction in
Certificate Value for any partial withdrawal representing Purchase Payments.
The death benefit interest rate compounded annually will be a stipulated
interest rate, except that with regard to amounts in the Sub-Accounts investing
in money market, short term bond or income Funds [or the General Account (the
"Fixed Account")] the interest rate applied will be the net rate of return for
such Funds, respectively, if it is less than the stipulated death benefit
interest rate.]
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The period of time during which the Surrender Charge may be waived following
death ranges between 60 and 180 days.
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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
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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 [180] 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 [180] 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 described 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 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 maximum death provision, the Certificate Owner may surrender the
Certificate within 90 days of the date of the Annuitant's death for the
Certificate Withdraw Value without any allocable Contingent Deferred Sales
Charge being deducted. For a surrender after 90 days, any applicable
Contingent Sales Charge will 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
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determined as of the date of death, that amount is not added to the Certificate
Value until Keyport receives due proof of death. The amount to be credited will
be allocated to the Variable Account [and/or the Fixed Account] based on the
Purchase Payment allocation selection that is in effect when Keyport receives
due proof of death. [Whether or not the Certificate Value is increased because
of this minimum death provision, the Designated Beneficiary may surrender the
Certificate within 90 days of the date of the Annuitant's death for the
Certificate Withdrawal Value without any applicable Contingent Deferred Sales
Charge being deducted. For a surrender after 90 days, any applicable Contingent
Deferred Sales Charge would be deducted.]
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the particular
Qualified Plan. During this period, the Designated Beneficiary may exercise all
ownership rights, including the right to make transfers or partial withdrawals
or the right to totally surrender the Certificate for its Certificate Withdrawal
Value. If the Certificate is still in effect at the end of the period, Keyport
will automatically end it then by paying the Certificate Withdrawal Value
(without the deduction of any applicable Contingent Deferred Sales Charge) to
the Designated Beneficiary. If the Designated Beneficiary is not alive then,
Keyport will pay any person(s) named by the Designated Beneficiary in a Written
Request; otherwise the Designated Beneficiary's estate.
PAYMENT OF BENEFITS. Instead of receiving a lump sum, the Certificate Owner or
any Designated Beneficiary may direct by Written Request that Keyport pay any
benefit of $5,000 or more under an annuity payment option that meets the
following: (a) the first payment to the Designated Beneficiary must be made no
later than one year after the date of death; (b) payments must be made over the
life of the Designated Beneficiary or over a period not extending beyond that
person's life expectancy; and (c) any payment option that provides for payments
to continue after the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time over which the remaining payments
are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application. The
Certificate Owner may exercise all the rights of the Certificate. Joint
Certificate Owners are permitted but not contingent Certificate Owners.
The Certificate Owner may by Written Request change the Certificate Owner,
primary beneficiary, contingent beneficiary or
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contingent annuitant. An irrevocably-named person may be changed only with the
written consent of such person.
Because a change of Certificate Owner by means of a gift (i.e., a transfer
without full and adequate consideration) may be a taxable event, a Certificate
Owner should consult a competent tax adviser as to the tax consequences
resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership. A
Certificate Owner should consult the Plan Administrator and a competent tax
adviser as to the tax consequences resulting from such a transfer.
ASSIGNMENT
The Certificate Owner may assign the Certificate at any time. A copy of any
assignment must be filed with Keyport. The Certificate Owner's rights and those
of any revocably-named person will be subject to the assignment. Any Qualified
Certificate may have limitations on assignability.
Because an assignment may be a taxable event, a Certificate Owner should consult
a competent tax adviser as to the tax consequences resulting from any such
assignment.
PARTIAL WITHDRAWALS AND SURRENDER
********************************************************************************
********************************************************************************
The minimum amount to be withdrawn will range between $100 and $500
and required Certificate Value following a withdrawal will range
between $500 to $2500.
********************************************************************************
********************************************************************************
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
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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.
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
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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
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Keyport does not currently anticipate offering any additional variable
annuity options, but may offer additional fixed annuity options. Any
additional variable annuity options would be limited to those that
could be added by a filing pursuant to Rule 497 or Rule 485(b).
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The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available in
two forms--as a variable annuity for use with the Variable Account and as a
fixed annuity for use with [Keyport's general account] [Fixed Account].
Variable annuity payments will fluctuate while fixed annuity payments will not.
The dollar amount of each fixed annuity payment will be determined by deducting
from the Certificate Value [increased or decreased by a limited Market Value
Adjustment 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
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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
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, 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:
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(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest
rate is [6%] per year, unless [3]% per year had been chosen by the payee at
the time the option was selected.
The Mortality and Expense Risk Charge is deducted during the Option A payment
period if a variable payout has been selected, but Keyport has no mortality risk
during this period.
[If annual payments are chosen for Option A and a variable payout has been
selected, Keyport has available a "stabilizing" payment option that can be
chosen. Each annual payment will be determined as described in "Variable
Annuity Payment Values". Each annual payment will then be placed in Keyport's
general account, from which it will be paid out in twelve equal monthly
payments. The sum of the twelve monthly payments will exceed the annual payment
amount because of an interest rate factor used by Keyport that will vary from
year to year. The commutation method described above for calculating the
present value of remaining payments applies to the annual payments. Any monthly
payments remaining before the next annual payment will be commuted at the
interest rate used to determine that year's monthly payments.]
See "Annuity Payments" for the manner in which Option A may be taxed.
OPTION B: LIFE INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. Keyport will pay an
annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for fewer than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option. For the variable annuity, this interest
rate is [6%] per year, unless [3]% per year was chosen by Payee's Written
Request.
The amount of the annuity payments will depend on the age of the payee on the
Income Date and it may also depend on the payee's sex.
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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.
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The frequency with which Certificate Owners may transfer the Sub accounts
from which variable annuity payments are made will vary between 0 and an
unlimited number of times times during periods varying between 1 and 12
months.
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VARIABLE ANNUITY PAYMENT VALUES
The amount of the first variable annuity payment is determined by Keyport using
an annuity purchase rate that is based on an assumed annual investment return of
[6%] per year, unless [3]% is chosen by Written Request. Subsequent variable
annuity payments will fluctuate in amount and reflect whether the actual
investment return of the selected Sub-Account(s) (after deducting the Mortality
and Expense Risk Charge) is better or worse than the assumed investment return.
The total dollar amount of each variable annuity payment will be equal to: (a)
the sum of all Sub-Account payments; [less (b) the pro-rata amount of the annual
Certificate Maintenance Charge.] Currently, a payee may instruct Keyport to
change the Sub-Account(s) used to determine the amount of the variable annuity
payments [unlimited] [1] time[s] every [6] months.
PROOF OF AGE, SEX, AND SURVIVAL OF ANNUITANT
Keyport may require proof of age, sex or survival of any payee upon whose age,
sex or survival payments depend. If the age or sex has been misstated, Keyport
will compute the amount payable based on the correct age and sex. If income
payments have begun, any underpayments Keyport may have made will be paid in
full with the next annuity payment. Any overpayments, unless repaid in one sum,
will be deducted from future annuity payments until Keyport is repaid in full.
SUSPENSION OF PAYMENTS
[Keyport reserves the right to 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
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federal income taxes on the Certificate Value, on annuity payments, and on the
economic benefit to the Certificate Owner, Annuitant or Designated Beneficiary
depends on the type of retirement plan for which the Certificate is purchased
and upon the tax and employment status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. EACH PERSON CONCERNED SHOULD CONSULT A COMPETENT TAX ADVISER. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion herein is based upon Keyport's understanding of current federal
income tax laws as they are currently interpreted. No representation is made
regarding the likelihood of continuation of those current federal income tax
laws or of the current interpretations by the Internal Revenue Service.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities in general. There are no
income taxes on increases in the value of a Certificate until a distribution
occurs, in the form of a full surrender, a partial surrender, an assignment or
gift of the Certificate, or annuity payments.
