As filed with the Securities and Exchange Commission on May 8, 1998.
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. ____ [ ]
Post-Effective Amendment No. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 [X]
Variable Account A
(Exact name of Registrant)
Keyport Life Insurance Company
(Name of Depositor)
125 High Street, Boston Massachusetts 02110
(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.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
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
(X) on May 19, 1998 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
Title of Securities Being Registered: Variable Portion of the Contracts
Funded Through the Separate Account.
No filing fee is due because an indefinite amount of securities is deemed
to have been registered in reliance on Section 24(f) of the Investment
Company Act of 1940.
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Exhibit Index on Page ____
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
Items 24 - 32
The Signatures
Exhibits
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
Annuity Options
10. . . . . . . . . .Purchase Payments and Applications
Variable Account Value
Valuation Periods
Net Investment Factor
Sales of the Certificates
11. . . . . . . . . .Partial Withdrawals and Surrender
Option A: Income For a Fixed Number of Years
Right to Revoke
12. . . . . . . . . .Tax Status
13. . . . . . . . . .Legal Proceedings
14. . . . . . . . . .Table of Contents - Statement of Additional
Information
Caption in Statement of Additional Information
15. . . . . . . . . .Cover Page
16. . . . . . . . . .Table of Contents
17. . . . . . . . . .Keyport Life Insurance Company
18. . . . . . . . . .Experts
19. . . . . . . . . .Not applicable
20. . . . . . . . . .Principal Underwriter
21. . . . . . . . . .Investment Performance
22. . . . . . . . . .Variable Annuity Benefits
23. . . . . . . . . .Financial Statements
This Amendment No. 12 to the Registration Statement on Form N-4 which
initially became effective on October 18, 1996 (the "Registration
Statement") is being filed pursuant to Rule 485(b) under the Securities Act
of 1933, as amended. This Amendment relates only to the prospectus,
statement of additional information, and exhibits included in Post-
Effective Amendment No. 9 to the Registration Statement and does not
otherwise delete, amend, or supersede any information contained in Post-
Effective Amendment Nos. 10 and 11 to the Registration Statement.
PART A
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
K.A.VAP 5/98
Yes. I would like to receive the Keyport Advisor Vista Variable Annuity
Statement of Additional Information.
Yes. I would like to receive the Statement of Additional Information for
the Eligible Funds of:
AIM Variable Insurance Funds, Inc.
Alliance Variable Products Series Fund, Inc.
Liberty Variable Investment Trust
MFS Variable Insurance Trust
SteinRoe Variable Investment Trust
Name
Address
City
State
Zip
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
May 19, 1998 Prospectus for
Keyport Advisor Vista
Variable Annuity
Including Eligible Fund Prospectuses for
AIM VARIABLE INSURANCE FUNDS, INC.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
LIBERTY VARIABLE INVESTMENT TRUST
MFS VARIABLE INSURANCE TRUST
STEINROE VARIABLE INVESTMENT TRUST
Annuities are:
not insured by the FDIC;
not a deposit or other obligation of, or
guaranteed by, the depository institution;
subject to investment risks, including the
possible loss of principal amount invested.
GROUP AND INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Variable Account A
OF
KEYPORT LIFE INSURANCE COMPANY
This Prospectus offers Group and Individual 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 fixed basis. The Certificates are
designed for use by individuals for retirement planning purposes.
This prospectus generally describes only the variable features of the
Certificate (for a summary of the fixed features, see Appendix A on Page
27). If the Certificate Owner elects to have Certificate Values accumulated
on a variable basis, Purchase Payments will be allocated to a segregated
investment account of Keyport Life Insurance Company ("Keyport"),
designated Variable Account A ("Variable Account").
The Variable Account invests in shares of the following Eligible Funds at
their net asset value: AIM Variable Insurance Funds, Inc. ("AIM Insurance
Funds")--AIM V.I. Capital Appreciation Fund ("AIM Capital Appreciation");
AIM V.I. Growth Fund ("AIM Growth") and AIM V.I. International Equity Fund
("AIM International Equity"); Alliance Variable Products Series Fund, Inc.
("Alliance Series Fund")--Global Bond Portfolio ("Alliance Global Bond");
Alliance Growth and Income Portfolio ("Alliance Growth and Income");
Premier Growth Portfolio ("Alliance Premier Growth") and Real Estate
Investment Portfolio ("Alliance Real Estate"); Liberty Variable Investment
Trust ("Liberty Trust") (formerly named Keyport Variable Investment Trust)-
- -Colonial Growth and Income Fund, Variable Series ("Colonial Growth and
Income"); Colonial High Yield Securities Fund, Variable Series ("Colonial
High Yield Securities"); Colonial Small Cap Value Fund, Variable Series
("Colonial Small Cap Value"); Colonial Strategic Income Fund, Variable
Series ("Colonial Strategic Income"); Colonial U.S. Stock Fund, Variable
Series ("Colonial U.S. Stock"); Liberty All-Star Equity Fund, Variable
Series ("Liberty All-Star Equity"); and Stein Roe Global Utilities Fund,
Variable Series ("Stein Roe Global Utilities"); MFS Variable Insurance
Trust ("MFS Trust")--MFS Bond Series ("MFS Bond"); MFS Emerging Growth
Series ("MFS Emerging Growth") and MFS Research Series ("MFS Research");
and SteinRoe Variable Investment Trust ("SteinRoe Trust")--Stein Roe
Balanced Fund, Variable Series ("Stein Roe Balanced"); Stein Roe Growth
Stock Fund, Variable Series ("Stein Roe Growth Stock"); Stein Roe Money
Market Fund, Variable Series ("Stein Roe Money Market"); and Stein Roe
Special Venture Fund, Variable Series ("Stein Roe Special Venture").
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. The agent selling the Contracts and Certificates
has information concerning the eligibility for and the availability of the
other forms of the Contracts and Certificates.
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 26.
The Certificates may be sold by or through banks or other depository
institutions. The Contract and Certificates: are not insured by the FDIC;
are not a deposit or other obligation of, or guaranteed by, the depository
institution; and are subject to investment risks, including the possible
loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD
KNOW BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS
AUTHORIZED BY KEYPORT TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, 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 May 19, 1998
TABLE OF CONTENTS
Page
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 7
Performance Information 8
Keyport and the Variable Account 9
Year 2000 Matters 10
Purchase Payments and Applications 10
Investments of the Variable Account 10
Allocations of Purchase Payments 10
Eligible Funds 11
Transfer of Variable Account Value 13
Substitution of Eligible Funds and Other Variable Account Changes 14
Deductions 14
Deductions for Mortality and Expense Risk Charge 15
Deductions for Daily Administrative Charge 15
Deductions for Transfers of Variable Account Value 16
Deductions for Premium Taxes 17
Deductions for Income Taxes 17
Total Variable Account Expenses 17
Other Services 17
The Certificates 18
Variable Account Value 18
Valuation Periods 19
Net Investment Factor 19
Modification of the Certificate 19
Right to Revoke 19
Death Provisions for Non-Qualified Certificates 19
Death Provisions for Qualified Certificates 21
Certificate Ownership 21
Assignment 21
Partial Withdrawals and Surrender 21
Annuity Provisions 22
Annuity Benefits 22
Income Date and Annuity Option 22
Change in Income Date and Annuity Option 22
Annuity Options 22
Variable Annuity Payment Values 23
Proof of Age, Sex, and Survival of Annuitant 23
Suspension of Payments 24
Tax Status 24
Introduction 24
Taxation of Annuities in General 24
Qualified Plans 25
Tax-Sheltered Annuities 26
Individual Retirement Annuities 26
Corporate Pension and Profit-Sharing Plans 26
Deferred Compensation Plans with Respect to
Service for State and Local Governments 26
Variable Account Voting Privileges 26
Sales of the Certificates 27
Legal Proceedings 27
Inquiries by Certificate Owners 27
Table of Contents--Statement of Additional Information 27
Appendix A--The Fixed Account (also known as the Modified
Guaranteed Annuity Account) 28
Appendix B--Telephone Instructions 31
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
90 on the Certificate Date (age 75 for Qualified Certificates and age 90
for Roth IRA 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 90 on the Certificate Date (age 75
for Qualified Certificates, age 90 for Roth IRA Qualified Certificates and
age 90 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.
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 or a waiver of any
Market Value Adjustment.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint
Certificate Owner. The Designated Beneficiary will be the first person
among the following who is alive on the date of death: primary Certificate
Owner; joint Certificate Owner; primary beneficiary; contingent
beneficiary; and if none of the above is alive, the primary Certificate
Owner's estate. If the primary Certificate Owner and joint Certificate
Owner are both alive, they will be the Designated Beneficiary together.
Eligible Funds: The mutual funds that are eligible investments for the
Variable Account under the Certificates.
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), 408(b) or 408A of the Internal Revenue Code. Keyport
treats Section 457 plans as Qualified Plans.
Start Date: The date an amount is first allocated to a Guarantee Period.
Variable Account: A separate investment account of Keyport into which
Purchase Payments under the Certificates may be allocated. The Variable
Account is divided into Sub-Accounts ("Sub-Account") that correspond to the
Eligible Funds in which they invest.
Variable Account Value: The value of all Variable Account amounts
accumulated under the Certificate prior to the Income Date.
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.
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by
the Securities and Exchange Commission to assist the owner of a variable
annuity certificate in understanding the transaction and operating expenses
the owner will directly or indirectly bear under a certificate. The values
reflect expenses of the Variable Account as well as the Eligible Funds
under the Certificates. The expenses shown for the Eligible Funds and the
examples should not be considered a representation of future expenses.
Certificate Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 0%
Maximum Total Certificate Owner Transaction Expenses1
(as a percentage of Purchase Payments): 0%
Annual Certificate Maintenance Charge $0
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Charge: .15%
Total Variable Account Annual Expenses: 1.40%
AIM Insurance Funds, Alliance Series Fund, Liberty Trust,
MFS Trust, and SteinRoe Trust Annual Expenses2
(as a percentage of average net assets)
Total Fund
Operating
Expenses After
Management Other Any Expense
Fund Fees Expenses Reimbursements3
AIM Capital Appreciation .63% .05% .68%
AIM Growth .65% .08% .73%
AIM International Equity .75% .18% .93%
Alliance Global Bond .56% .38% .94%(1.03%)3
Alliance Growth and Income .63% .09% .72%
Alliance Premier Growth 1.00% .08% 1.08%3
Alliance Real Estate .00% .95% .95%(2.31%)3
Colonial Growth and Income .65% .14% .79%
Colonial High Yield Securities .60% .20% .80%(1.15%)3
Colonial Small Cap Value .80 .20 1.00%(1.35%)3
Colonial Strategic Income .65% .15% .80%(.82%)3
Colonial U.S. Stock .80% .14% .94%
Liberty All-Star Equity .80% .13% 1.00%(1.45%)3
Stein Roe Global Utilities .65% .18% .83%
MFS Bond .60% .40% 1.00%(9.45%)3
MFS Emerging Growth .75% .12% .87%
MFS Research .75% .13% .88%
Stein Roe Balanced .45% .21% .66%
Stein Roe Growth Stock .50% .21% .71%
Stein Roe Money Market .35% .25% .60%
Stein Roe Special Venture .50% .23% .73%
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE FUNDS.
KEYPORT HAS NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
Example -- Whether the Certificate stays in force through the periods shown
or is surrendered or annuitized4 at the end of the periods shown, a $1,000
investment in each Sub-Account listed would be subject to the expenses
shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
AIM Capital Appreciation 21 69 124 302
AIM Growth 22 71 127 308
AIM International Equity 24 76 137 331
Alliance Global Bond 23 76 136 329
Alliance Growth and Income 21 69 124 301
Alliance Premier Growth 25 80 144 346
Alliance Real Estate 24 76 137 330
Colonial Growth and Income 22 71 128 310
Colonial High Yield Securities 22 71 128 311
Colonial Small Cap Value 24 78 139 336
Colonial Strategic Income 22 71 128 311
Colonial U.S. Stock 23 76 136 329
Liberty All-Star Equity 24 78 139 336
Stein Roe Global Utilities 22 72 130 315
MFS Bond 24 78 139 336
MFS Emerging Growth 23 73 132 320
MFS Research 23 74 133 321
Stein Roe Balanced 21 67 120 293
Stein Roe Growth Stock 21 68 123 299
Stein Roe Money Market 20 65 117 285
Stein Roe Special Venture 21 69 124 302
1Keyport 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.
2All Trust and Fund expenses are for 1997 with the exception of those for
Colonial High Yield Securities and Colonial Small Cap Value, which are
estimated since Colonial High Yield Securities and Colonial Small Cap Value
commenced operations in May, 1998 and for Alliance Premier Growth which
have been restated to reflect current charges. The AIM Insurance Funds,
Alliance Series Fund (except for Alliance Premier Growth), Liberty Trust,
MFS Trust, and SteinRoe Trust expenses reflect such Fund's or Trust's
adviser's agreement to reimburse expenses above certain limits (see
footnote 3).
3The AIM Insurance Funds' Adviser may from time to time waive or reduce its
fees. Fee waivers or reductions, other than those contained in the AIM
Insurance Funds' advisory agreement, may be modified or terminated at any
time.