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
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principal up to the cost basis and then a taxable return of income. Since the
cost basis of Qualified Certificates is generally zero, partial surrender
amounts will generally be fully taxed as ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount assigned or pledged and thus is
subject to taxation under the rules applicable to partial withdrawals or
surrenders. A Certificate Owner who gives away the Certificate (i.e., transfers
it without full and adequate consideration) to anyone other than his or her
spouse is treated for income tax purposes as if he or she had fully surrendered
the Certificate.
A special computational rule applies if Keyport issues to the Certificate Owner,
during any calendar year, (a) two or more Certificates or (b) one or more
Certificates and one or more of Keyport's other annuity contracts. Under this
rule, the amount of any distribution includable in the Certificate Owner's gross
income is to be determined under Section 72(e) of the Code by treating all the
Keyport contracts as one contract. Keyport believes that this means the amount
of any distribution under one Certificate will be includable in gross income to
the extent that at the time of distribution the sum of the values for all the
Certificates or contracts exceeds the sum of the cost bases for all the
contracts.
ANNUITY PAYMENTS. The non-taxable portion of each variable annuity payment is
determined by dividing the cost basis of the Certificate by the total number of
expected payments while the non-taxable portion of each fixed annuity payment is
determined by an "exclusion ratio" formula which establishes the ratio that the
cost basis of the Certificate bears to the total expected value 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
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equal monthly payments, it is possible the IRS could determine that receipt of
the first monthly payout of each annual payment is constructive receipt of the
entire annual payment. Thus, the total taxable amount for each annual payment
would be accelerated to the time of the first monthly payout and reported in the
tax year in which the first monthly payout is received.
PENALTY TAX. Payments received by Certificate Owners, Annuitants, and
Designated Beneficiaries under Certificates may be subject to both ordinary
income taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on amounts received: (a)
after the taxpayer attains age 59-1/2; (b) in a series of substantially equal
payments made for life or life expectancy; (c) after the death of the
Certificate Owner (or, where the Certificate Owner is not a human being, after
the death of the Annuitant); (d) if the taxpayer becomes totally and permanently
disabled; or (e) under a Non-Qualified Certificate's annuity payment option that
provides for a series of substantially equal payments, provided only one
Purchase Payment is made to the Certificate, the Certificate is not issued as a
result of a Section 1035 exchange, and the first annuity payment begins in the
first Certificate Year.
INCOME TAX WITHHOLDING. Keyport is required to withhold federal income taxes on
taxable amounts paid under Certificates unless the recipient elects not to have
withholding apply. Keyport will notify recipients of their right to elect not
to have withholding apply. See "Tax-Sheltered Annuities" (TSAs) for an
alternative type of withholding that may apply to distributions from TSAs that
are eligible for rollover to another TSA or an individual retirement annuity or
account (IRA).
SECTION 1035 EXCHANGES. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a transaction
may qualify as a tax-free exchange pursuant to Section 1035 of the Code. It is
Keyport's understanding that in such an event: (a) the new Certificate will be
subject to the distribution-at-death rules described in "Death Provisions for
Non-Qualified Certificates"; (b) Purchase Payments made between August 14, 1982
and January 18, 1985 and the income 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
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taxable return of income; and (iii) assignments are not treated as surrenders
subject to taxation. Keyport's understanding of the above is principally based
on legislative reports prepared by the Staff of the Congressional Joint
Committee on Taxation.
DIVERSIFICATION STANDARDS. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments underlying
variable annuity contracts (other than pension plan contracts). The Eligible
Funds are designed to be managed to meet the diversification requirements for
the Certificate as those requirements may change from time to time. If the
diversification requirements are not satisfied, the Certificate would not be
treated as an annuity contract. As a consequence to the Certificate Owner,
income earned on a Certificate would be taxable to the Certificate Owner in the
year in which diversification requirements were not satisfied, including
previously non-taxable income earned in prior years. As a further consequence,
Keyport would be subjected to federal income taxes on assets in the Variable
Account.
The Secretary of the Treasury announced in September 1986 that he expects to
issue regulations which will prescribe the circumstances in which a Certificate
Owner's control of the investments of a segregated asset account may cause the
Certificate Owner, rather than the insurance company, to be treated as the owner
of the assets of the account. The regulations could impose requirements that
are not reflected in the Certificate. Keyport, however, has reserved certain
rights to alter the Certificate and investment alternatives so as to comply with
such regulations. Since the regulations have not been issued, there can be no
assurance as to the content of such regulations or even whether application of
the regulations will be prospective. For these reasons, Certificate Owners are
urged to consult with their own tax advisers.
QUALIFIED PLANS
The Certificate is designed for use with several types of Qualified Plans. The
tax rules applicable to participants in such Qualified Plans vary according to
the type of plan and the terms and conditions of the plan itself. Therefore, no
attempt is made herein to provide more than general information about the use of
the Certificate with the various types of Qualified Plans. Participants under
such Qualified Plans as well as Certificate Owners, Annuitants, and Designated
Beneficiaries are cautioned that the rights of any person to any benefits under
such Qualified Plans may be subject to the terms and conditions of the plans
themselves regardless of the terms and conditions of the Certificate issued in
connection therewith. Following are brief descriptions of the various types of
Qualified Plans and of the use of the Certificate in connection therewith.
Purchasers of the Certificate should seek
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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 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
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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
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
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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 give such voting instructions
with respect to the proportion of the Eligible Fund shares held in the Variable
Account corresponding to his or her interest in the Variable Account.
SALES OF THE CERTIFICATES
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Another registered broker-dealer that is an affiliate of Keyport may
serve as the principal underwriter of the Certificates.
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[Keyport Financial Services Corp. ("KFSC")] serves as the Principal Underwriter
for the Certificate described in this prospectus. The Certificate will be sold
by salespersons who represent Keyport Life Insurance Company [KFSC's corporate
parent] as variable annuity agents and who are registered representatives of
broker/dealers who have entered into distribution agreements with [KFSC].
[KFSC] is registered under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. It is located at [125
High Street, Boston, Massachusetts 02110].
Different Certificates may be sold (1) to a person who is an officer, director,
or employee of Keyport, or an affiliate of Keyport, a trustee or officer of an
Eligible Fund, an employee of the investment adviser or sub-investment adviser
of an Eligible Fund, or an employee or associated person of an entity which has
entered into a sales agreement with the Principal Underwriter for the
distribution of Certificates, or (2) to any Qualified Plan established for such
a person. Such Certificates may be different
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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 [XX-1] Sub-Accounts
Financial Statements
Keyport Life Insurance Company
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The Certificate may or may not provide for a Fixed Account Option.
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[APPENDIX A
THE FIXED ACCOUNT [(ALSO KNOWN AS THE MODIFIED GUARANTEED ANNUITY ACCOUNT)]
INTRODUCTION
This Appendix describes the Fixed Account option available under the
Certificate.
[FIXED ACCOUNT VALUES PROVIDED BY THE CERTIFICATE ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD ADJUSTMENTS
IN AMOUNTS TRANSFERRED AND AMOUNTS PAID (INCLUDING WITHDRAWALS, SURRENDERS,
DEATH BENEFITS, AND AMOUNTS APPLIED TO PURCHASE ANNUITY PAYMENTS) TO A
CERTIFICATE OWNER OR OTHER PAYEE. IN NO EVENT WILL THE DOWNWARD MARKET VALUE
ADJUSTMENT ELIMINATE INTEREST AT THE RATE OF 3% PER YEAR APPLIED TO THE AMOUNT
ALLOCATED TO A GUARANTEED PERIOD. PAYMENTS MADE FROM FIXED ACCOUNT VALUES AT THE
END OF THEIR GUARANTEE PERIOD ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.]