Expense information shown for Alliance Series Fund, except for Alliance
Premier Growth, is net of any voluntary expense reimbursements. The
Alliance Series Fund Adviser has agreed to continue such reimbursements for
the foreseeable future. Each percentage shown in the parentheses is what
the total expenses would be in the absence of expense reimbursement: for
Alliance Global Bond--1.03%; and for Alliance Real Estate--2.31%. For
Alliance Premier Growth, the fees have been restated to reflect the
discontinuation of expense reimbursements effective 5/1/98 (see footnote
2). The expenses for 1997 were .95% and, in the absence of expense
reimbursement, total expenses would have been 1.10%.
Liberty Trust's manager has agreed until 4/30/98 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: 1.00% for Colonial Growth &
Income, Liberty All-Star Equity, Colonial Small Cap Value, Stein Roe Global
Utilities and Colonial U.S. Stock; and .80% for Colonial High Yield
Securities and Colonial Strategic Income. Each percentage shown in the
parentheses is what the total expenses would be in the absence of expense
reimbursement: for Colonial High Yield Securities--1.15%; for Colonial
Small Cap Value--1.35%; for Colonial Strategic Income--.82%; and for
Liberty All-Star Equity--1.45%.
MFS Trust's Adviser has agreed to bear, subject to reimbursement, expenses
for each of the three Eligible Funds shown such that each Fund's total
operating expenses shall not exceed, on an annualized basis, 1.25% of the
average daily net assets of the Fund from January 1, 1997 through December
31, 1998, and 1.50% of the average daily net assets of the Fund from
January 1, 1999 through December 31, 2004; provided however, that this
obligation may be terminated or revised at any time. Each percentage shown
in the parentheses is what the total expenses would be in the absence of
expense reimbursement: for MFS Bond--9.45%.
SteinRoe Trust's adviser has voluntarily agreed until 4/30/99 to reimburse
all expenses, including management fees, in excess of the following
percentage of the average annual net assets of each Fund, so long as such
reimbursement would not result in the Fund's inability to qualify as a
regulated investment company under the Internal Revenue Code: .80% for
Stein Roe Special Venture and Stein Roe Growth Stock; .65% for Stein Roe
Money Market; and .75% for Stein Roe Balanced.
4The 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 example should not be considered a representation of past or future
expenses and charges of the Sub-Accounts. Actual expenses may be greater or
less than those shown. Similarly, the assumed 5% annual rate of return is
not an estimate or a guarantee of future investment performance. See
"Deductions" in this prospectus, "Management" in the prospectus for AIM
Insurance Funds, "Management of the Fund" in the prospectus for the
Alliance Series Fund, "Trust Management Organizations" and "Expenses of the
Funds" in the prospectus for Liberty Trust, "Management of the Series" and
"Expenses" in the prospectus for MFS Trust, and "How the Funds are Managed"
in the prospectus for SteinRoe Trust.
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 investment
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 27 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 $25,000. The minimum amount
for each subsequent payment is $1,000 or such lesser amount as Keyport may
permit from time to time (currently $250). (See "Purchase Payments and
Applications" on Page 9.)
There are no deductions made from Purchase Payments for sales charges at
the time of purchase.
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 14.) Keyport also deducts a daily
administrative charge which is equal on an annual basis to .15% of the same
values. (See "Deductions for Daily Admininstrative Charge" on Page 14.)
Keyport reserves the right to deduct a charge of $25 for each transfer in
excess of 12 per Certificate Year but currently does not do so.
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 15.)
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 22.)
The Certificate allows the Certificate Owner to revoke the Certificate
generally within 10 days of delivery (see "Right to Revoke" on Page 18).
For most states, Keyport will refund the Certificate Value as of the date
the returned Certificate is received by Keyport, plus any administrative
charges previously deducted. The Certificate Owner thus will bear the
investment risk during the revocation period. In other states, Keyport will
return Purchase Payments.
The Certificates described in this prospectus have not previously been made
available for sale, and include fees and charges that are different from
other forms of the Contracts and Certificates. These differences will
produce differing Accumulations Unit values. Therefore, no condensed
financial information is provided. The full financial statements for the
Variable Account and Keyport are in the Statement of Additional
Information.
PERFORMANCE INFORMATION
The Variable Account may from time to time advertise certain performance
information concerning its various Sub-Accounts.
Certain of the Eligible Funds have been available for Keyport and/or non-
Keyport variable annuity contracts for periods prior to the commencement of
the offering of the Certificates described in this prospectus. Any
performance information for such periods will be based on the historical
results of the Eligible Funds being applied to the Certificate for the
specified time periods.
Performance information is not intended to indicate either past performance
under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods
of time. Total return performance information is based on the overall
percentage change in value of a hypothetical investment in the specific Sub-
Account over a given period of time.
Average annual total return information shows the average percentage change
in the value of an investment in the Sub-Account from the beginning date of
the measuring period to the end of that period. This standardized version
of average annual total return reflects all historical investment results,
less all charges and deductions applied against the Sub-Account and a
Certificate. Average total return does not take into account any premium
taxes and would be lower if these taxes were included.
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. This presentation assumes that the
investment in the Certificate continues, consistent with the long-term
investment and retirement objectives of the Certificate. The total return
percentage will thus be higher under this method than the standard method
described above.
Second, the Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a
specified time period by the Accumulation Unit value of that Sub-Account at
the beginning of the period. This computation results in a 12-month change
rate or, for longer periods, a total rate for the period which Keyport
annualizes in order to obtain the average annual percentage change in the
Accumulation Unit value for that period. The change percentages do not take
into account the premium tax charges. The percentages would be lower if
these charges were included.
The Stein Roe Money Market Sub-Account is a money market Sub-Account that
also may advertise yield and effective yield information. The yield of the
Sub-Account refers to the income generated by an investment in the Sub-
Account over a specifically identified 7-day period. This income is
annualized by assuming that the amount of income generated by the
investment during that week is generated each week over a 52-week period
and is shown as a percentage. The yield reflects the deduction of all
charges assessed against the Sub-Account and a Certificate but does not
take into account premium tax charges. The yield would be lower if these
charges were included.
The effective yield of the Stein Roe Money Market 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. Its home office is at
695 George Washington Highway, Lincoln, Rhode Island 02865.
Keyport writes individual and group annuity contracts on a non-
participating basis. Keyport is licensed to do business in all states
except New York and is also licensed in the District of Columbia and the
Virgin Islands. Keyport has been rated A+ (Superior) by A.M. Best and
Company, independent analysts of the insurance industry. Keyport has been
rated A+ each year since 1976, the first year Keyport was subject to Best's
alphabetic rating system. Standard & Poor's ("S & P") has rated Keyport AA
for excellent financial security, Moody's has rated Keyport A1 for good
financial strength and Duff & Phelps has rated Keyport AA- for very high
claims paying ability. The Best's A+ rating is in the highest rating
category, which also includes A++. S & P and Duff & Phelps have one rating
category above AA and Moody's has two rating categories above A. Within the
S & P AA category, only AA+ is higher. The Moody's "1" modifier signifies
that Keyport is in the higher end of the A category while the 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 a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and membership in IMSA in
advertisements. Being a member means that Keyport has chosen to participate
in IMSA's Life Insurance Ethical Market Conduct Program.
Keyport is one of the Liberty Financial Companies. Keyport is ultimately
controlled by Liberty Mutual Insurance Company of Boston, Massachusetts, a
multi-line insurance company.
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.
YEAR 2000 MATTERS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous
results by or at the year 2000. This potential problem has become known as
the "Year 2000 issue". The Year 2000 issue affects virtually all companies
and organizations.
Computer applications which are affected by the Year 2000 issue could
impact Keyport's business functions in various ways, ranging from a
complete inability to perform critical business functions to a loss of
productivity in varying degrees. Likewise, the failure of some computer
applications could have no impact on critical business functions.
Keyport is assessing and addressing the Year 2000 issue by implementing a
four-step plan. The first two steps involve inventorying all the computer
applications which support Keyport's business functions and prioritizing
computer applications which are affected by the Year 2000 issue based upon
the degree of impact each has on the functioning of Keyport's business
units. The first two steps of the plan are substantially complete.
The final two steps of the four-step plan involve remediation of affected
computer applications (i.e., repairing or replacing programs, including
those which interface with third-party computer applications that have
unremediated Year 2000 issues, and appropriate testing) and reinstallation
of computer applications. For computer applications which are "mission
critical" (i.e., their failure would result in the complete inability to
perform critical business functions), Keyport expects to complete the final
two steps of the plan by December 31, 1998. Remediation and reinstallation
of non-critical computer applications is scheduled to be completed by
December 31, 1999.
Keyport believes that the Year 2000 issue could have a material impact on
Keyport's operations if the four-step plan is not timely implemented.
However, based upon the progress that is being made, Keyport believes that
the timetable for implementing the plan will be met and that the Year 2000
issue will not pose significant operational problems for its computer
systems.
Keyport does not expect that the cost of addressing the Year 2000 issue
will be material to its financial condition or its results of operations.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $25,000. 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 replacing an
existing life insurance or annuity policy that was issued by Keyport or an
affiliated company without having previously received a signed application
from the applicant. Certain dealers or other authorized persons such as
employers and Qualified Plan fiduciaries will inform Keyport of an
applicant's answers to the questions in the application by telephone or by
order ticket and cause the initial Purchase Payment to be paid to Keyport.
If the information is in good order, Keyport will issue the Certificate
with a copy of an application completed with that information. The
Certificate will be delivered to the Certificate Owner with a letter from
Keyport that will give the Certificate Owner an opportunity to respond to
Keyport if any of the application information is incorrect. Alternatively,
Keyport's letter may request the Certificate Owner to confirm the
correctness of the information by signing either a copy of the application
or a Certificate delivery receipt that ratifies the application in all
respects (in either case, a copy of the signed document would be returned
to Keyport for its permanent records). All purchases are confirmed, in
writing, to the applicant by Keyport. Keyport's liability under a
Certificate extends only to amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
Purchase Payments applied to the Variable Account will be invested in one
or more of the Eligible Fund Sub-Accounts designated as permissible
investments in accordance with the selection made by the Certificate Owner
in the application. Any selection must specify the percentage of the
Purchase Payment that is allocated to each Sub-Account or must specify the
asset allocation model selected. (See "Other Services, The Programs".) The
percentage for each Sub-Account, if not zero, must be at least 5% and must
be a whole number. A Certificate Owner may change the allocation
percentages without fee, penalty or other charge. Allocation changes must
be made by Written Request unless the Certificate Owner has by Written
Request authorized Keyport to accept telephone allocation instructions from
the Certificate Owner or from a person acting for the Certificate Owner as
an attorney-in-fact under a power of attorney. By authorizing Keyport to
accept telephone changes, a Certificate Owner agrees to accept and be bound
by the conditions and procedures established by Keyport from time to time.
The current conditions and procedures are in Appendix B and Certificate
Owners authorizing telephone allocation instructions will be notified, in
advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. Eligible Funds and Sub-accounts may be added
or withdrawn as permitted by applicable law. The Sub-Accounts in the
Variable Account and the corresponding Eligible Funds currently are as
follows:
Eligible Funds of AIM Insurance Funds Sub-Accounts
AIM Capital Appreciation AIM Capital Appreciation
Sub-Account
AIM Growth AIM Growth Sub-Account
AIM International Equity AIM International Equity
Sub-Account
Eligible Funds of Alliance Series Fund Sub-Accounts
Alliance Global Bond Alliance Global Bond Sub-
Account
Alliance Growth and Income Alliance Growth and Income
Sub-Account
Alliance Premier Growth Alliance Premier Growth Sub-
Account
Alliance Real Estate Alliance Real Estate Sub-
Account
Eligible Funds of Liberty Trust Sub-Accounts
Colonial Growth and Income Colonial Growth and Income
Sub-Account
Colonial High Yield Securities Colonial High Yield
Securities Sub-Account
Colonial Small Cap Value Colonial Small Cap Value
Sub-Account
Colonial Strategic Income Colonial Strategic Income
Sub-Account
Colonial U.S. Stock Colonial U.S. Stock Sub-
Account
Liberty All-Star Equity Liberty All-Star Equity Sub-
Account
Stein Roe Global Utilities Stein Roe Global Utilities
Sub-Account
Eligible Funds of MFS Trust Sub-Accounts
MFS Bond MFS Bond Sub-Account
MFS Emerging Growth MFS Emerging Growth Sub-
Account
MFS Research MFS Research Sub-Account
Eligible Funds of SteinRoe Trust Sub-Accounts
Stein Roe Balanced Stein Roe Balanced Sub-
Account
Stein Roe Growth Stock Stein Roe Growth Stock Sub-
Account
Stein Roe Money Market Stein Roe Money Market Sub-
Account
Stein Roe Special Venture Stein Roe Special Venture
Sub-Account
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable
Account are the separate funds listed above of AIM Insurance Funds,
Alliance Series Fund, Liberty Trust, MFS Trust and SteinRoe Trust, and any
other mutual funds with which Keyport and the Variable Account may enter
into a participation agreement for the purpose of making such mutual funds
available as Eligible Funds under certain Certificates.
AIM Advisors Inc. ("AIM") serves as the investment adviser to each of the
Eligible Funds of the AIM Insurance Funds. AIM was organized in 1976, and,
together with its subsidiaries, manages or advises 46 investment portfolios
(including the Funds).
Alliance Capital Management L.P. is the investment adviser for each of the
Eligible Funds of Alliance Series Fund. AIGAM International Limited serves
as sub-adviser for Alliance Global.
Liberty Advisory Services Corp. ("LASC")(formerly named Keyport Advisory
Services Corp.), a subsidiary of Keyport, is the manager for Liberty Trust
and its Eligible Funds. Colonial Management Associates, Inc. ("Colonial"),
an affiliate of Keyport, serves as sub-adviser for the Eligible Funds
(except for Stein Roe Global Utilities and Liberty All-Star Equity).
Colonial has provided investment advisory services since 1931. Liberty
Asset Management Company, an affiliate of Keyport, serves as sub-adviser
for Liberty All-Star Equity and the current portfolio managers are J.P.
Morgan Investment Management Inc., Oppenheimer Capital, Wilke/Thompson
Capital Management Inc., Westwood Management Corp. and Palley-Needelman
Asset Management, Inc.
Massachusetts Financial Services Company ("MFS") is the investment adviser
for the Eligible Funds of MFS Trust. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of the first mutual fund in
the United States, Massachusetts Investors Trust.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser
for each Eligible Fund of SteinRoe Trust and sub-adviser for Stein Roe
Global Utilities. In 1986, Stein Roe was organized and succeeded to the
business of Stein Roe & Farnham, a partnership. Stein Roe is an affiliate
of Keyport. Stein Roe and its predecessor have provided investment advisory
and administrative services since 1932.
The investment objectives of the Eligible Funds are briefly described
below. More detailed information, including investor considerations related
to the risks of investing in a particular Eligible Fund, may be found in
the current prospectus for that Fund. An investor should read that
prospectus carefully before selecting a fund for investing. The prospectus
is available, at no charge, from a salesperson or by writing Keyport at the
address shown on Page 1 or by calling (800) 437-4466.
Eligible Funds of AIM Insurance
Funds and Variable Account
Sub-Accounts Investment Objective
AIM Capital Appreciation Capital appreciation through
(AIM Capital Appreciation investments in common stocks,
Sub-Account) with emphasis on medium-sized
and smaller emerging growth
companies.
AIM Growth Growth of capital through
(AIM Growth Sub-Account) investments primarily in
common stocks of leading U.S.
companies considered by AIM
to have strong earnings
momentum.
AIM International Equity Long-term growth of capital
(AIM International Equity by investing in international
Sub-Account) equity securities, the issuers
of which are considered by AIM
to have strong earnings
momentum.
Eligible Funds of Alliance Series
Fund and Variable Account
Sub-Accounts Investment Objective
Alliance Global Bond A high level of return from a
(Alliance Global Bond combination of current income and
Sub-Account) capital appreciation by investing
in a globally diversified portfolio
of high quality debt securities
denominated in the U.S. Dollar and
a range of foreign currencies.
Alliance Growth and Income Balance the objectives of
(Alliance Growth and Income reasonable current income and
Sub-Account) reasonable opportunities for
appreciation through investments
primarily in dividend-paying
common stocks of good quality.
Alliance Premier Growth Growth of capital rather than
(Alliance Premier Growth current income.
Sub-Account)
Alliance Real Estate Total return on its assets through
(Alliance Real Estate Sub- long-term growth of capital and
Account) income principally through
investing in a portfolio of equity
securities of issuers that are
primarily engaged in or related to
the real estate industry.
Eligible Funds of Liberty Trust
and Variable Account
Sub-Accounts Investment Objective
Colonial Growth and Income Primarily income and long-term
(Colonial Growth and Income capital growth and, secondarily,
Sub- Account)(formerly named preservation of capital.
Colonial-Keyport Growth and
Income Fund)
Colonial High Yield Securities High current income and total
(Colonial High Yield Securities return by investing primarily
Sub-Account) in lower rated corporate debt
securities.
Colonial Small Cap Value Long-term growth by investing
(Colonial Small Cap Value in smaller capitalization
Sub-Account) equity securities.
Colonial Strategic Income A high level of current income, as
(Colonial Strategic Income is consistent with prudent risk and
Sub-Account)(formerly named maximizing total return, by
Colonial-Keyport Strategic diversifying investments primarily
Income Fund) in U.S. and foreign government and
high yield, high risk corporate
debt securities.
Colonial U.S. Stock Long-term capital growth by
(Colonial U.S. Stock Sub-Account) investing primarily in large
(formerly named Colonial-Keyport capitalization equity securities.
U.S. Stock Fund)
Liberty All-Star Equity Total investment return, comprised
(Liberty All-Star Equity Sub-Account) of long-term capital appreciation
and current income, through
investment primarily in a
diversified portfolio of equity
securities.
Stein Roe Global Utilities Current income and long-term growth
(Stein Roe Global Utilities of capital and income.
Sub-Account)(formerly named
Colonial-Keyport Utilities Fund)
Eligible Funds of MFS Trust
and Variable Account
Sub-Accounts Investment Objective
MFS Bond High level of current income
(MFS Bond Sub-Account) as is believed consistent
with prudent investment risk
and secondarily to protect
shareholders' capital.
MFS Emerging Growth Long-term growth of capital.
(MFS Emerging Growth Sub-Account)
MFS Research Long-term growth of capital and
(MFS Research Sub-Account) future income.
Eligible Funds of SteinRoe Trust
and Variable Account
Sub-Accounts Investment Objective
Stein Roe Balanced High total investment return
(Stein Roe Balanced through investment in a changing
Sub-Account) (formerly named SteinRoe mix of securities.
Managed Assets Fund)
Stein Roe Growth Stock Long-term growth of capital through
(Stein Roe Growth Stock investment primarily in common
Sub-Account)(formerly named SteinRoe stocks.
Managed Growth Stock Fund)
Stein Roe Money Market High current income from short-term
(Stein Roe Money Market money market instruments while
Sub-Account)(formerly named SteinRoe emphasizing preservation of capital
Cash Income Fund) and maintaining excellent
liquidity.
Stein Roe Special Venture Capital growth by investing
(Stein Roe Special Venture primarily in common stocks,
Sub-Account)(formerly named SteinRoe convertible securities, and other
Capital Appreciation Fund) securities selected for prospective
capital growth.
There is no assurance that the Eligible Funds will achieve their stated
objectives.
All the Eligible Funds are funding vehicles for variable annuity contracts
and variable life insurance policies offered by separate accounts of
Keyport and of insurance companies affiliated and unaffiliated with
Keyport. The risks involved in this "mixed and shared funding" are
disclosed in the Eligible Fund prospectuses under the following captions:
AIM Insurance Funds--"Purchase and Redemption of Shares"; Alliance Series
Fund--"Introduction to the Fund"; Liberty Trust--"The Trust"; MFS Trust--
"Investment Concept of the Trust"; and SteinRoe Trust--"The Trust".
Transfer of Variable Account Value
Certificate Owners may transfer Variable Account Value from one Sub-Account
to another Sub-Account and/or to the Fixed Account.
The Certificate allows Keyport to charge a transfer fee and to limit the
number of transfers that can be made in a specified time period.
Certificate Owners should be aware that transfer limitations may prevent a
Certificate Owner from making a transfer on the date he or she wants to,
with the result that the Certificate Owner's future Certificate Value may
be lower than it would have been had the transfer been made on the desired
date.
Currently, Keyport has no limit on the number or frequency of transfers,
and it is not charging a transfer fee of $25 for each transfer in excess of
12 per Certificate Year. For transfers under different Certificates that
are being requested under powers of attorney with a common attorney-in-fact
or that are, in Keyport's determination, based on the recommendation of a
common investment adviser or broker/dealer, there is a transfer limitation
of one transfer every 30 days or such other period as Keyport may permit.
Keyport is also limiting each transfer to a maximum of $500,000 or such
greater amount as Keyport may permit. All transfers requested for a
Certificate on the same day will be treated as a single transfer and the
total combined transfer amount will be subject to the $500,000 limitation.
If the $500,000 limitation is exceeded, no amount of the transfer will be
executed by Keyport.
In applying the $500,000 limitation, Keyport may treat as one transfer all
transfers requested by a Certificate Owner for multiple Certificates he or
she owns. If the $500,000 limitation is exceeded for multiple transfers
requested on the same day that are treated as a single transfer, no amount
of the transfer will be executed by Keyport.
In applying the $500,000 limitation to transfers requested by a common
attorney-in-fact or investment adviser, Keyport will treat as one transfer
all transfers requested under different Certificates that are being
requested under powers of attorney with a common attorney-in-fact or that
are, in Keyport's determination, based on the recommendation of a common
investment adviser or broker/dealer. If the $500,000 limitation is exceeded
for multiple transfers requested on the same day that are treated as a
single transfer, no amount of the transfer will be executed by Keyport. If
a transfer is executed under one Certificate and, within the next 30 days,
a transfer request for another Certificate is determined by Keyport to be
related to the executed transfer under this paragraph's rules, the transfer
request will not be executed by Keyport. In order for it to be executed, it
would need to be requested again after the 30 day period has expired and
it, along with any other transfer requests that are collectively treated as
a single transfer, would need to total less than $500,000.
Keyport's interest in applying these limitations is to protect the
interests of both Certificate Owners who are not engaging in significant
transfer activity and Certificate Owners who are engaging in such activity.
Keyport has determined that the actions of Certificate Owners engaging in
significant transfer activity among Sub-Accounts may cause an adverse
affect on the performance of the Eligible Fund for the Sub-Account
involved. The movement of Sub-Account values from one Sub-Account to
another may prevent the appropriate Eligible Fund from taking advantage of
investment opportunities because it must maintain a liquid position 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 $25.
Transfers must be made by Written Request unless the Certificate Owner has
by Written Request authorized Keyport to accept telephone transfer requests
from the Certificate Owner or from a person acting for the Certificate
Owner as an attorney-in-fact under a power of attorney. By authorizing
Keyport to accept telephone transfer instructions, a Certificate Owner
agrees to accept and be bound by the conditions and procedures established
by Keyport from time to time. The current conditions and procedures are in
Appendix B and Certificate Owners authorizing telephone transfers will be
notified, in advance, of any changes. Written transfer requests may be made
by a person acting for the Certificate Owner as an attorney-in-fact under a
power of attorney.
Transfer requests received by Keyport before the close of trading on the
New York Stock Exchange (currently 4:00 PM Eastern Time) will be initiated
at the close of business that day. Any requests received later will be
initiated at the close of the next business day. Each request from a
Certificate Owner to transfer value will be executed by both redeeming and
acquiring Accumulation Units on the day Keyport initiates the transfer.
If 100% of any Sub-Account's value is transferred and the allocation
formula for Purchase Payments includes that Sub-Account, then the
allocation formula for future Purchase Payments will automatically change
unless the Certificate Owner instructs otherwise. For example, if the
allocation formula is 50% to Sub-Account A and 50% to Sub-Account B and all
of Sub-Account A's value is transferred to Sub-Account B, the allocation
formula will change to 100% to Sub-Account B unless the Certificate Owner
instructs otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If the shares of any of the Eligible Funds should no longer be available
for investment by the Variable Account or if in the judgment of Keyport's
management further investment in such fund shares should become
inappropriate in view of the purpose of the Certificate, Keyport may add or
substitute shares of another Eligible Fund or of another mutual fund for
Eligible Fund shares already purchased under the Certificate. No
substitution of Fund shares in any Sub-Account may take place without prior
approval of the Securities and Exchange Commission and notice to
Certificate Owners, to the extent required by the Investment Company Act of
1940.
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 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.
To compensate it for assuming mortality and expense risks, for each
Valuation Period Keyport deducts from each Sub-Account a Mortality and
Expense Risk Charge equal on an annual basis to 1.25% of the average daily
net asset value of the Sub-Account. The charge is deducted during both the
accumulation and annuity periods (i.e., both before and after the Income
Date). Less than the full charge will be deducted from Sub-Account values
attributable to Certificates issued to employees of Keyport and other
persons specified in "Sales of the Certificates".
Deductions for Daily Administrative Charge
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 Transfers of Variable Account Value
The Certificate allows Keyport to charge a transfer fee. Currently no fee
is being charged. Certificate Owners will be notified, in advance, of the
imposition of any fee. The fee will not exceed $25.
Deductions for Premium Taxes
Keyport deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Keyport elects to defer such
deduction. It is not possible to describe precisely the amount of premium
tax payable on any transaction involving the Certificate offered hereby.
Such premium taxes depend, among other things, on the type of Certificate
(Qualified or Non-Qualified), on the state of residence of the Certificate
Owner, the state of residence of the Annuitant, the status of Keyport
within such states, and the insurance tax laws of such states. Currently
such premium taxes range from 0% to 5.0% of either total Purchase Payments
or Certificate Value.
Deductions for Income Taxes
Keyport will deduct from any amount payable under the Certificate any
income taxes that a governmental authority requires Keyport to withhold
with respect to that amount. See "Income Tax Withholding" and "Tax-
Sheltered Annuities".
Total Variable Account Expenses
Total Variable Account expenses in relation to the Certificate will be the
Mortality and Expense Risk 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 prospectuses.
OTHER SERVICES
The Programs. Keyport offers several investment related programs which are
available only prior to the Income Date: Asset Allocation; Dollar Cost
Averaging; Systematic Investment; and Systematic Withdrawal Programs. A
Rebalancing Program is available prior to and after the Income Date. Under
each Program that utilizes transfers, 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 Stein Roe Money
Market 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 Stein Roe Money Market Sub-Account or the One-
Year Guarantee Period. Under the program, Keyport makes automatic transfers
on a periodic basis out of the Stein Roe Money Market Sub-Account or the
One-Year Guarantee Period into one or more of the other available Sub-
Accounts (Keyport reserves the right to limit the number of Sub-Accounts
the Certificate Owner may choose but there are currently no limits).