Purchase Payments allocated to the Fixed Account option become part of Keyport's
general account. Because of applicable exemptive and exclusionary provisions,
interests in the Fixed Account options have not been registered under the
Securities Act of 1933 ("1933 Act"), nor is the general account an investment
company under the Investment Company Act. Accordingly, neither the general
account, the Fixed Account option, nor any interest therein, are subject to
regulation under the 1933 Act or the Investment Company Act. Keyport
understands that the Securities and Exchange Commission has not reviewed the
disclosure in the prospectus relating to the general account and the Fixed
Account option.
INVESTMENTS IN THE FIXED ACCOUNT AND CAPITAL PROTECTION PLUS
Purchase Payments will be allocated to the Fixed Account in accordance with the
selection made by the Certificate Owner in the application. Any selection must
specify that percentage of the Purchase Payment that is to be allocated to each
Guarantee Period of the Fixed Account. The percentage, if not zero, must be at
least [10%]. The Certificate Owner may change the allocation percentages
without fee, penalty or other charge. Allocation changes must be made
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by Written Request unless the Certificate Owner has by Written Request
authorized Keyport to accept telephone allocation instructions from the
Certificate Owner. By authorizing Keyport to accept telephone changes, a
Certificate Owner agrees to accept and be bound by the conditions and procedures
established by Keyport from time to time. The current conditions and procedures
are in Appendix C and Certificate Owners authorizing telephone allocation
instructions will be notified, in advance, of any changes.
Keyport currently offers Guarantee Periods of 1, [3, 5, and 7] years. Keyport
may change at any time the number of Guarantee Periods it offers under newly-
issued and in-force Certificates, as well as the length of those Guarantee
Periods. If Keyport stops offering a particular Guarantee Period, existing
Fixed Account Value in such Guarantee Period would not be affected until the end
of the Period (at that time, a Period of the same length would not be a transfer
option). Each Guarantee Period currently offered is available for initial and
subsequent Purchase Payments and for transfers of Certificate Value.
[Keyport offers a Capital Protection Plus program that a Certificate Owner may
request. Under this program, Keyport will allocate part of the Purchase Payment
to the Guarantee Period selected by the Certificate Owner so that such part,
based on that Guarantee Period's interest rate in effect on the date of
allocation, will equal at the end of the Guarantee Period the total Purchase
Payment. The rest of the Purchase Payment will be allocated to the Sub-
Account(s) of the Variable Account based on the Certificate Owner's allocation.
If any part of the Fixed Account Value is surrendered or transferred before the
end of the Guarantee Period, the Value at the end of that Period will not equal
the original Purchase Payment amount.
For an example of Capital Protection Plus, assume Keyport receives a Purchase
Payment of $10,000 when the interest rate for the 7-year Guarantee Period is
6.75% per year. Keyport will allocate $6,331 to that Guarantee Period because
$6,331 will increase at that interest rate to $10,000 after 7 years. The
remaining $3,669 of the payment will be allocated to the Sub-Account(s) selected
by the Certificate Owner.]
FIXED ACCOUNT VALUE
The Fixed Account Value at any time is equal to:
(a) all Purchase Payments allocated to the Fixed Account plus the interest
subsequently credited on those payments; plus
(b) any Variable Account Value transferred to the Fixed Account plus the
interest subsequently credited on the transferred value; less
(c) any prior partial withdrawals from the Fixed Account, including any charges
therefor; less
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(d) any Fixed Account Value transferred to the Variable Account.
INTEREST CREDITS
Keyport will credit interest daily (based on an annual compound interest rate)
to Purchase Payments allocated to the Fixed Account at rates declared by Keyport
for Guarantee Periods of one or more years from the month and day of allocation.
Any rate set by Keyport will be at least [3%] per year.
Keyport's method of crediting interest means that Fixed Account Value might be
subject to different rates for each Guarantee Period the Certificate Owner has
selected in the Fixed Account. For purposes of this section, Variable Account
Value transferred to the Fixed Account and Fixed Account Value renewed for
another Guarantee Period shall be treated as a Purchase Payment allocation.
[APPLICATION OF MARKET VALUE ADJUSTMENT
Any surrender, withdrawal, transfer, or application to an Annuity Option of
Fixed Account Value from a Guarantee Period of three years or more is subject to
a limited Market Value Adjustment, unless: (1) the effective date of the
transaction is at the end of the Guarantee Period; or (2) the effective date of
a surrender is within 90 days of the date of death of the first Covered Person
to die.
If a Market Value Adjustment applies to either a surrender or the application to
an Annuity Option, then any negative Market Value Adjustment amount will be
deducted from the Certificate Value and any positive Market Value Adjustment
amount will be added to the Certificate Value. If a Market Value Adjustment
applies to either a partial withdrawal or a transfer, then any negative Market
Value Adjustment amount will be deducted from the partial 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
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the application of the limited Market Value Adjustment will result in a
reduction of the amount being surrendered, withdrawn, transferred, or applied to
an Annuity Option.
Similarly, if the Treasury Rate for the Guarantee Period is higher than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the Market Value
Adjustment will result in an increase in the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charges or applicable taxes.
MARKET VALUE ADJUSTMENT FACTOR
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to a Payment Option, by the
Market Value Adjustment Factor. The Market Value Adjustment Factor is calculated
as the larger of Formula (1) or (2):
(1) [(1+a)/(1+b)](n/12) - 1
where:
"a" is the Treasury Rate for the number of Guarantee Period Years in the
Guarantee Period;
"b" is the Treasury Rate for a period equal to the time remaining (rounded up to
the next whole number of Guarantee Period Years) to the expiration of the
Guarantee Period; and
"n" is the number of complete Guarantee Period Months remaining before the
expiration of the Guarantee Period.
(2) [(1.03)/(1+i)](y+d/#) - 1
where:
"i" is the Guaranteed Interest Rate for the Guarantee Period;
"y" is the number of complete Guarantee Period Years that have elapsed in Your
Guarantee Period;
"d" is the number of days since the last Guarantee Period Anniversary or, if "y"
is zero, the number of days since the start of the Guarantee Period; and
"#" is the number of days in the current Guarantee Period Year (i.e., the sum of
"d" and the number of days until the next Guarantee Period Anniversary).
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In Formulas (1) and (2), all references to Guarantee Period, Guarantee Period
Anniversary, Guarantee Period Month, and Guarantee Period Year relate to the
Guarantee Period from which is being taken the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
As stated above, the Formula (2) amount will apply only if it is greater than
the Formula (1) amount. This will occur only when the Formula (1) amount is
negative and the Formula (2) amount is a smaller negative number. Formula (2)
thus ensures that a full (normal) negative Market Value Adjustment of Formula
(1) will not apply to the extent it would decrease the Guarantee Period's Fixed
Account Value (before the deduction of any applicable surrender charges or any
applicable taxes) below the following amount:
(a) the amount allocated to the Guarantee Period; less
(b) any prior systematic or partial withdrawal amounts; less
(c) any prior amounts transferred to the Variable Account or to another
Guarantee Period in the Fixed Account; plus
(d) interest on the above items (a) through (c) credited annually at a
rate of 3% per year.
TREASURY RATES
The Treasury Rate for a Guarantee Period is the interest rate in the Treasury
Constant Maturity Series, as published by the Federal Reserve Board, for a
maturity equal to the number of years specified in "a" and "b" in Formula (1)
above. For "a", Keyport uses the Treasury Constant Maturity Series for the week
which includes the most recent Determination Date on or preceding the Reset Date
for Your Guarantee Period. For "b", Keyport uses the Treasury Constant Maturity
Series for the week which includes the most recent Determination Date on or
preceding the date of calculation of the Market Value Adjustment Factor. The
Determination Dates are the last business day prior to the first and fifteenth
of each calendar month.
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
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Account unless Keyport previously received a Certificate Owner's Written Request
of: (1) election of a new Guarantee Period from among those being offered by
Keyport at that time; or (2) instructions to transfer the ending Guarantee
Period's Fixed Account Value to one or more Sub-accounts of the Variable
Account. A new Guarantee Period cannot be longer than the number of years
remaining until the Income Date.]