The Certificate Owner by Written Request must specify the Stein Roe Money
Market Sub-Account or the One Year Guarantee Period from which the
transfers are to be made, the monthly amount to be transferred (minimum
$100) and the Sub-Account(s) to which the transfers are to be made. The
first transfer will occur at the close of the Valuation Period that
includes the 30th day after the receipt of the Certificate Owner's Written
Request. Each succeeding transfer will occur one month later (e.g., if the
30th day after the receipt date is April 8, the second transfer will occur
at the close of the Valuation Period that includes May 8). When the
remaining value is less than the monthly transfer amount, that remaining
value will be transferred and the program will end. Before this final
transfer, the Certificate Owner may extend the program by allocating
additional Purchase Payments to the Stein Roe Money Market Sub-Account or
the One Year Guarantee Period or by transferring Certificate Value to the
Stein Roe Money Market 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 separately developed by Ibbotson Associates and
Standard & Poor's (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 Ibbotson Associates and Standard & Poor's 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 to any reconfiguration.
The Fixed Account is not available in any asset allocation model. A
Certificate Owner may allocate initial or subsequent Purchase Payments, or
Certificate Value, between an asset allocation model and the Fixed Account.
Rebalancing Program. In accordance with the Certificate Owner's election of
the relative Purchase Payment 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 Payment
percentage allocations. The Program may be terminated at any time and the
percentages may be altered by Written Request. The requested change must be
received at the Office ten (10) days prior to the end of the period
selected. Certificate Value allocated to the Fixed Account is not subject
to automatic rebalancing. After the Income Date, automatic rebalancing
applies only to variable annuity payments and Keyport will rebalance the
number of Annuity Units in each Sub-Account (Annuity Units are used to
calculate the amount of each Sub-Account annuity payment; see "Variable
Annuity Benefits" in the Statement of Additional Information).
Systematic Investment Program. Purchase Payments under Non-Qualified
Certificates may be made by monthly deductions from the bank account or
payroll of any Certificate Owner who has completed and returned to Keyport
a Systematic Investment Program application and authorization form. The
application and authorization form may be obtained from Keyport or from the
sales representative. Each Systematic Investment Program Purchase Payment
is subject to a current minimum of $50.
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 be made from the Sub-Accounts and the one, three, five, and
seven year Guarantee Periods of the Fixed Account.
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.
The Program may be combined with all other Programs except the Systematic
Investment Program.
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 weekends, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net Investment Factor
Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, Keyport utilizes an Accumulation Unit value.
Each Sub-Account has its own Accumulation Units and value per Unit. The
Unit value applicable during any Valuation Period is determined at the end
of that period.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Accumulation Unit at a specified dollar
amount. The Unit value for each Sub-Account in any Valuation Period
thereafter is determined by multiplying the value for the prior period by a
net investment factor. This factor may be greater or less than 1.0;
therefore, the Accumulation Unit may increase or decrease from Valuation
Period to Valuation Period. Keyport calculates a net investment factor for
each Sub-Account by dividing (a) by (b) and then subtracting (c) (i.e.,
(a/b) - c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the Mortality and Expense Risk
Charge; plus
(ii) the Valuation Period equivalent of the daily Administrative Charge;
plus
(iii) a charge factor, if any, for any tax provision established by Keyport
as a result of the operations of that Sub-Account.
For Certificates issued to employees of Keyport and other persons specified
in "Sales of the Certificates", the Mortality and Expense Risk Charge in
(c)(i) above is .35%, and the daily Administrative charge in (c)(ii) above
is eliminated.
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.
For Certificates delivered in California to a Certificate Owner age 60 or
older, the Certificate Owner may return the Certificate to Keyport's Office
or to the agent from whom the Certificate was purchased. If the Certificate
is received at Keyport's Office or by the agent within 30 days after the
Certificate Owner receives the Certificate, Keyport will refund the
Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant. These
provisions apply if, before the Income Date while the Certificate is In
Force, the primary Certificate Owner or any Joint Certificate Owner dies
(whether or not the decedent is also the Annuitant) or the Annuitant dies
under a Certificate with a non-natural Certificate Owner such as a trust.
The Designated Beneficiary will control the Certificate after such a death.
If the decedent's surviving spouse (if any) is the sole Designated
Beneficiary, the surviving spouse will automatically become the new sole
primary Certificate Owner as of the decedent's date of death. And, if the
Annuitant is the decedent, the new Annuitant will be any living contingent
annuitant, otherwise the surviving spouse. The Certificate may continue
until another death occurs (i.e., until the death of the Annuitant, primary
Certificate Owner or joint Certificate Owner). Except for this paragraph,
all of "Death Provisions" will apply to that subsequent death.
In all other cases, the Certificate may continue up to five years from the
date of death. During this period, the Designated Beneficiary may exercise
all ownership rights, including the right to make transfers or partial
surrenders or the right to totally surrender the Certificate for its
Surrender Value. If the Certificate is still in effect at the end of the
five-year period, Keyport will automatically end it then by paying the
Certificate Value to the Designated Beneficiary. If the Designated
Beneficiary is not then alive, Keyport will pay any person(s) named by the
Designated Beneficiary in a Written Request; otherwise the Designated
Beneficiary's estate.
The Covered Person under this paragraph shall be the decedent if he or she
is the first to die of the primary Certificate Owner, Joint Certificate
Owner, Annuitant, or, if there is a non-natural Certificate Owner such as a
trust, the Annuitant shall be the Covered Person. If the Covered Person
dies, the Certificate Value will be increased, as provided below, if it is
less than the Death Benefit Amount ("DBA"). The DBA is:
The DBA at issue is the initial Purchase Payment. Thereafter, the DBA is
calculated for each Valuation period by adding any additional Purchase
Payments, and deducting any partial withdrawals. 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.
When Keyport receives due proof of the Covered Person's death, Keyport will
compare, as of the date of death, the Certificate Value to the DBA. If the
Certificate Value was less than the DBA, Keyport will increase the current
Certificate Value by the amount of the difference. Note that while the
amount of the difference is determined as of the date of death, that amount
is not added to the Certificate Value until Keyport receives due proof of
death. The amount to be credited will be allocated to the Variable Account
and/or the Fixed Account based on the Purchase Payment allocation selection
that is in effect when Keyport receives due proof of death. Whether or not
the Certificate Value is increased because of this minimum death provision,
the Designated Beneficiary may, by the later of the 90th day after the
Covered Person's death and the 60th day after Keyport is notified of the
death, surrender the Certificate for the Certificate Withdrawal Value. If
the Certificate is not surrendered, it will continue for the time period
specified above.
Payment of Benefits. Instead of receiving a lump sum, the Certificate Owner
or any Designated Beneficiary may direct by Written Request that Keyport
pay any benefit of $5,000 or more under an annuity payment option that
meets the following: (a) the first payment to the Designated Beneficiary
must be made no later than one year after the date of death; (b) payments
must be made over the life of the Designated Beneficiary or over a period
not extending beyond that person's life expectancy; and (c) any payment
option that provides for payments to continue after the death of the
Designated Beneficiary will not allow the successor payee to extend the
period of time over which the remaining payments are to be made.
Death of Certain Non-Certificate Owner Annuitant. These provisions apply
if, before the Income Date while the Certificate is In Force, (a) the
Annuitant dies, (b) the Annuitant is not a Certificate Owner, and (c) the
Certificate Owner is a natural person. The Certificate will continue after
the Annuitant's death. The new Annuitant will be any living contingent
annuitant, otherwise the primary Certificate Owner. If the Annuitant is the
first to die of the Certificate's primary Certificate Owner, Joint
Certificate Owner and Annuitant, then the Annuitant is the Covered Person
and the Certificate Value will be increased, as provided below, if it is
less than the Death Benefit Amount ("DBA"), as defined above. When Keyport
receives due proof of the Annuitant's death, Keyport will compare, as of
the date of death, the Certificate Value to the DBA. If the Certificate
Value was less than the DBA, Keyport will increase the current Certificate
Value by the amount of the difference. Note that while the amount of the
difference is determined as of the date of death, that amount is not added
to the Certificate Value until Keyport receives due proof of death. The
amount to be credited will be allocated to the Variable Account and/or the
Fixed Account based on the Purchase Payment allocation selection that is in
effect when Keyport receives due proof of death. Whether or not the
Certificate Value is increased because of this minimum death provision, the
Certificate Owner may surrender the Certificate within 90 days of the date
of the Annuitant's death for the Certificate Withdrawal Value.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
Death of Annuitant. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the
Certificate after such a death. The Certificate Value will be increased, as
provided below, if it is less than the Death Benefit Amount ("DBA") as
defined above. When Keyport receives due proof of the Annuitant's death,
Keyport will compare, as of the date of death, the Certificate Value to the
DBA. If the Certificate Value was less than the DBA, Keyport will increase
the current Certificate Value by the amount of the difference. Note that
while the amount of the difference is determined as of the date of death,
that amount is not added to the Certificate Value until Keyport receives
due proof of death. The amount to be credited will be allocated to the
Variable Account and/or the Fixed Account based on the Purchase Payment
allocation selection that is in effect when Keyport receives due proof of
death. Whether or not the Certificate Value is increased because of this
minimum death provision, the Designated Beneficiary may, by the later of
the 90th day after the Annuitant's death and the 60th day after Keyport is
notified of the death, surrender the Certificate for the Certificate
Withdrawal Value.
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the
particular Qualified Plan. During this period, the Designated Beneficiary
may exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to totally surrender the Certificate for
its Certificate Withdrawal Value. If the Certificate is still in effect at
the end of the period, Keyport will automatically end it then by paying the
Certificate Withdrawal Value to the Designated Beneficiary. If the
Designated Beneficiary is not alive then, Keyport will pay any person(s)
named by the Designated Beneficiary in a Written Request; otherwise the
Designated Beneficiary's estate.
Payment of Benefits. Instead of receiving a lump sum, the Certificate Owner
or any Designated Beneficiary may direct by Written Request that Keyport
pay any benefit of $5,000 or more under an annuity payment option that
meets the following: (a) the first payment to the Designated Beneficiary
must be made no later than one year after the date of death; (b) payments
must be made over the life of the Designated Beneficiary or over a period
not extending beyond that person's life expectancy; and (c) any payment
option that provides for payments to continue after the death of the
Designated Beneficiary will not allow the successor payee to extend the
period of time over which the remaining payments are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application.
The Certificate Owner may exercise all the rights of the Certificate. Joint
Certificate Owners are permitted but not contingent Certificate Owners.
The Certificate Owner may by Written Request change the Certificate Owner,
primary beneficiary, contingent beneficiary or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of
such person.
Because a change of Certificate Owner by means of a gift (i.e., a transfer
without full and adequate consideration) may be a taxable event, a
Certificate Owner should consult a competent tax adviser as to the tax
consequences resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership. A
Certificate Owner should consult the Plan Administrator and a competent tax
adviser as to the tax consequences resulting from such a transfer.
ASSIGNMENT
The Certificate Owner may assign the Certificate at any time. A copy of any
assignment must be filed with Keyport. The Certificate Owner's rights and
those of any revocably-named person will be subject to the assignment. Any
Qualified Certificate may have limitations on assignability.
Because an assignment may be a taxable event, a Certificate Owner should
consult a competent tax adviser as to the tax consequences resulting from
any such assignment.
PARTIAL WITHDRAWALS AND SURRENDER
The Certificate Owner may make partial withdrawals from the Certificate.
Keyport must receive a Written Request and the minimum amount to be
withdrawn must be at least $300 or such lesser amount as Keyport may permit
in conjunction with a 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. Unless
the request specifies otherwise, the total amount withdrawn will be
deducted from all Sub-Accounts of the Variable Account in the ratio that
the value in each Sub-Account bears to the total Variable Account Value. If
there is no value, or insufficient value, in the Variable Account, then the
amount surrendered, or the insufficient portion, will be deducted from the
Fixed Account in the ratio that each Guarantee Period's value bears to the
total Fixed Account Value.
The Certificate Owner may totally surrender the Certificate by making a
Written Request. Surrendering the Certificate will end it. Upon surrender,
the Certificate Owner will receive the Certificate Withdrawal Value.
Keyport will pay the amount of any surrender within seven days of receipt
of such request. Alternatively, the Certificate Owner may purchase for
himself or herself an annuity option with any surrender benefit of at least
$5,000. Keyport's consent is needed to choose an option if the Certificate
Owner is not a natural person.
Annuity options based on life contingencies cannot be surrendered after
annuity payments have begun. Option A, which is not based on life
contingencies, may be surrendered if a variable payout has been selected.
Because of the potential tax consequences of a full or partial surrender, a
Certificate Owner should consult a competent tax adviser regarding a
surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Certificate is In
Force, payments will begin under the annuity option or options the
Certificate Owner has chosen. The amount of the payments will be determined
by applying the Certificate Value increased or decreased by a limited
Market Value Adjustment of Fixed Account Value described in Appendix A
(less any premium taxes not previously deducted) on the Income Date in
accordance with the option selected.
Income Date and Annuity Option
The Certificate Owner may select an Income Date and an Annuity Option at
the time of application. If the Certificate Owner does not select an
Annuity Option, Option B will automatically be designated. If the
Certificate Owner does not select an Income Date for the Annuitant, the
Income Date will automatically be the earlier of (i) the later of the
Annuitant's 90th birthday and the 10th Certificate Anniversary and (ii) 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; and (b) not
later than the earlier of (i) the later of the Annuitant's 90th birthday
and the 10th Certificate Anniversary and (ii) any maximum date permitted
under state law.
Annuity Options
The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available
in two forms - as a variable annuity for use with the Variable Account and
as a fixed annuity for use with Keyport's general account Fixed Account.
Variable annuity payments will fluctuate while fixed annuity payments will
not. The dollar amount of each fixed annuity payment will be determined by
deducting from the Certificate Value increased or decreased by a limited
Market Value Adjustment described in Appendix A, any premium taxes not
previously deducted and then dividing the remainder by $1,000 and
multiplying the result by the greater of: (a) the applicable factor shown
in the appropriate table in the Certificate; or (b) the factor currently
offered by Keyport at the time annuity payments begin. This current factor
may be based on the sex of the payee unless to do so would be prohibited by
law.
If no Annuity Option is selected, Option B will automatically be applied.
Unless the Certificate Owner chooses otherwise, Variable Account Value
(less any applicable premium taxes not previously deducted) 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).
Option A is referred to as Preferred Income Plan (PIP). At any time while
variable annuity payments are being made, the payee may elect to receive
the following amount: the present value of the remaining payments, commuted
at the interest rate used to create the annuity factor for this option
(this interest rate is 6% per year (5% per year for Oregon and Texas
Certificates), unless 3% per year is chosen by Written Request at the time
the option is selected). Instead of receiving a lump sum, the payee may
elect another payment option and the amount applied to the option will not
be reduced by the charge defined in (b) above. If, at the death of the
payee, Option A payments have been made for fewer than the chosen number of
years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this option. For the variable annuity, this
interest rate is 6% per year (5% per year for Oregon and Texas
Certificates), 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.
Keyport has available a "level monthly" payment option that can be chosen
for variable payments under Option A. Under this option, the monthly
payment amount changes every twelve months instead of every month as would
be the case under the standard monthly payment frequency. The "level
monthly" option converts an annual payment amount into twelve equal monthly
payments as follows. Each annual payment will be determined as described
below 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. If the payments are commuted, (1)
the commutation method described above for calculating the present value of
remaining payments applies to any remaining annual payments and (2) any
unpaid monthly payments out of the current twelve will be commuted at the
interest rate that was used to determine those twelve current monthly
payments.
See "Annuity Payments" on Page 23 for the manner in which Option A may be
taxed.
Option B: Life Income with 10 Years of Payments Guaranteed. Keyport will
pay an annuity during the lifetime of the payee. If, at the death of the
payee, payments have been made for fewer than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this option. For the variable annuity, this
interest rate is 6% per year (5% per year for Oregon and Texas
Certificates), unless 3% per year was chosen by Payee's Written Request.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. Keyport will pay an annuity for
as long as either the payee or a designated second natural person is alive.
The amount of the annuity payments will depend on the age of both persons
on the Income Date and it may also depend on each person's sex. IT IS
POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF BOTH
PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF BOTH PAYEES DIE AFTER RECEIPT OF THE SECOND PAYMENT AND
SO ON.
Variable Annuity Payment Values
The amount of the first variable annuity payment is determined by Keyport
using an annuity purchase rate that is based on an assumed annual
investment return of 6% per year (5% per year for Oregon and Texas
Certificates), unless 3% is chosen by Written Request. Subsequent variable
annuity payments will fluctuate in amount and reflect whether the actual
investment return of the selected Sub-Account(s) (after deducting the
Mortality and Expense Risk Charge) is better or worse than the assumed
investment return. The total dollar amount of each variable annuity payment
will be equal to the sum of all Sub-Account payments. Currently, a payee
may instruct Keyport to change the Sub-Account(s) used to determine the
amount of the variable annuity payments unlimited times every 12 months.
Proof of Age, Sex, and Survival of Annuitant
Keyport may require proof of age, sex or survival of any payee upon whose
age, sex or survival payments depend. If the age or sex has been misstated,
Keyport will compute the amount payable based on the correct age and sex.
If income payments have begun, any underpayments Keyport may have made will
be paid in full with the next annuity payment. Any overpayments, unless
repaid in one sum, will be deducted from future annuity payments until
Keyport is repaid in full.
SUSPENSION OF PAYMENTS
Keyport reserves the right to postpone surrender payments from the Fixed
Account for up to six months. Keyport reserves the right to suspend or
postpone any type of payment from the Variable Account for any period when:
(a) the New York Stock Exchange is closed other than customary weekend or
holiday closings; (b) trading on the Exchange is restricted; (c) an
emergency exists as a result of which it is not reasonably practicable to
dispose of securities held in the Variable Account or determine their
value; or (d) the Securities and Exchange Commission permits delay for the
protection of security holders. The applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the
conditions described in (b) and (c) exist.
TAX STATUS
Introduction
The Certificate is designed for use by individuals in retirement plans
which may or may not be Qualified Plans under the provisions of the
Internal Revenue Code (the "Code"). The ultimate effect of federal income
taxes on the Certificate Value, on annuity payments, and on the economic
benefit to the Certificate Owner, Annuitant or Designated Beneficiary
depends on the type of retirement plan for which the Certificate is
purchased and upon the tax and employment status of the individual
concerned. The discussion contained herein is general in nature and is not
intended as tax advice. Each person concerned should consult a competent
tax adviser. No attempt is made to consider any applicable state or other
tax laws. Moreover, the discussion herein is based upon Keyport's
understanding of current federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of
continuation of those current federal income tax laws or of the current
interpretations by the Internal Revenue Service.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are
no income taxes on increases in the value of a Certificate until a
distribution occurs, in the form of a full surrender, a partial surrender,
an assignment or gift of the Certificate, or annuity payments.
Surrenders, Assignments and Gifts. A Certificate Owner who fully surrenders
his or her Certificate is taxed on the portion of the payment that exceeds
his or her cost basis in the Certificate. For Non-Qualified Certificates,
the cost basis is generally the amount of the Purchase Payments made for
the Certificate and the taxable portion of the surrender payment is taxed
as ordinary income. For Qualified Certificates, the cost basis is generally
zero and the taxable portion of the surrender payment is generally taxed as
ordinary income subject to special 5-year income averaging. A Designated
Beneficiary receiving a lump sum surrender benefit after the death of the
Annuitant or Certificate Owner is taxed on the portion of the amount that
exceeds the Certificate Owner's cost basis in the Certificate. If the
Designated Beneficiary elects to receive annuity payments within 60 days of
the decedent's death, different tax rules apply. See "Annuity Payments"
below. For Non-Qualified Certificates, the tax treatment applicable to
Designated Beneficiaries may be contrasted with the income-tax-free
treatment applicable to persons inheriting and then selling mutual fund
shares with a date-of-death value in excess of their basis.
Partial withdrawals received under Non-Qualified Certificates prior to
annuitization are first included in gross income to the extent Certificate
Value exceeds Purchase Payments. Then, to the extent the Certificate Value
does not exceed Purchase Payments, such withdrawals are treated as a non-
taxable return of principal to the Certificate Owner. For partial
withdrawals under a Qualified Certificate, payments are treated first as a
non-taxable return of principal up to the cost basis and then a taxable
return of income. Since the cost basis of Qualified Certificates is
generally zero, partial surrender amounts will generally be fully taxed as
ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount 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 "level monthly" payment option available under Annuity
Option A, pursuant to which each annual payment is placed in Keyport's
general account and paid out with interest in twelve equal monthly
payments, it is possible the IRS could determine that receipt of the first
monthly payout of each annual payment is constructive receipt of the entire
annual payment. Thus, the total taxable amount for each annual payment
would be accelerated to the time of the first monthly payout and reported
in the tax year in which the first monthly payout is received.
Penalty Tax. Payments received by Certificate Owners, Annuitants, and
Designated Beneficiaries under Certificates may be subject to both ordinary
income taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on amounts received:
(a) after the taxpayer attains age 59-1/2; (b) in a series of substantially
equal payments made for life or life expectancy; (c) after the death of the
Certificate Owner (or, where the Certificate Owner is not a human being,
after the death of the Annuitant); (d) if the taxpayer becomes totally and
permanently disabled; or (e) under a Non-Qualified Certificate's annuity
payment option that provides for a series of substantially equal payments,
provided only one Purchase Payment is made to the Certificate, the
Certificate is not issued as a result of a Section 1035 exchange, and the
first annuity payment begins in the first Certificate Year.
Income Tax Withholding. Keyport is required to withhold federal income
taxes on taxable amounts paid under Certificates unless the recipient
elects not to have withholding apply. Keyport will notify recipients of
their right to elect not to have withholding apply. See "Tax-Sheltered
Annuities" (TSAs) for an alternative type of withholding that may apply to
distributions from TSAs that are eligible for rollover to another TSA or an
individual retirement annuity or account (IRA).
Section 1035 Exchanges. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of
the Code. It is Keyport's understanding that in such an event: (a) the new
Certificate will be subject to the distribution-at-death rules described in
"Death Provisions for Non-Qualified Certificates"; (b) Purchase Payments
made between August 14, 1982 and January 18, 1985 and the income allocable
to them will, following an exchange, no longer be covered by a
"grandfathered" exception to the penalty tax for a distribution of income
that is allocable to an investment made over ten years prior to the
distribution; and (c) Purchase Payments made before August 14, 1982 and the
income allocable to them will, following an exchange, continue to receive
the following "grandfathered" tax treatment under prior law: (i) the
penalty tax does not apply to any distribution; (ii) partial withdrawals
are treated first as a non-taxable return of principal and then a taxable
return of income; and (iii) assignments are not treated as surrenders
subject to taxation. Keyport's understanding of the above is principally
based on legislative reports prepared by the Staff of the Congressional
Joint Committee on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments
underlying variable annuity contracts (other than pension plan contracts).
The Eligible Funds are designed to be managed to meet the diversification
requirements for the Certificate as those requirements may change from time
to time. If the diversification requirements are not satisfied, the
Certificate would not be treated as an annuity contract. As a consequence
to the Certificate Owner, income earned on a Certificate would be taxable
to the Certificate Owner in the year in which diversification requirements
were not satisfied, including previously non-taxable income earned in prior
years. As a further consequence, Keyport would be subjected to federal
income taxes on assets in the Variable Account.
The Secretary of the Treasury announced in September 1986 that he expects
to issue regulations which will prescribe the circumstances in which a
Certificate Owner's control of the investments of a segregated asset
account may cause the Certificate Owner, rather than the insurance company,
to be treated as the owner of the assets of the account. The regulations
could impose requirements that are not reflected in the Certificate.
Keyport, however, has reserved certain rights to alter the Certificate and
investment alternatives so as to comply with such regulations. Since the
regulations have not been issued, there can be no assurance as to the
content of such regulations or even whether application of the regulations
will be prospective. For these reasons, Certificate Owners are urged to
consult with their own tax advisers.
Qualified Plans
The Certificate is designed for use with several types of Qualified Plans.
The tax rules applicable to participants in such Qualified Plans vary
according to the type of plan and the terms and conditions of the plan
itself. Therefore, no attempt is made herein to provide more than general
information about the use of the Certificate with the various types of
Qualified Plans. Participants under such Qualified Plans as well as
Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned
that the rights of any person to any benefits under such Qualified Plans
may be subject to the terms and conditions of the plans themselves
regardless of the terms and conditions of the Certificate issued in
connection therewith. Following are brief descriptions of the various types
of Qualified Plans and of the use of the Certificate in connection
therewith. Purchasers of the Certificate should seek competent advice
concerning the terms and conditions of the particular Qualified Plan and
use of the Certificate with that Plan.
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
Sections 408(b) and 408A of the Code permit eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" and "Roth IRA", respectively. These individual
retirement annuities are subject to limitations on the amount which may be
contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, distributions from certain types
of Qualified Plans may be placed on a tax-deferred basis into a Section
408(b) 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 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
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.
A dealer selling the Certificate may receive up to 6.00% of Purchase
Payments with additional compensation later based on the Certificate Value
of those payments. During certain time periods selected by Keyport and
KFSC, the percentage may increase to 6.25%. In addition, under certain
circumstances, Keyport or certain of its affiliates, under a marketing
support agreement with KFSC may pay certain sellers for other services not
directly related to the sale of Certificates such as special marketing
support allowances.
Certificates may be sold with lower or no dealer compensation (1) to a
person who is an officer, director, or employee of Keyport or an affiliate
of Keyport or (2) to any Qualified Plan established for such a person. Such
Certificates may be different from the Certificates sold to others in that
(1) they are not subject to the deduction for the asset-based
Administrative 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.
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION
Page
Keyport Life Insurance Company 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-Account Payments 3
Custodian 4
Principal Underwriter 4
Experts 4
Investment Performance 4
Yields for Stein Roe Money Market Sub-Account 5
Financial Statements 6
Keyport Life Insurance Company 7
Variable Account A 31
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, is subject to regulation under the 1933 Act or the Investment
Company Act. Keyport understands that the Securities and Exchange
Commission has not reviewed the disclosure in the prospectus relating to
the general account and the Fixed Account option.