TRANSFERS OF FIXED ACCOUNT VALUE
*******************************************************************************
*******************************************************************************
The limits on the number of transfers will range between unlimited transfers
and 12 per year. The limitations on transfers from the Fixed Account will
range between 10% and 50%.
*******************************************************************************
*******************************************************************************
The Certificate Owner may transfer Fixed Account Value from one Guarantee Period
to another or to one or more Sub-Accounts of the Variable Account subject to any
applicable Market Value Adjustment. If the Fixed Account Value represents
multiple Guarantee Periods, the transfer request must specify from which values
the transfer is to be made.
The Certificate allows Keyport to limit the number of transfers that can be made
in a specified time period. Currently, Keyport is limiting Variable Account and
Fixed Account transfers to generally [xx] transfers per calendar year with a
$500,000 per transfer dollar limit. See "Transfer of Variable Account Value".
Transfers from the Fixed Account to the Variable Account are limited to [50%]
of the Fixed Account Value at the beginning of the Certificate Year. This
limitation will be waived if a Systematic Withdrawal Program is in effect.
These limitations will not apply to any transfer made at the end of a Guarantee
Period. Certificate Owners will be notified, in advance, of a change in the
limitation on the number of transfers.
Transfer requests must be by Written Request unless the Certificate Owner has
authorized Keyport by Written Request to accept telephone transfer instructions
from the Certificate Owner or from a person acting for the Certificate Owner as
an attorney-in-fact under a power of attorney. By authorizing Keyport to accept
telephone transfer instructions, a Certificate Owner agrees to accept and be
bound by the conditions and procedures established by Keyport from time to time.
The current conditions and procedures are in Appendix C and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any changes.
Written transfer requests may be made by a person acting for the Certificate
Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport before the close of trading on the New
York Stock Exchange (currently 4:00 PM Eastern Time) will be executed at the
close of business that day. Any requests received later will be executed at the
close of the next business day.
The amount of the transfer will be deducted from the specified values in the
manner stated in the next section below.
If 100% of a Guarantee Period's value is transferred and the current allocation
for Purchase Payments includes that Guarantee Period, then the allocation
formula for future Purchase Payments will automatically change unless the
Certificate Owner instructs otherwise. For example, if the allocation formula
is 50% to the one-year Guarantee Period and 50% to Sub-Account A and all Fixed
Account Value is transferred to Sub-Account A, the allocation formula will
change to 100% to Sub-Account A.
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[APPENDIX [B]
TELEPHONE INSTRUCTIONS
TELEPHONE TRANSFERS OF CERTIFICATE VALUES
1. If there are joint Certificate Owners, both must authorize Keyport to
accept telephone instructions but either Certificate Owner may give Keyport
telephone instructions.
2. All callers will be required to identify themselves. Keyport reserves the
right to refuse to act upon any telephone instructions in cases where the caller
has not sufficiently identified himself/herself to Keyport's satisfaction.
3. Neither Keyport nor any person acting on its behalf shall be subject to any
claim, loss, liability, cost or expense if it or such person acted in good faith
upon a telephone instruction, including one that is unauthorized or fraudulent;
however, Keyport will employ reasonable procedures to confirm that a telephone
instruction is genuine and, if Keyport does not, Keyport may be liable for
losses due to an unauthorized or fraudulent instruction. The Certificate Owner
thus bears the risk that an unauthorized or fraudulent instruction that is
executed may cause the Certificate Value to be lower than it would be had no
instruction been executed.
4. All conversations will be recorded with disclosure at the time of the call.
5. The application for the Certificate may allow a Certificate Owner to create
a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as
durable in nature and shall not be affected by the subsequent incapacity,
disability or incompetency of the Certificate Owner. Either Keyport or the
authorized person may cease to honor the power by sending written notice to the
Certificate Owner at the Certificate Owner's last known address. Neither
Keyport nor any person acting on its behalf shall be subject to liability for
any act executed in good faith reliance upon a power of attorney.
6. Telephone authorization shall continue in force until (a) Keyport receives
the Certificate Owner's written revocation, (b) Keyport discontinues the
privilege, or (c) Keyport receives written evidence that the Certificate Owner
has entered into a market timing or asset allocation agreement with an
investment adviser or with a broker/dealer.
7. Telephone transfer instructions received by Keyport at 800-367-3653 before
the close of trading on the New York Stock Exchange (currently 4:00 P.M. Eastern
Time) will be initiated that day based on the unit value prices calculated at
the close of that day. Instructions received after the close of trading on the
NYSE will be initiated the following business day.
8. Once instructions are accepted by Keyport, they may not be canceled.
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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.]
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PROSPECTUS
[DATE]
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Distributed by:
[Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712]
Issued by:
Keyport Life Insurance Company
125 High Street, Boston, MA 02110-2712
Keyport Life Insurance Company's ultimate parent is
Liberty Mutual Insurance Company
Service Hotline 800-367-3653 Keyline 800-367-3654
Keyport Logo is a registered service mark of Keyport Life Insurance Company.
Yes.I would like to receive the Keyport [NAME OF ANNUITY] Statement of
Additional Information.
Yes.I would like to receive the [NAME OF FUND] Statement of Additional
Information.
Yes.I would like to receive the [NAME OF FUND] Statement of Additional
Information.
Name
Address
City, State Zip
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<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.
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PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT A
OF
KEYPORT LIFE INSURANCE COMPANY ("Keyport")
This Statement of Additional Information (SAI) is not a prospectus but it
relates to, and should be read in conjunction with, the variable annuity
prospectus dated _________________________, 1996. The SAI is incorporated by
reference into the prospectus. The prospectus is available, at no charge, by
writing Keyport at 125 High Street, Boston, MA 02110 or by calling
(800) 437-4466.
TABLE OF CONTENTS
Page
Keyport Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payment Values. . . . . . . . . . . . . . . . . . . . . . . .
Re-Allocating Sub-Account Payments . . . . . . . . . . . . . . . . . . . . . .
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Annual Total Return for a Contract that is
Surrendered and for a Contract that Continues. . . . . . . . . . . . . . . .
Change in Accumulation Unit Value. . . . . . . . . . . . . . . . . . . . . . .
Yields for [XX-1] Sub-Accounts . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Keyport Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . .
The date of this statement of additional information is , 1996.
S-1
<PAGE>
KEYPORT LIFE INSURANCE COMPANY
Liberty Mutual Insurance Company ("Liberty Mutual"), a multi-line insurance
and financial services institution, is the ultimate corporate parent of Keyport.
Liberty Mutual ultimately controls Keyport through the following intervening
holding company subsidiaries: Liberty Mutual Equity Corporation, Liberty
Financial Companies, Inc. ("LFC") and SteinRoe Services, Inc. Liberty Mutual,
as of March 31, 1995, owned, indirectly, approximately 81.9% of the combined
voting power of the outstanding stock of LFC (with the balance being publicly
held). For additional information about Keyport, see page ___ of the
prospectus.
VARIABLE ANNUITY BENEFITS
VARIABLE ANNUITY PAYMENT VALUES
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (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.
S-2
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The formula for the net investment factor will vary depending upon whether
certain asset charges are imposed, as explained in the notes in the
Prospectus. With regard to the AIR, the AIR will vary within the limits
permitted under state insurance law, but no less than 3%.
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When Keyport first purchased the Eligible Fund shares of
[XXXXX Trust and YYYYY Fund] 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 Sub-Account in any Valuation Period thereafter is
determined by multiplying the value for the prior period by a net investment
factor. This factor may be greater or less than 1.0; therefore, the Annuity
Unit may increase or decrease from Valuation Period to Valuation Period. For
each assumed annual investment rate (AIR), Keyport calculates a net
investment factor for each Sub-Account by dividing (a) by (b), where:
(a) is equal to the net investment factor as defined in the prospectus
[without any deduction for the sales charge defined in (c)(ii) of the net
investment factor formula]; and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in determining
the first variable annuity payment. Such factor for any Valuation Period shall
be the accumulated value, at the end of such period, of $1.00 deposited at the
beginning of such period at the assumed annual investment rate (AIR). The AIR
for Annuity Units based on the Contract's annuity tables is [6]% per year. [An
AIR of 3% per year is also currently available upon Written Request.]