Investments in the Fixed Account and Capital Protection Plus
Purchase Payments will be allocated to the Fixed Account in accordance with
the selection made by the Certificate Owner in the application. Any
selection must specify that percentage of the Purchase Payment that is to
be allocated to each Guarantee Period of the Fixed Account. The percentage,
if not zero, must be at least 5%. The Certificate Owner may change the
allocation percentages without fee, penalty or other charge. Allocation
changes must be made by Written Request unless the Certificate Owner has by
Written Request authorized Keyport to accept telephone allocation
instructions from the Certificate Owner. By authorizing Keyport to accept
telephone changes, a Certificate Owner agrees to accept and be bound by the
conditions and procedures established by Keyport from time to time. The
current conditions and procedures are in Appendix B and Certificate Owners
authorizing telephone allocation instructions will be notified, in advance,
of any changes.
Keyport currently offers Guarantee Periods of 1, 3, 5, and 7 years. Keyport
may change at any time the number of Guarantee Periods it offers under
newly-issued and in-force Certificates, as well as the length of those
Guarantee Periods. If Keyport stops offering a particular Guarantee Period,
existing Fixed Account Value in such Guarantee Period would not be affected
until the end of the Period (at that time, a Period of the same length
would not be a transfer option). Each Guarantee Period currently offered is
available for initial and subsequent Purchase Payments and for transfers of
Certificate Value.
Keyport offers a Capital Protection Plus program that a Certificate Owner
may request. Under this program, Keyport will allocate part of the Purchase
Payment to the Guarantee Period selected by the Certificate Owner so that
such part, based on that Guarantee Period's interest rate in effect on the
date of allocation, will equal at the end of the Guarantee Period the total
Purchase Payment. The rest of the Purchase Payment will be allocated to the
Sub-Account(s) of the Variable Account based on the Certificate Owner's
allocation. If any part of the Fixed Account Value is surrendered or
transferred before the end of the Guarantee Period, the Value at the end of
that Period will not equal the original Purchase Payment amount.
For an example of Capital Protection Plus, assume Keyport receives a
Purchase Payment of $10,000 when the interest rate for the 7-year Guarantee
Period is 6.75% per year. Keyport will allocate $6,331 to that Guarantee
Period because $6,331 will increase at that interest rate to $10,000 after
7 years. The remaining $3,669 of the payment will be allocated to the Sub-
Account(s) selected by the Certificate Owner.
Fixed Account Value
The Fixed Account Value at any time is equal to:
(a) all Purchase Payments allocated to the Fixed Account plus the interest
subsequently credited on those payments; plus
(b) any Variable Account Value transferred to the Fixed Account plus the
interest subsequently credited on the transferred value; less
(c) any prior partial withdrawals from the Fixed Account, including any
charges therefor; less
(d) any Fixed Account Value transferred to the Variable Account.
Interest Credits
Keyport will credit interest daily (based on an annual compound interest
rate) to Purchase Payments allocated to the Fixed Account at rates declared
by Keyport for Guarantee Periods of one or more years from the month and
day of allocation. Any rate set by Keyport will be at least 3% per year.
Keyport's method of crediting interest means that Fixed Account Value might
be subject to different rates for each Guarantee Period the Certificate
Owner has selected in the Fixed Account. For purposes of this section,
Variable Account Value transferred to the Fixed Account and Fixed Account
Value renewed for another Guarantee Period shall be treated as a Purchase
Payment allocation.
Application of Market Value Adjustment
Any surrender, withdrawal, transfer, or application to an Annuity Option of
Fixed Account Value from a Guarantee Period of three years or more is
subject to a limited Market Value Adjustment, unless: (1) the effective
date of the transaction is at the end of the Guarantee Period; or (2) the
effective date of a surrender is within 90 days of the date of death of the
first Covered Person to die.
If a Market Value Adjustment applies to either a surrender or the
application to an Annuity Option, then any negative Market Value Adjustment
amount will be deducted from the Certificate Value and any positive Market
Value Adjustment amount will be added to the Certificate Value. If a Market
Value Adjustment applies to either a partial withdrawal or a transfer, then
any negative Market Value Adjustment amount will be deducted from the
partial withdrawal or transfer amount after the withdrawal or transfer
amount has been deducted from the Fixed Account Value, and any positive
Market Value Adjustment amount will be added to the applicable amount after
it has been deducted from the Fixed Account Value.
No Market Value Adjustment is ever applicable to Guarantee Periods of fewer
than three years.
Effect of Market Value Adjustment
A Market Value Adjustment reflects the change in prevailing current
interest rates since the beginning of a Guarantee Period. The Market Value
Adjustment may be positive or negative, but any negative Adjustment may be
limited in amount (see Market Value Adjustment Factor below).
Generally, if the Treasury Rate for the Guarantee Period is lower than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the limited
Market Value Adjustment will result in a reduction of the amount being
surrendered, withdrawn, transferred, or applied to an Annuity Option.
Similarly, if the Treasury Rate for the Guarantee Period is higher than the
Treasury Rate for a new Guarantee Period with a length equal 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).
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. Weekly Series are published at the beginning of the
following week. To determine "a", Keyport uses the weekly Series first
published on or after the most recent Determination Date which occurs on or
before the Start Date for the Guarantee Period, except that if the Start
Date is the same as the Determination Date or the date of publication, or
any date in between, Keyport instead uses the weekly Series first published
after the prior Determination Date. To determine "b", Keyport uses the
Weekly Series first published on or after the most recent Determination
Date which occurs on or before the date on which the Market Value
Adjustment Factor is calculated, except that if the calculation date is the
same as the Determination Date or the date of publication, or any date in
between, Keyport instead uses the weekly Series first published after the
prior Determination Date. The Determination Dates are the last business day
prior to the first and fifteenth of each calendar month.
If the number of years specified in "a" or "b" is not equal to a maturity
in the Treasury Constant Maturity Series, the Treasury Rate will be
determined by straight line interpolation between the interest rates of the
next highest and next lowest maturities.
If the Treasury Constant Maturity Series becomes unavailable, Keyport will
adopt a comparable constant maturity index or, if such a comparable index
also is not available, Keyport will replicate calculation of the Treasury
Constant Maturity Series Index based on U.S. Treasury Security coupon
rates.
End of A Guarantee Period
Keyport will notify a Certificate Owner in writing at least 30 days prior
to the end of a Guarantee Period. At the end of the Guarantee Period,
Keyport will automatically transfer the Guarantee Period's Fixed Account
Value to the Money Market Sub-Account of the Variable Account unless
Keyport previously received a Certificate Owner's Written Request of: (1)
election of a new Guarantee Period from among those being offered by
Keyport at that time; or (2) instructions to transfer the ending Guarantee
Period's Fixed Account Value to one or more Sub-accounts of the Variable
Account. A new Guarantee Period cannot be longer than the number of years
remaining until the Income Date.
Transfers of Fixed Account Value
The Certificate Owner may transfer Fixed Account Value from one Guarantee
Period to another or to one or more Sub-Accounts of the Variable Account
subject to any applicable Market Value Adjustment. If the Fixed Account
Value represents multiple Guarantee Periods, the transfer request must
specify from which values the transfer is to be made.
The Certificate allows Keyport to limit the number of transfers that can be
made in a specified time period. Currently, Keyport is limiting Variable
Account and Fixed Account transfers to generally unlimited 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 B and Certificate Owners authorizing
telephone transfers will be notified, in advance, of any changes. Written
transfer requests may be made by a person acting for the Certificate Owner
as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport before the close of trading on the
New York Stock Exchange (currently 4:00 PM Eastern Time) will be executed
at the close of business that day. Any requests received later will be
executed at the close of the next business day.
The amount of the transfer will be deducted from the specified values in
the manner stated in the next section below.
If 100% of a Guarantee Period's value is transferred and the current
allocation for Purchase Payments includes that Guarantee Period, then the
allocation formula for future Purchase Payments will automatically change
unless the Certificate Owner instructs otherwise. For example, if the
allocation formula is 50% to the one-year Guarantee Period and 50% to Sub-
Account A and all Fixed Account Value is transferred to Sub-Account A, the
allocation formula will change to 100% to Sub-Account A.
APPENDIX B
TELEPHONE INSTRUCTIONS
Telephone Transfers of Certificate Values
1. If there are Joint Certificate Owners, both must authorize Keyport to
accept telephone instructions but either Certificate Owner may give Keyport
telephone instructions.
2. All callers will be required to identify themselves. Keyport reserves
the right to refuse to act upon any telephone instructions in cases where
the caller has not sufficiently identified himself/herself to Keyport's
satisfaction.
3. Neither Keyport nor any person acting on its behalf shall be subject to
any claim, loss, liability, cost or expense if it or such person acted in
good faith upon a telephone instruction, including one that is unauthorized
or fraudulent; however, Keyport will employ reasonable procedures to
confirm that a telephone instruction is genuine and, if Keyport does not,
Keyport may be liable for losses due to an unauthorized or fraudulent
instruction. The Certificate Owner thus bears the risk that an unauthorized
or fraudulent instruction that is executed may cause the Certificate Value
to be lower than it would be had no instruction been executed.
4. All conversations will be recorded with disclosure at the time of the
call.
5. The application for the Certificate may allow a Certificate Owner to
create a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as
durable in nature and shall not be affected by the subsequent incapacity,
disability or incompetency of the Certificate Owner. Either Keyport or the
authorized person may cease to honor the power by sending written notice to
the Certificate Owner at the Certificate Owner's last known address.
Neither Keyport nor any person acting on its behalf shall be subject to
liability for any act executed in good faith reliance upon a power of
attorney.
6. Telephone authorization shall continue in force until (a) Keyport
receives the Certificate Owner's written revocation, (b) Keyport
discontinues the privilege, or (c) Keyport receives written evidence that
the Certificate Owner has entered into a market timing or asset allocation
agreement with an investment adviser or with a broker/dealer.
7. Telephone transfer instructions received by Keyport at 800-367-3653
before the close of trading on the New York Stock Exchange (currently 4:00
P.M. Eastern Time) will be initiated that day based on the unit value
prices calculated at the close of that day. Instructions received after the
close of trading on the NYSE will be initiated the following business day.
8. Once instructions are accepted by Keyport, they may not be canceled.
9. All transfers must be made in accordance with the terms of the
Certificate and current prospectus. If the transfer instructions are not in
good order, Keyport will not execute the transfer and will notify the
caller within 48 hours.
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.
PART B
STATEMENT OF ADDITIONAL INFORMATION
GROUP AND INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT A
OF
KEYPORT LIFE INSURANCE COMPANY ("Keyport")
This Statement of Additional Information is not a prospectus but it relates
to, and should be read in conjunction with, the Keyport Advisor Vista
variable annuity prospectus dated May 19, 1998. This 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.........................................2
Variable Annuity Benefits..............................................2
Variable Annuity Payment Values......................................2
Re-Allocating Sub-Account Payments...................................3
Custodian..............................................................4
Principal Underwriter..................................................4
Experts................................................................4
Investment Performance.................................................4
Yields for Stein Roe Money Market Sub-Account........................5
Financial Statements...................................................6
Keyport Life Insurance Company.......................................7
Variable Account A...................................................31
The date of this statement of additional information is May 19, 1998.
KAV1998.SAI
KEYPORT LIFE INSURANCE COMPANY
Liberty Mutual Insurance Company ("Liberty Mutual"), a multi-line insurance
company, is the ultimate corporate parent of Keyport. Liberty Mutual
ultimately controls Keyport through the following intervening holding
company subsidiaries: Liberty Mutual Equity Corporation, LFC Holdings
Inc., Liberty Financial Companies, Inc. ("LFC") and SteinRoe Services, Inc.
Liberty Mutual, as of December 31, 1997, owned, indirectly, approximately
83% of the combined voting power of the outstanding stock of LFC (with the
balance being publicly held). For additional information about Keyport, see
page 8 of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to the sum of all Sub-Account payments.
The first payment for each Sub-Account will be determined by deducting any
applicable state premium taxes and then dividing the remaining value of
that Sub-Account by $1,000 and multiplying the result by the greater of:
(a) the applicable factor from the Certificate's annuity table for the
particular payment option; or (b) the factor currently offered by Keyport
at the time annuity payments begin. This current factor may be based on the
sex of the payee unless to do so would be prohibited by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number
of Annuity Units remains fixed for the annuity payment period. Each Sub-
Account payment after the first one will be determined by multiplying (a)
by (b), where: (a) is the number of Sub-Account Annuity Units; and (b) is
the Sub-Account Annuity Unit value for the Valuation Period that includes
the date of the particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Keyport uses an Annuity Unit value.
Each Sub-Account has its own Annuity Units and value per Unit. The Annuity
Unit value applicable during any Valuation Period is determined at the end
of such period.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Annuity Unit for each Sub-Account at a
specified dollar amount. The Unit value for each 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; and
(b) is the assumed investment factor for the current Valuation
Period. The assumed investment factor adjusts for the interest
assumed in determining the first variable annuity payment. Such
factor for any Valuation Period shall be the accumulated value,
at the end of such period, of $1.00 deposited at the beginning of
such period at the assumed annual investment rate (AIR). The AIR
for Annuity Units based on the Certificate's annuity tables is 6%
per year (5% per year for Oregon and Texas Certificates). An AIR
of 3% per year is also currently available upon Written Request.
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized
investment return of the selected Sub-Account(s) (after deducting the
Mortality and Expense Risk Charge) is better or worse than the assumed AIR
percentage. If a given amount of Sub-Account value is applied to a
particular payment option, the initial payment will be smaller if a 3% AIR
is selected instead of a 6% AIR but, all other things being equal, the
subsequent 3% AIR payments have the potential for increasing in amount by a
larger percentage and for decreasing in amount by a smaller percentage.
For example, consider what would happen if the actual annualized investment
return (see the first sentence of this paragraph) is 9%, 6%, 3%, or 0%
between the time of the first and second payments. With an actual 9%
return, the 3% AIR and 6% AIR payments would both increase in amount but
the 3% AIR payment would increase by a larger percentage. With an actual
6% return, the 3% AIR payment would increase in amount while the 6% AIR
payment would stay the same. With an actual return of 3%, the 3% AIR
payment would stay the same while the 6% AIR payment would decrease in
amount. Finally, with an actual return of 0%, the 3% AIR and 6% AIR
payments would both decrease in amount but the 3% AIR payment would
decrease by a smaller percentage. Note that the changes in payment amounts
described above are on a percentage basis and thus do not illustrate when,
if ever, the 3% AIR payment amount might become larger than the 6% AIR
payment amount. Note though that if Option A (Income for a Fixed Number of
Years) is selected and payments continue for the entire period, the 3% AIR
payment amount will start out being smaller than the 6% AIR payment amount
but eventually the 3% AIR payment amount will become larger than the 6% AIR
payment amount.
Re-Allocating Sub-Account Payments
The number of Annuity Units for each Sub-Account under any variable annuity
option will remain fixed during the entire annuity payment period unless
the payee makes a written request for a change. Currently, a payee can
instruct Keyport to change the Sub-Account(s) used to determine the amount
of the variable annuity payments unlimited times every 12 months. The
payee's request must specify the percentage of the annuity payment that is
to be based on the investment performance of each Sub-Account. The
percentage for each Sub-Account, if not zero, must be at least 5% and must
be a whole number. At the end of the Valuation Period during which Keyport
receives the request, Keyport will: (a) value the Annuity Units for each
Sub-Account to create a total annuity value; (b) apply the new percentages
the payee has selected to this total value; and (c) recompute the number of
Annuity Units for each Sub-Account. This new number of units will remain
fixed for the remainder of the payment period unless the payee requests
another change.
CUSTODIAN
The custodian of the assets of the Variable Account is State Street Bank
and Trust Company, a state chartered trust company. Its principal office is
at 225 Franklin Street, Boston, Massachusetts.
PRINCIPAL UNDERWRITER
The Contract and Certificates, which are offered continuously, are
distributed by Keyport Financial Services Corp. ("KFSC"), a wholly-owned
subsidiary of Keyport.
EXPERTS
The consolidated financial statements of Keyport Life Insurance Company at
December 31, 1997 and 1996, and for each of the two years in the period
ended December 31, 1997, and the financial statements of Keyport Life
Insurance Company-Variable Account A at December 31, 1997 and for each of
the two years in the period ended December 31, 1997, appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Keyport Life Insurance Company for
the year ended December 31, 1995 have been included herein in reliance on
the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the 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 Certificate 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 Stock Price Index (an unmanaged weighted index of 90 stocks prior
to March 1957 and 500 stocks thereafter of industrial, transportation,
utility and financial companies widely regarded by investors as
representative of the stock market); Small Company Stocks, represented by
the fifth capitalization quintile (i.e., the ninth and tenth deciles) of
stocks on the New York Stock Exchange for 1926-1981 and by the performance
of the Dimensional Fund Advisors Small Company 9/10 (for ninth and tenth
deciles) Fund thereafter; Long Term Corporate Bonds, represented beginning
in 1969 by the Salomon Brothers Long-Term High-Grade Corporate Bond Index,
which is an unmanaged index of nearly all Aaa and Aa rated bonds,
represented for 1946-1968 by backdating the Salomon Brothers Index using
Salomon Brothers' monthly yield data with a methodology similar to that
used by Salomon Brothers in computing its Index, and represented for 1925-
1945 through the use of the Standard and Poor's monthly High-Grade
Corporate Composite yield data, assuming a 4% coupon and a 20-year
maturity; Long-Term Government Bonds, measured each year using a portfolio
containing one U.S. government bond with a term of approximately twenty
years and a reasonably current coupon; U.S. Treasury Bills, measured by
rolling over each month a one-bill portfolio containing, at the beginning
of each month, the shortest-term bill having not less than one month to
maturity; Inflation, measured by the Consumer Price Index for all Urban
Consumers, not seasonably adjusted, since January, 1978 and by the Consumer
Price Index before then. The stock capital markets may be contrasted with
the corporate bond and U.S. government securities capital markets. Unlike
an investment in stock, an investment in a bond that is held to maturity
provides a fixed rate of return. Bonds have a senior priority to common
stocks in the event the issuer is liquidated and interest on bonds is
generally paid by the issuer before it makes any distributions to common
stock owners. Bonds rated in the two highest rating categories are
considered high quality and present minimal risk of default. An additional
advantage of investing in U.S. government bonds and 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.
Yield for Stein Roe Money Market Sub-Account
Yield percentages for the Stein Roe Money Market Sub-Account are calculated
using the method prescribed by the Securities and Exchange Commission.
Yields reflect the deduction of the annual 1.40% asset-based Certificate
charges. Yields do not reflect premium tax charges. The yields would be
lower if these charges were included. The following are the standardized
formulas:
Yield equals: (A - B - 1) X 365
C 7
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = $0.00.
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 Stein Roe Money Market Sub-Account will continue over an
entire year.
FINANCIAL STATEMENTS
The financial statements of Keyport Life Insurance Company and the Variable
Account are included in the statement of additional information. The
consolidated financial statements of Keyport Life Insurance Company are
provided as relevant to its ability to meet its financial obligations under
the Certificates and should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
Report of Independent Auditors
The Board of Directors
Keyport Life Insurance Company
We have audited the consolidated balance sheet of Keyport Life Insurance
Company as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
Keyport Life Insurance Company for the year ended December 31, 1995, were
audited by other auditors whose report dated February 16, 1996, expressed
an unqualified opinion on those statements.
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 the 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 1997 and 1996 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Keyport Life Insurance Company at
December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
February 3, 1998
Independent Auditors' Report
The Board of Directors Keyport Life Insurance Company
We have audited the consolidated financial statements of Keyport Life
Insurance Company and subsidiaries for the year 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 audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the results of operations and cash
flows for Keyport Life Insurance Company and subsidiaries for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
Boston, Massachusetts
February 16, 1996
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31
ASSETS 1997 1996
Cash and investments:
Fixed maturities available for sale
(amortized cost: 1997 - $10,981,618;
1996 - $10,500,431) $11,246,539 $10,718,644
Equity securities (cost: 1997 - $21,950;
1996 - $19,412) 40,856 35,863
Mortgage loans 60,662 67,005
Policy loans 554,681 532,793
Other invested assets 440,773 183,622
Cash and cash equivalents 1,162,347 767,385
Total cash and investments 13,505,858 12,305,312
Accrued investment income 165,035 146,778
Deferred policy acquisition costs 232,039 250,355
Value of insurance in force 53,298 70,819
Income taxes recoverable 22,537 323
Intangible assets 18,058 19,186
Other assets 16,175 40,316
Separate account assets 1,329,189 1,091,468
Total assets $15,342,189 $13,924,557
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities $12,086,076 $11,637,528
Current income taxes - 13,123
Deferred income taxes 133,003 25,747
Payable for investments purchased and loaned 722,116 211,234
Other liabilities 34,015 38,476
Separate account liabilities 1,263,958 1,017,667
Total liabilities 14,239,168 12,943,775
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 82,277 73,599
Retained earnings 511,796 398,235
Total stockholder's equity 1,103,021 980,782
Total liabilities and
stockholder's equity $15,342,189 $13,924,557
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
(in thousands)
Year Ended December 31
1997 1996 1995
Revenues:
Investment income $ 847,048 $ 790,365 $ 755,930
Interest credited to policyholders (594,084) (572,719) (555,725)
Investment spread 252,964 217,646 200,205
Net realized investment gains
(losses) 24,723 5,509 (3,958)
Fee income:
Surrender charges 15,968 14,934 14,772
Separate account fees 17,124 15,987 13,154
Management fees 3,261 2,613 1,841
Total fee income 36,353 33,534 29,767
Expenses:
Policy benefits (3,924) (3,477) (4,448)
Operating expenses (49,941) (43,815) (44,475)
Amortization of deferred policy
acquisition costs (75,906) (60,225) (58,541)
Amortization of value of insurance
in force (10,490) (10,196) (9,479)
Amortization of intangible assets (1,128) (1,130) (1,130)
Total expenses (141,389) (118,843) (118,073)
Income before income tax expense 172,651 137,846 107,941
Income tax expense (59,090) (47,222) (38,331)
Net income $ 113,561 $ 90,624 $ 69,610
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
Net
Unrealized
Additional Investment
Common Paid-in Gains Retained
Stock Capital (Losses) Earnings Total
Balance,
January 1, 1995 $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
Net income 90,624 90,624
Change in net
unrealized investment
gains (losses) (12,173) (12,173)
Balance,
December 31, 1996 3,015 505,933 73,599 398,235 980,782
Net income 113,561 113,561
Change in net
unrealized investment
gains (losses) 8,678 8,678
Balance,
December 31, 1997 $3,015 $505,933 $ 82,277 $511,796 $1,103,021
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31
1997 1996 1995
Cash flows from operating
activities:
Net income $ 113,561 $ 90,624 $ 69,610
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Interest credited to
policyholders 594,084 572,719 555,725
Net realized investment
(gains) losses (24,723) (5,509) 3,958
Amortization of value of
insurance in force and
intangible assets 11,618 11,326 10,609
Net amortization on
investments 29,862 (29,088) 9,688
Change in deferred policy
acquisition costs (10,252) (24,403) (24,630)
Change in current and
deferred income taxes 66,919 4,938 1,953
Net change in other assets
and liabilities 1,746 (42,634) (62,375)
Net cash provided by
operating activities 782,815 577,973 564,538
Cash flow from investing activities:
Investments purchased -
available for sale (4,543,374) (4,363,074) (2,851,013)
Investments sold -
held to maturity - - 14,930
Investments sold -
available for sale 2,563,465 1,714,023 605,197
Investments matured -
held to maturity - - 317,773
Investments matured -
available for sale 1,531,693 1,387,664 906,522
Increase in policy loans (21,888) (34,467) (21,033)
Decrease in mortgage loans 6,343 7,500 54,947
Other assets purchased, net (48,921) (130,087) -
Value of business acquired,
net of cash - (30,865) -
Net cash used in
investing activities (512,682) (1,449,306) (972,677)
Cash flows from financing
activities:
Withdrawals from policyholder
accounts (1,320,837) (1,154,087) (933,785)
Deposits to policyholder
accounts 950,472 2,134,504 1,116,975
Securities lending 495,194 (119,083) 317,715
Net cash provided by
financing activities 124,829 861,334 500,905
Change in cash and
cash equivalents 394,962 (9,999) 92,766
Cash and cash equivalents
at beginning of year 767,385 777,384 684,618
Cash and cash equivalents at
end of year $ 1,162,347 $ 767,385 $ 777,384
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1997
1. Accounting Policies
Organization
Keyport Life Insurance Company offers a diversified line of fixed,
indexed, and variable annuity products designed to serve the growing
retirement saving market. These annuity products are sold through a wide
ranging network of banks, agents, and securities dealers.
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").
Principles of Consolidation
The consolidated financial statements include Keyport Life Insurance
Company and its wholly owned subsidiaries, Independence Life and Annuity
Company ("Independence Life"), Liberty Advisory Services Corporation, and
Keyport Financial Services Corp., (collectively the "Company").
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities. All significant intercompany transactions
and balances have been eliminated. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Investments
Investments in debt and equity securities classified as available for sale
are carried at fair value, and after-tax unrealized gains and losses (net
of adjustments to deferred policy acquisition costs and value of insurance
in force) are reported as a separate component of stockholder's equity. The
cost basis of securities is adjusted for declines in value that are
determined to be other than temporary. Realized investment gains and
losses are calculated on a first-in, first-out basis.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
On December 31, 1995, pursuant to the "Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities,"
the Company made a one-time reclassification of certain fixed maturity
securities from held to maturity to available for sale. The amortized cost
of those securities at the time of transfer was $1.4 billion, and the
unrealized gain of $13.9 million was recorded net of taxes in stockholder's
equity.
For the mortgage backed bond portion of the fixed maturity investment
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments over the estimated economic life of the
security. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual payments
to date and anticipated future payments and any resulting adjustment is
included in investment income.
Mortgage loans are carried at amortized cost. Policy loans are carried at
the unpaid principal balances plus accrued interest. Partnerships are
accounted for by using the equity method of accounting. Partnership
investments totaled $117.3 million and $72.6 million at December 31, 1997
and 1996, respectively.
Derivatives
The Company uses interest rate swap and cap agreements to manage its
interest rate risk and call options on the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") to hedge its obligations to provide
returns based upon this index.
The Company utilizes interest rate swap agreements ("swap agreements") and
interest rate cap agreements ("cap agreements") to match assets more
closely to liabilities. Swap agreements are agreements to exchange with a
counterparty interest rate payments of differing character (e.g., fixed-
rate payments exchanged for variable-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate
changes. The Company currently utilizes swap agreements to reduce asset
duration and to better match interest rates earned on longer-term fixed
rate assets with interest rates credited to policyholders.