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized investment
return of the selected Sub-Account(s) (after deducting the Mortality and Expense
Risk Charge) is better or worse than the assumed AIR percentage. If a given
amount of Sub-Account value is applied to a particular payment option, the
initial payment will be smaller if a [3]% AIR is selected instead of a [6]% AIR
but, all other things being equal, the subsequent [3]% AIR payments have the
potential for increasing in amount by a larger percentage and for decreasing in
amount by a smaller percentage. For example, consider what would happen if the
actual
S-3
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annualized investment return (see the first sentence of this paragraph) is 9%,
6%, 3%, or 0% between the time of the first and second payments. With an actual
[9]% return, the [3]% AIR and [6]% AIR payments would both increase in amount
but the [3]% AIR payment would increase by a larger percentage. With an actual
[6]% return, the [3]% AIR payment would increase in amount while the [6]% AIR
payment would stay the same. With an actual return of [3]%, the [3]% AIR
payment would stay the same while the [6]% AIR payment would decrease in amount.
Finally, with an actual return of 0%, the [3]% AIR and [6]% AIR payments would
both decrease in amount but the [3]% AIR payment would decrease by a smaller
percentage. Note that the changes in payment amounts described above are on a
percentage basis and thus do not illustrate when, if ever, the [3]% AIR payment
amount might become larger than the [6]% AIR payment amount. Note though that
if Option 1 (Income for a Fixed Number of Years) is selected and payments
continue for the entire period, the [3]% AIR payment amount will start out being
smaller than the [6]% AIR payment amount but eventually the [3]% AIR payment
amount will become larger than the [6]% AIR payment amount.
RE-ALLOCATING SUB-ACCOUNT PAYMENTS
********************************************************************************
********************************************************************************
The number of times that Sub-Account(s) used to determine the amount of
variable annuity payments will range between unlimited times to once every
twelve months. The minimum percentage per Sub-Account will range between 1% and
10%.
********************************************************************************
********************************************************************************
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 once 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 [10]% and must be a whole number. At the
end of the Valuation Period during which Keyport receives the request, Keyport
will: (a) value the Annuity Units for each Sub-Account to create a total annuity
value; (b) apply the new percentages the payee has selected to this total value;
and (c) recompute the number of Annuity Units for each Sub-Account. This new
number of units will remain fixed for the remainder of the payment period unless
the payee requests another change.
S-4
<PAGE>
CUSTODIAN
The custodian of the assets of the Variable Account is State Street Bank
and Trust Company, a state chartered trust company. Its principal office is at
225 Franklin Street, Boston, Massachusetts.
PRINCIPAL UNDERWRITER
The Contract and Certificates, which are offered continuously, is
distributed by [Keyport Financial Services Corp. ("KFSC"), a wholly-owned
subsidiary of Keyport].
EXPERTS
The consolidated financial statements of Keyport as of December 31, 199[5]
and 199[4] and for each of the years in the three-year period ended December 31,
199[5] included herein, have been included herein in reliance on the report of
KPMG Peat Marwick LLP, independent certified public accountants, and upon
authority of said firm as experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also be
compared to the performance of sub-accounts used with variable annuities offered
by other insurance companies. This comparative information may be expressed as
a ranking prepared by Financial Planning Resources, Inc. of Miami, FL (The VARDS
Report), Lipper Analytical Services, Inc., or by Morningstar, Inc. of Chicago,
IL (Morningstar's Variable Annuity Performance Report), which are independent
services that compare the performance of variable annuity sub-accounts. The
rankings are done on the basis of changes in accumulation unit values over time
and do not take into account any charges (such as sales charges or
administrative charges) that are deducted directly from contract values.
Ibbotson Associates of Chicago, IL provides historical returns from 1926 on
capital markets in the United States. The Variable Account may quote the
performance of its Sub-Accounts in conjunction with the long-term performance of
capital markets in order to illustrate general long-term risk versus reward
investment scenarios. Capital markets tracked by Ibbotson Associates include
common stocks, small company stocks, long-term corporate bonds, long-term
government bonds, U.S. Treasury Bills, and the U.S. inflation rate. Historical
total returns are determined by Ibbotson Associates for: COMMON STOCKS,
represented by the Standard and Poor's Composite Price Index (an unmanaged
weighted index of 90 stocks prior to March 1957 and 500 stocks thereafter of
industrial, transportation, utility and financial companies widely regarded by
investors as representative of the stock market); SMALL
S-5
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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 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.
********************************************************************************
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Information regarding the Performance of the Certificates will be included
in the subsequent filings.
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********************************************************************************
[AVERAGE ANNUAL TOTAL RETURN FOR A CERTIFICATE THAT IS SURRENDERED AND FOR A
CERTIFICATE THAT CONTINUES]
[CHANGE IN ACCUMULATION UNIT VALUE]
YIELDS FOR [XX-1 SUB-ACCOUNT]
S-6
<PAGE>
Yield and effective yield percentages for the [XX-1 Sub-Account] are calculated
using the method prescribed by the Securities and Exchange Commission. Both
yields reflect the deduction of the annual [1.25]% asset-based Certificate
charges. [Both yields also reflect, on an allocated basis, the Certificate's
annual $[36] Certificate Maintenance Charge.] Both yields do not reflect
[Contingent Deferred Sales Charges and] premium tax charges. The yields would
be lower if these charges were included. The following are the standardized
formulas:
Yield equals: A - B 365
(----- - 1) x ---
C 7
365/7
Effective Yield Equals: A - B
(-----) -1
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = [hypothetical Certificate Maintenance Charge for the 7-day period.
The assumed annual XX-1 Sub-Account charge is equal to the $[36]
Certificate charge multiplied by a fraction equal to the average
number of Certificates with [XX-1] Sub-Account value during the 7-day
period divided by the average total number of Certificates during the
7-day period. This annual amount is converted to a 7-day charge by
multiplying it by 7/365. It is then equated to an Accumulation Unit
size basis by multiplying it by a fraction equal to the average value
of one XX-1 Sub-Account Accumulation Unit during the 7-day period
divided by the average Certificate Value in [XX-1] Sub-Account during
the 7-day period.]
C = the Accumulation Unit value at the beginning of the 7-day period.
The yield formula assumes that the weekly net income generated by an
investment in the [XX-1] Sub-Account will continue over an entire year. The
effective yield formula also annualizes seven days of net income but it assumes
that the net income is reinvested over the year. This compounding effect causes
effective yield to be higher than the yield.
FINANCIAL STATEMENT
The Variable Account has not yet commenced operations and therefore no
financial statements are included. The Financial Statements of Keyport are
provided as relevant to its ability to meet its financial obligations under the
Certificates.
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
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<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
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<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
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certain securities, with an amortized cost of $14,994 and $10,630, respectively,
which were sold specifically due to a significant deterioration in the issuer's
creditworthiness.
(f) Concentration of Investments
Investments in a single entity (all of which are fully collateralized and
guaranteed by an agency or agencies of the U.S. Government) in excess of ten
percent of total stockholder's equity as of December 31, 1995 and 1994 were
as follows:
Carrying Value at
December 31,
1995 1994
Mortgage backed securities
FNMA Pool #303075 $134,884 $125,212
Morgan Stanley CMO (33-5) 108,051 101,832
FNMA Pool #303074 105,832 98,470
Investments in fixed maturities are diversified among more than one hundred
industries. Significant concentrations of credit risk are classified as
follows:
Carrying Value at
December 31,
1995 1994
Financial services $547,872 $539,537
Telecommunications 324,029 276,559
Banks 323,579 247,514
Electrical services 271,822 437,339
Oil and gas 261,161 274,026
Paper products 205,889 146,472
Retail 197,064 247,874
Transportation equipment 168,588 146,593
Credit institutions - 173,565
Food and beverage - 151,758
(g) Quality Ratings
The carrying values of publicly traded and privately placed fixed maturities
at December 31, 1995 represented by each quality ratings category were as
follows:
Carrying Value at December 31, 1995
Publicly Privately
Traded Placed Total
Investment grade:
U.S. government $ 368,969 - $ 368,969
Class 1 4,996,275 $1,480,089 6,476,364
Class 2 982,096 896,673 1,878,769
Total Investment grade 6,347,340 2,376,762 8,724,102
Below investment grade:
Class 3 317,131 147,517 464,648
Class 4 201,718 123,032 324,750
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Class 5 - 22,448 22,448
Total below investment grade 518,849 292,997 811,846
Total fixed maturities $6,866,189 $2,669,759 $9,535,948
The Company held no securities rated Class 6 at December 31, 1995.
Securities that are rated class 1 or 2 by the Securities Valuation Office of
the National Association of Insurance Commissioners (NAIC), or, if not so rated,
securities that are rated "BBB-" or above by S&P, or "Baa3" or above by Moody's
(using the lower of the S&P or Moody's rating) are considered "investment grade"
securities. Securities included in the U.S. government category in the preceding
table are those as defined by the NAIC.
The distribution of fixed maturities quality ratings were as follows:
December 31,
1995 1994
Class 1 (including U.S. government) 71.8% 72.3%
Class 2 19.7% 19.9%
Class 3 4.9% 5.6%
Class 4 3.4% 2.0%
Class 5 0.2% 0.2%
(h) Derivative Financial Instruments
The Company's primary objective in acquiring certain derivative financial
instruments is the management of interest rate risk. Interest rate risk results
from a mismatch in the timing and amount of invested asset and policyholder
liability cash flows. The Company seeks to manage this risk through various
asset/liability management strategies such as the setting of renewal rates and
by investment portfolio actions designed to address the interest rate
sensitivity of asset cash flows in relation to liability cash flows. Portfolio
actions used to manage interest rate risk include managing the effective
duration of portfolio securities and utilizing interest rate swaps and caps.
Interest rate swaps
The Company uses a combination of three distinct classes of interest rate swaps
to reduce interest rate risk. The following table summarizes the categories of
swaps used, their notional amounts, their weighted average interest rates as of
the reporting period date, and their effects on the consolidated balance sheets
and statements of income. The majority of swaps mature beginning in 1999
through 2001. The fair values of the interest rate swaps are primarily obtained
from dealer quotes. These values represent the estimated amounts the Company
would receive or pay to terminate the contracts, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties.
December 31,
1995 1994
Interest rate swaps:
(1) Pay fixed, receive variable rate - notional amount $1,975,000 $775,000
Average pay rate 6.79% 7.19%
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Average receive rate 5.88% 7.61%
Amount included in net investment income $ (2,751) $ (1,213)
Fair value $ (64,124) $ 27,587
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale $ (64,124) $ 27,587
Deferred loss - included in fixed maturities
available for sale $ (3,662) -
(2) Pay variable, receive variable rate - notional amount - $300,000
Average pay rate - 5.85%
Average receive rate - 6.42%
Amount included in net investment income $ (1,251) $ 6,781
Fair value - $(14,550)
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $(14,550)
Deferred loss - included in fixed maturities
available for sale $ (6,952) -
(3) Spread lock swap - notional amount - $150,000
Seven year swap spread - 0.34%
Amount included in net investment income $ 746 -
Fair value - $ 731
Carrying value - unrealized gain (loss) included in
fixed maturities available for sale - $ 731
1) The Company had thirty-six interest rate swap contracts with a notional
amount $1,975,000 and twenty contracts with a notional amount of $775,000 as of
December 31, 1995 and 1994, respectively, on which it pays a fixed rate of
interest and receives variable rates based on the two, five, and ten year
"constant maturity" treasury or swap rate. The variable rates are reset to
current market levels at six month intervals. The objective of holding this
class of derivatives is to reduce invested asset duration and better match the
interest rates earned on medium to long-term (greater than two year maturity)
fixed rate assets with the interest rates credited to policyholders. The Company
has medium to long-term invested assets of approximately $8,624,000 and
$5,600,000 in 1995 and 1994, respectively. For the majority of new and existing
single premium deferred annuities, credited rates are reset annually. In
addition, rates credited on annuity policies are closely correlated with longer
term interest rates, e.g., five or ten year market interest rates. This
derivative class allows the Company to swap the fixed interest rates received on
the medium to long-term fixed rate invested assets for a variable rate which is
better correlated with rates credited to policyholders. This reduces the
Company's risk in rising interest rate environments by providing investment
income to cover higher competitive credited rates.
2) In 1994, the Company had six interest rate swaps contracts with a notional
amount of $300,000 on which it paid a variable rate of interest based on the six
month LIBOR and received a variable rate based on the ten year swap rate minus
1.50%. The objective of holding this class of derivatives is to better match
the interest rates earned on short term and floating rate assets with the
interest credited to policyholders. The Company had approximately $850,000 of
invested assets where the Company received interest income based on interest
rates closely correlated with
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short-term LIBOR. This derivative class allowed the Company to swap variable
interest income received on short term and floating rate assets for a variable
rate which was better correlated with rates credited to policyholders.
During 1995, certain swaps were sold as part of the Company's overall tax
planning strategy. The Company unwound one pay fixed and six pay variable
interest rate swap contracts with a notional amount of $350,000. In 1992 the
Company unwound 3 contracts with a notional amount of $300,000. The resulting
loss of $10,691 in 1995 and the gain of $16,230 in 1992 were deferred and
amortized over the original remaining terms of the contracts, in accordance with
hedge accounting. The following table summarizes the deferred gain (loss)
amounts included in the consolidated balance sheet and the expected recognition
of income by year:
December 31,
1995 1994
Amounts expected to be includes in net
invested income:
Within one year $ (1,861) $ 4,720
Within one to five years (7,862) 891
Total $ (9,723) $ 5,611
During 1993, the Company unwound interest rate swap contracts with a notional
amount of $200,000. The swaps were unwound when the associated liabilities no
longer existed, resulting in a loss of $16,193, which was recognized
immediately.
3) In 1993, the Company entered into a $150,000 notional "spread lock" that
terminated in 1995. The Company received/(paid) the present value of the
seven year swap if corporate spreads widened/(compressed) above/(below) the
seven year swap spread of 26 basis points based on the 7.5% U.S. Treasury note
maturing November 15, 2001. As the result of the termination, the Company
recognized income of $746 during 1995. The objective of this derivative was to
reduce the exposure of the Company's fixed maturity investments to widening
corporate spreads. The value of the Company's corporate bond portfolio decreased
as corporate spreads widened. The Company's spread lock swap increased in value
as spreads widened and thus reduced the Company's risk.
Interest rate caps
The Company had seven interest rate caps with a $450,000 notional amount and
six interest rate caps with a $400,000 notional amount as of December 31, 1995
and 1994, respectively. These contracts are indexed to either the three month
LIBOR, or to the two or five year constant maturity swap (CMS) rates. Under
these contracts, the Company has paid a premium for the right to receive
payments when the index rises above a predetermined level, i.e., the strike
rate. The objective of holding these derivatives is to reduce the Company's
risk in rising interest rate environments by providing additional investment
income to cover higher competitive interest credited rates on policy
liabilities.
The following table summarizes the interest rate caps, their notional amounts,
their weighted average strike and index rates as of the reporting
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period date, and their effects on the consolidated balance sheets and income
statements. The majority of caps mature in 1997 and 1999. The fair values of the
interest rate caps are obtained from dealer quotes. These values represent the
estimated amounts the Company would receive or pay to terminate the contracts,
taking into account current interest rates and, when appropriate, the current
credit-worthiness of the counterparties.
December 31,
1995 1994
Interest rate caps:
Index: three month LIBOR - notional amount $ 200,000 $200,000
Weighted average strike rate 8.50% 8.50%
Weighted average current index 5.63% 6.44%
Amortization expense included in net investment income $ (648) $ (649)
Fair value $ 46 $ 2,698
Carrying value $ 1,254 $ 1,903
Unrealized gain (loss) included in fixed maturities AFS $ (1,208) $ 795
Index: two year CMS - notional amount $ 150,000 $100,000
Weighted average strike rate 7.60% 7.25%
Weighted average current index 5.28% 7.91%
Amortization expense included in net investment income $ (1,305) $ (144)
Fair Value $ 1,001 $ 4,930
Carrying value $ 5,269 $ 5,001
Unrealized gain (loss) included in fixed maturities AFS $ (4,268) $ (71)
Index: five year CMS - notional amount $ 100,000 $100,000
Weighted average strike rate 8.26% 7.93%
Weighted average current index 5.66% 7.83%
Amortization expense included in net investment income $ (564) $ (38)
Fair value $ 414 $ 2,806
Carrying value $ 2,232 $ 2,800
Unrealized gain (loss) included in fixed maturities AFS $ (1,818) $ 6
During 1993, the Company sold interest rate caps with notional amounts of
$300,000, resulting in realized losses of $4,082. In 1993, due to an other than
temporary decline in value, the Company reduced the carrying value of the
remaining interest rate caps by $2,000 resulting in a realized loss.
Trading Instruments
During 1995, a $50,000 notional current coupon mortgage swap matured. The
Company paid a total return of a seven year swap to receive the total return of
a current coupon, thirty year FNMA pass-through mortgage backed security plus
.40%. The swap reset to market levels at two month intervals. The objective of
the strategy was to replicate a position in FNMA pass-throughs with an enhanced
return.
The following table summarizes the current coupon mortgage swap and the effects
on the consolidated balance sheets and income statements. The swap matured in
1995. The fair value represents the estimated amount the Company had paid to
terminate the contracts in 1994, taking into account current interest rates and,
when appropriate, the current creditworthiness of the counterparties.
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December 31,
1995 1994
Current coupon mortgage swap:
Notional amount - $ 50,000
Pay rate at reporting date - 8.05%
Receive rate at reporting date - 8.90%
Amount included in net investment income - $ 455
Amount included in net realized investment gains (losses) $ (860) $ (28)
Fair value - $ 153
(5) Fair Value of Financial Instruments
Estimated fair values of the Company's investments in fixed maturities, equity
securities and derivative financial instruments are set forth in Note 4.
Estimated fair values, methods and assumptions of the Company's other financial
instruments are set forth below.
(a) Mortgage loans
For purposes of estimating fair value, mortgage loans are segregated into
commercial real estate loans and residential mortgages. The fair value of
commercial real estate loans is calculated by discounting scheduled cash flows
through the stated maturity using estimated market rates. The estimated market
rate is based on the five year prime mortgage rate. The fair value of
residential mortgages is estimated by discounting contractual cash flows
adjusted for expected prepayments using an estimated discount rate. The discount
rate is an estimated market rate adjusted to reflect differences in servicing
costs, and the expected prepayments are estimated based upon Company experience.
Mortgage loans are summarized as follows:
December 31, 1995
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 39,500 9.4% 7.5% $ 40,351
Residential mortgages 35,005 13.6% 7.5% 39,346
December 31, 1994
Average Estimated Estimated
Carrying Historical Discount Fair
Value Yield Rate Value
Commercial real estate loans $ 87,000 9.4% 8.3% $ 89,795
Residential mortgages 42,452 13.7% 8.3% 49,003
The weighted average maturities (which may be different from the stated
maturities) for the cash flows used in deriving the estimated fair values for
commercial real estate loans and residential mortgages are 0.3 years and 2.3
years, respectively, at December 31, 1995, and 1.3 years and 2.7 years,
respectively, at December 31, 1994.
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(b) Policy Loans
The carrying value of policy loans approximates fair value at December 31, 1995
and 1994.
(c) Policy Liabilities
The fair value of deposit liabilities with no stated maturity is equal to the
amount payable on demand. The Company considers its policy liabilities to be
similar to deposit liabilities.
The carrying value and estimated fair value of the policy liabilities at
December 31, 1995 were $10,084,392 and $9,650,113, respectively. The carrying
value and estimated fair value of the policy liabilities at December 31, 1994
were $9,344,044 and $8,961,971, respectively.
(6) Employee Benefit Plans
Keyport employees and certain employees of Liberty Financial are eligible to
participate in the Liberty Financial Companies, Inc. Pension Plan (the "Plan").
Under the Plan, all employees are vested after five years of service. Benefits
are based on years of service, the employee's average pay for the highest five
consecutive years during the last ten years of employment, and the employee's
estimated social security retirement benefit. The Company's funding policy is to
contribute the minimum required employer contribution under the Employee
Retirement Income Security Act of 1974. The Company may, from time to time,
increase its employer contributions beyond the minimum amount, but within IRS
guidelines.
Changes in prior service costs are amortized over the expected future service
periods of active participants expected to receive benefits under the Plan as of
the date such costs are first recognized. Cumulative net actuarial gains and
losses in excess of a corridor amount are amortized over the expected future
service periods of active participants expected to receive benefits under the
Plan.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheets. Substantially all of the Plans'
assets are invested in mutual funds sponsored by an affiliated company.
December 31,
1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $6,082 and $4,197 $ 6,915 $ 5,025
Projected benefit obligation for service to date $ 9,185 $ 6,523
Plan assets at fair value (5,703) (4,459)
Projected benefit obligation in excess of Plan assets 3,482 2,064
Unrecognized net actuarial loss (1,740) (227)
Prior service cost not yet recognized in net periodic
pension cost (206) (660)
Accrued pension cost $ 1,536 $ 1,177
Year Ended December 31,
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1995 1994 1993
Pension cost includes the following components:
Service cost benefits earned during the period $ 541 $ 532 $ 392
Interest cost on projected benefit obligation 603 534 423
Actual return on Plan assets (999) 63 (185)
Net amortization and deferred amounts 600 (338) (88)
Net periodic pension cost $ 745 $ 791 $ 542
The assumptions used to develop the actuarial present value of the projected
benefit obligation, and the expected long-term rate of return on Plan assets are
as follows:
Years Ended December 31,
1995 1994 1993
Discount rate 7.25% 8.25% 7.25%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Rate of increase in compensation levels 5.25% 5.25% 5.25%
The Company also provides a savings and investment plan with a matching savings
program containing several investment options for which substantially all
employees are eligible. In addition, the Company has a non-qualified deferred
compensation plan for certain employees.
(7) Deferred Policy Acquisition Costs and Value of Insurance In Force
The amounts of policy acquisition costs deferred and amortized are summarized
below:
Year Ended December 31,
1995 1994 1993
Balance, beginning of year $ 439,232 $ 262,646 $ 211,330
Additions:
Policy acquisition costs deferred during period:
Commissions 70,484 82,626 81,515
Other expenses 12,687 8,400 10,019
Total deferrals 83,171 91,026 91,534
Adjustments for unrealized investment losses - 135,059 -
Adjustments for realized investment losses 2,220 2,675 785
Total additions 85,391 228,760 92,319
Deductions:
Amortization expense (58,541) (52,174) (41,003)
Adjustments for unrealized investment gains (286,410) - -
Total deductions (344,951) (52,174) (41,003)
Balance, end of year $ 179,672 $ 439,232 $ 262,646
The value of insurance in force is summarized below:
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<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
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Keyport Life Insurance Company:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing Variable
Account A
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and Dealer
* (4a) Form of Group Variable Annuity Contract of Keyport Life Insurance
Company
* (4b) Form of Variable Annuity Certificate of Keyport Life Insurance
Company
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
* (5a) Form of Application for a Group Variable Annuity Contract
* (5b) Form of Application for a Group Variable Annuity Certificate
* (6a) Articles of Incorporation of Keyport Life Insurance Company
* (6b) By-Laws of Keyport Life Insurance Company
(7) Not applicable
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** (8) Form of Participation Agreement
** (9) Opinion and Consent of Counsel
(10) Consent of Independent Certified Public Accountants
(11) Not applicable
(12) Not applicable
*** (13) Schedule for Computations of Performance Quotations
** (14) Financial Data Schedule
** (15) Chart of Affiliations
** (16) Powers of Attorney
* Incorporated by reference to Registration Statement (File No. 333-1043;
811-7543) filed on or about February 16, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement (File No. 333-1043; 811-7543) filed on or about August 22, 1996.
*** To be filed by amendment
Item 25. Directors and Officers of the Depositor.
Name and Principal Positions and Offices
Business Address* with Depositor
- ------------------- ----------------------
Kenneth R. Leibler, President Director and Chairman of
Liberty Financial Companies Inc. the Board
Federal Reserve Plaza, 24th Floor
600 Atlantic Avenue
Boston, MA 02110
F. Remington Ballou Director
B. A. Ballou & Company, Inc.
800 Waterman Avenue
East Providence, RI 02914
Frederick Lippitt Director
The Providence Plan
740 Hospital Trust Building
15 Westminster Street
Providence, RI 02903
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Mr. Robert C. Nyman Director
Chairman and CEO
Nyman Mfg. Co.
275 Ferris Avenue
E. Providence, RI 02910-1001
John W. Rosensteel President, Chief Executive Officer and
Director
John E. Arant, III Senior Vice President and Chief Sales
Officer
Bernard R. Beckerlegge Senior Vice President and General
Counsel
Paul H. LeFevre, Jr. Senior Vice President and Chief
Financial Officer
Francis E. Reinhart Senior Vice President and Chief
Administrative Officer
Bruce J. Crozier Vice President and Chief Actuary
William L. Dixon Vice President, Compliance and Assistant
Secretary
Jacob M. Herschler Vice President, Strategic Marketing
Kenneth M. Hughes Vice President, National Director of
Bank Sales
James J. Klopper Vice President, Counsel and Assistant
Secretary
Leslie J. Laputz Vice President, Information Systems
Suzanne E. Lyons Vice President, Human Resources
Stewart R. Morrison Vice President and Chief Investment
Officer
Deborah A. Re Vice President, Administrative
Operations
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<PAGE>
Lee R. Roberts Vice President, Planning and Corporate
Affairs
Mark R. Tully Vice President, National Director of
Traditional Sales
Jeffrey J. Whitehead Vice President, Treasurer and Controller
Peter E. Berkeley Assistant Vice President, Human Resource
Development
John G. Bonvouloir Assistant Vice President & Assistant
Treasurer
Judith A. Brookins Assistant Vice President, Sales
Promotion
Clifford O. Calderwood Assistant Vice President, Network
Systems
Paul R. Coady Assistant Vice President, Marketing
Systems
Alan R. Downey Assistant Vice President
Gregory L. Lapsley Assistant Vice President, Administrative
Services (Rhode Island Operations)
Jeffrey J. Lobo Vice President, Risk Management
Scott E. Morin Assistant Vice President and Controller
Teresa M. Shumila Assistant Vice President, Administrative
Operations
Ellen L. Wike Assistant Vice President, Systems
Quality Assurance
Daniel Yin Assistant Vice President, Investments
Frederick Lippitt Assistant Secretary
*125 High Street, Boston, Massachusetts 02110, unless noted otherwise.
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Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor controls the Registrant, KMA Variable Account, Keyport 401
Variable Account, Keyport Variable Account I, and Keyport Variable Account II,
under the provisions of Rhode Island law governing the establishment of these
separate accounts of the Company.
The Depositor controls Keyport Financial Services Corp. (KFSC), a
Massachusetts corporation functioning as a broker-dealer of securities, through
100% stock ownership. KFSC files separate financial statements.
The Depositor controls Keyport Advisory Services Corp. (KASC), a
Massachusetts corporation functioning as an investment adviser, through 100%
stock ownership. KASC files separate financial statements.
The Depositor controls Independence Life and Annuity Company ("Independence
Life")(formerly Keyport America Life Insurance Company), a Rhode Island
corporation functioning as a life insurance company, through 100% stock
ownership. Independence Life files separate financial statements.
The chart for the affiliations of the Depositor is Exhibit 15.
Item 27. Number of Contract Owners.
None
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<PAGE>
Item 28. Indemnification.
Directors and officers of the Depositor and the principal underwriter are
covered persons under Directors and Officers/Errors and Omissions liability
insurance policies issued by ICI Mutual Insurance Company, Federal Insurance
Company, Firemen's Fund Insurance Company, CNA and Lumberman's Mutual Casualty
Company. Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors and officers under such insurance
policies, or otherwise, the Depositor has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Depositor of expenses incurred or paid by a director or officer
in the successful defense of any action, suit or proceeding) is asserted by such
director or officer in connection with the variable annuity contracts, the
Depositor will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters.
Keyport Financial Services Corp. is also principal underwriter of the
SteinRoe Variable Investment Trust and Keyport Variable Investment Trust, which
offer eligible funds for variable annuity and variable life insurance contracts.
The directors and officers are:
Name and Principal Position and Offices
Business Address* with underwriter
- ------------------- ---------------------
John W. Rosensteel President, Director and Chairman of the Board
Francis E. Reinhart Director and Vice President, Administration
Lee R. Roberts Director
John E. Arant, III Vice President, Chief Sales Officer
William L. Dixon Vice President, Compliance Officer
Rogelio P. Japlit Treasurer
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<PAGE>
James J. Klopper Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
Keyport Life Insurance Company, 125 High Street, Boston, Massachusetts
02110.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted;
(b) Registrant undertakes to include either (1) as part of any application
to purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional Information; and
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
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<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 11 day of
October, 1996.
VARIABLE ACCOUNT A
-----------------------------------
(Registrant)
BY: Keyport Life Insurance Company
------------------------------------
(Depositor)
BY: /s/ John W. Rosensteel*
------------------------------------
John W. Rosensteel
President
*BY: /s/ James J. Klopper October 11, 1996
---------------------- -------------------------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of Mr. Rosensteel pursuant to power of attorney duly executed by him and
included as part of Exhibit 16 in Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 filed on or about August 22, 1996 (File
No. 333-1043; 811-7543).
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<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
/s/ Kenneth R. Leibler* /s/ John W. Rosensteel*
- ------------------------ --------------------------
Kenneth R. Leibler John W. Rosensteel
Director and Chairman of the Board President
(Principal Executive Officer)
/s/ F. Remington Ballou* /s/ Paul H. LeFevre, Jr.*
- ------------------------ --------------------------
F. Remington Ballou Paul H. LeFevre, Jr.
Director Senior Vice President
(Chief Financial Officer)
/s/ Frederick Lippitt*
- ------------------------
Frederick Lippitt
Director
/s/ Robert C. Nyman*
- ------------------------
Robert C. Nyman
Director
/s/ John W. Rosensteel*
- ------------------------
John W. Rosensteel
Director
*BY: /s/ James J. Klopper October 11, 1996
---------------------- -------------------------
James J. Klopper Date
Attorney-in-Fact
* James J. Klopper has signed this document on the indicated date on behalf
of each of the above Directors and Officers of the Depositor pursuant to
powers of attorney duly executed by such persons and included as Exhibit 16
in Pre-Effective Amendment No. 1 to Registration Statement on Form N-4
filed on or about August 22, 1996 (File No. 333-1043; 811-7543).
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<PAGE>
EXHIBIT INDEX
Item Page
- ---- ----
(10) Consent of Independent Certified Public Accountants
96013.2
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<PAGE>
EXHIBIT 10
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Keyport Life Insurance Company:
We consent to the use of our report 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 14, 1996
97025