Cap agreements are agreements with a counterparty which require the payment
of a premium for the right to receive payments for the difference between
the cap interest rate and a market interest rate on specified future dates
based on an underlying principal balance (notional balance) to hedge
against rising interest rates.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Hedge accounting is applied after the Company determines that the items to
be hedged expose it to interest rate or price risk, designates the
instruments as hedges, and assesses whether the instruments reduce the
indicated risks through the measurement of changes in the value of the
instruments and the items being hedged at both inception and throughout the
hedge period. From time to time, interest rate swap agreements, cap
agreements and call options are terminated. If the terminated position was
accounted for as a hedge, realized gains or losses are deferred and
amortized over the remaining lives of the hedged assets or liabilities.
Conversely, if the terminated position was not accounted for as a hedge, or
if the assets and liabilities that were hedged no longer exist, the
position is "marked to market" and realized gains or losses are immediately
recognized in income.
The net differential to be paid or received on interest rate swap
agreements is recognized as a component of net investment income. Premiums
paid for interest rate cap agreements are deferred and amortized to net
investment income on a straight-line basis over the terms of the
agreements. The unamortized premium is included in other invested assets.
Amounts earned on interest rate cap agreements are recorded as an
adjustment to net investment income. Interest rate swap agreements and cap
agreements hedging investments designated as available for sale are
adjusted to fair value with the resulting unrealized gains and losses
included in stockholder's equity.
Premiums paid on call options are amortized to net investment income over
the terms of the contracts. The call options are included in other
invested assets and are carried at amortized cost plus intrinsic value, if
any, of the call options as of the valuation date. Changes in intrinsic
value of the call options are recorded as an adjustment to interest
credited to policyholders.
Fee Income
Fees from investment advisory services are recognized as revenues when
services are provided. Revenues from fixed and variable annuities and
single premium whole life policies include mortality charges, surrender
charges, policy fees, and contract fees and are recognized when earned.
Deferred Policy Acquisition Costs
Policy acquisition costs are the costs of acquiring new business which vary
with, and are primarily related to, the production of new business. Such costs
include commissions, costs of policy issuance, underwriting, and selling
expenses. These costs are deferred and amortized in relation to the present
value of estimated gross profits from mortality, investment spread, and expense
margins. Deferred policy acquisition costs are adjusted for amounts relating to
unrealized gains and losses on fixed maturity securities the Company has
designated as available for sale. This adjustment, net of tax, is included with
the change in net unrealized investment gains or losses that is credited or
charged directly to stockholder's equity. Deferred policy acquisition costs
have been decreased by $126.9 million at December 31, 1997 and decreased by
$103.7 million at December 31, 1996, relating to this adjustment.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Value of Insurance in Force
Value of insurance in force represents the actuarially-determined present
value of projected future gross 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 15 years for
annuities and 25 years for life insurance. Interest is accrued on the
unamortized balance at the contract rate of 5.34%, 5.30% and 5.58% for the
years ended December 31, 1997, 1996 and 1995, respectively.
The value of insurance in force is adjusted for amounts relating to the
recognition of unrealized investment gains and losses. This adjustment,
net of tax, is included with the change in net unrealized investment gains
or losses that is credited or charged directly to stockholder's equity.
Value of insurance in force has decreased by $31.8 million at December 31,
1997 and decreased by $26.0 million at December 31, 1996, relating to this
adjustment.
Estimated net amortization expense of the value of insurance in force as of
December 31, 1997 is as follows (in thousands): 1998 - $8,701; 1999 -
$10,890; 2000 - $9,926; 2001 - $8,711; 2002 - $7,694; and thereafter -
$39,220.
Intangible Assets
Intangible assets consist of goodwill arising from business combinations
accounted for as a purchase. Amortization is provided on a straight-line
basis over twenty-five years.
Separate Account Assets and Liabilities
The assets and liabilities resulting from variable annuity and variable
life policies are segregated in separate accounts. Separate account assets,
which are carried at fair value, consist principally of investments in
mutual funds. Investment income and changes in asset values are allocated
to the 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. As of December 31, 1997 and
1996, Keyport also classified as separate account assets $65.2 million and
$73.8 million, respectively, investments in certain mutual funds sponsored
by affiliates of the Company and other investments.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Policy Liabilities
Policy liabilities consist of deposits received plus credited interest,
less accumulated policyholder charges, assessments, and withdrawals related
to deferred annuities and single premium whole life policies. Policy
benefits that are charged to expense include benefit claims incurred in the
period in excess of related policy account balances.
Income Taxes
Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes," and are calculated as if
the companies filed their own income tax returns.
Effective July 18, 1997, due to changes in ownership of Liberty Financial,
the Company is no longer included in the consolidated federal income tax
return of Liberty Mutual. The Company will be eligible to file a
consolidated federal income tax return with Liberty Financial in 2002.
Independence Life, which until July 18, 1997, was required under federal
tax law to file its own federal income tax return, may join with Keyport in
a consolidated income tax return filing. Liberty Advisory Services
Corporation and Keyport Financial Services Corp. must file separate federal
tax returns.
Cash Equivalents
Short-term investments having an original maturity of three months or less
are classified as cash equivalents.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Recent Accounting Pronouncements
In January 1998, the FASB voted to proceed with the drafting of an
accounting standard titled "Accounting for Derivative Instruments and for
Hedging Activities." This accounting standard requires companies to report
derivatives on the balance sheet at fair value with changes in fair value
recorded in income or equity. The accounting standard also changes the
accounting for derivatives used in hedging strategies from traditional
deferral accounting to a current recognition approach which could impact a
company's income statement and balance sheet and expand the definition of a
derivative instrument. The Company is evaluating the impact of this
accounting standard. This accounting standard will become effective in
2000.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"). The relevant provisions of
SFAS 125 relating to securities lending, dollar rolls, and other similar
secured transactions become effective in 1998. It is not expected that the
adoption of SFAS 125 will have a material effect on the Company's
consolidated financial position or results of operations.
2. Acquisitions
On August 9, 1996, Keyport entered into a 100 percent coinsurance agreement
for a $954.0 million block of single premium deferred annuities issued by
Fidelity & Guaranty Life Insurance Company ("F&G Life"). Under this
transaction, the investment risk of the annuity policies was transferred to
Keyport. However, F&G Life will continue to administer the policies and
will remain contractually liable for the performance of all policy
obligations. This transaction increased investments by $923.1 million and
value of insurance in force by $30.9 million.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments
Fixed Maturities
As of December 31, 1997 and 1996, the Company did not hold any investments
in fixed maturities that were classified as held to maturity or trading
securities. The amortized cost, gross unrealized gains and losses, and
fair value of fixed maturity securities are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized
December 31, 1997 Cost Gains Losses Fair Value
U.S. Treasury securities $ 128,580 $ 1,107 $ (40) $ 129,647
Mortgage backed securities
of U.S. government
corporations and agencies 1,089,809 49,536 (1,602) 1,137,743
Debt securities issued by
foreign governments 272,559 12,694 (4,966) 280,287
Corporate securities 4,744,208 189,387 (83,562) 4,850,033
Other mortgage backed
securities 2,325,889 81,886 (2,579) 2,405,196
Asset backed securities 2,200,689 26,178 (3,118) 2,223,749
Senior secured loans 219,884 - - 219,884
Total fixed maturities $ 10,981,618 $360,788 $ (95,867) $11,246,539
Gross Gross
Amortized Unrealized Unrealized
December 31, 1996 Cost Gains Losses Fair Value
U.S. Treasury securities $ 35,308 $ 130 $ (87) $ 35,351
Mortgage backed securities
of U.S. government
corporations and agencies 1,689,989 41,783 (8,618) 1,723,154
Debt securities issued by
foreign governments 246,339 11,718 (554) 257,503
Corporate securities 4,093,473 153,422 (12,298) 4,234,597
Other mortgage backed
securities 2,413,020 47,596 (23,970) 2,436,646
Asset backed securities 1,736,012 15,531 (6,440) 1,745,103
Senior secured loans 286,290 - - 286,290
Total fixed maturities $10,500,431 $270,180 $ (51,967) $10,718,644
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
At December 31, 1997, gross unrealized gains on equity securities, interest
rate cap agreements and investments in separate accounts aggregated $27.4
million, and gross unrealized losses aggregated $6.9 million, respectively.
At December 31, 1996, gross unrealized gains on equity securities, interest
rate cap agreements and investments in separate accounts aggregated $29.9
million, and gross unrealized losses aggregated $5.3 million, respectively.
Contractual Maturities
The amortized cost and fair value of fixed maturities by contractual
maturity as of December 31, 1997 are as follows (in thousands):
December 31, 1997 Amortized Cost Fair Value
Due in one year or less $ 147,177 $ 147,503
Due after one year through five years 1,925,739 1,926,372
Due after five years through ten years 2,350,299 2,419,857
Due after ten years 942,016 986,119
5,365,231 5,479,851
Mortgage and asset backed securities 5,616,387 5,766,688
$10,981,618 $11,246,539
Actual maturities will differ in some cases from those shown above because
borrowers may have the right to call or prepay obligations.
Net Investment Income
Net investment income is summarized as follows (in thousands):
Year Ended December 31 1997 1996 1995
Fixed maturities $ 811,688 $ 737,372 $ 681,998
Mortgage loans and other
invested assets 27,833 11,422 12,881
Policy loans 32,224 30,188 28,485
Equity securities 5,443 4,494 4,807
Cash and cash equivalents 34,449 36,138 41,643
Gross investment income 911,637 819,614 769,814
Investment expenses (15,311) (12,708) (10,837)
Amortization of options and
interest rate caps (49,278) (16,541) (3,047)
Net investment income $ 847,048 $ 790,365 $ 755,930
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
There were no non-income producing fixed maturity investments as of
December 31, 1997 or 1996.
Net Realized Investment Gains (Losses)
Net realized investment gains (losses) are summarized as follows (in
thousands):
Year Ended December 31 1997 1996 1995
Fixed maturities held to maturity:
Gross gains $ - $ - $ 1,306
Gross losses - - (64)
Fixed maturities available for sale:
Gross gains 42,464 24,304 8,156
Gross losses (19,146) (17,814) (15,982)
Equity securities (51) 1,492 (405)
Investments in separate accounts 7,912 (576) 1,684
Interest rate swaps - - (860)
Other - (208) (13)
Gross realized investment gains
(losses) 31,179 7,198 (6,178)
Amortization adjustments of deferred
policy acquisition costs
and value of insurance inforce (6,456) (1,689) 2,220
Net realized investment gains (losses) $ 24,723 $ 5,509 $ (3,958)
Proceeds from sales of fixed maturities available for sale were $2.6
billion, $1.7 billion and $565.4 million, for the years ended December 31,
1997, 1996 and 1995, respectively. The sale of fixed maturities held to
maturity during 1995 relate to certain securities, with amortized cost of
$15.0 million, which were sold specifically due to a decline in the
issuers' credit quality.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Deferred tax liabilities for the Company's unrealized investment gains and
losses, net of adjustments to deferred policy acquisition costs and value
of insurance inforce were $44.3 million and $39.5 million at December 31,
1997 and 1996, respectively.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of
stockholder's equity at December 31, 1997.
At December 31, 1997, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic
location.
At December 31, 1997, $1.1 billion of fixed maturities were below
investment grade.
4. Derivatives
Outstanding derivatives, shown in notional amounts along with their
carrying value and fair value, are as follows (in thousands):
Assets (Liabilities)
Carrying Fair Carrying Fair
Notional Amounts Value Value Value Value
December 31 1997 1996 1997 1997 1996 1996
Interest rate cap
agreements $ 250,000 $ 450,000 $ 102 $ 102 $ 1,363 $ 1,363
Indexed call
options - - 323,343 345,294 109,701 122,395
Interest rate
swaps 2,575,000 2,275,000 (42,123) (42,123) (8,753) (8,753)
The interest rate swap agreements expire in 1998 to 2001. The interest
rate cap agreements expire in 1999 through 2000. The call options'
maturities range from 1998 to 2002.
The Company currently utilizes swap agreements to reduce asset duration and
to better match interest rates earned on longer-term fixed rate assets with
interest credited to policyholders. Cap agreements are used to hedge
against rising interest rates. Call options are used for purposes of
hedging the Company's equity-indexed products. The call options hedge the
interest credited on these 1, 5 and 7 year term products, which is based on
the changes in the S&P 500 Index. At December 31, 1997 and 1996, the
Company had approximately $155.0 million and $73.1 million, respectively,
of unamortized premium in call option contracts.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
4. Derivatives (continued)
Fair values for swap and cap agreements are based on current settlement
values. The current settlement values are based on quoted market prices
and brokerage quotes, which utilize pricing models or formulas using
current assumptions. Fair values for call options are based quoted market
prices.
Deferred losses of $5.1 million and $7.9 million as of December 31, 1997
and 1996, respectively, resulting from terminated interest rate swap
agreements are included with the related fixed maturity securities to which
the hedge applied and are being amortized over the life of such securities.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap,
cap and call option agreements is the risk associated with counterparty
nonperformance. The Company believes that the counterparties to its swap,
cap and call option agreements are financially responsible and that the
counterparty risk associated with these transactions is minimal.
5. Income Taxes
Income tax expense (benefit) is summarized as follows (in thousands):
Year Ended December 31 1997 1996 1995
Current $ (48,477) $ 52,369 $ 37,746
Deferred 107,567 (5,147) 585
$ 59,090 $ 47,222 $ 38,331
A reconciliation of income tax expense with expected federal income tax
expense computed at the applicable federal income tax rate of 35% is as
follows (in thousands):
Year Ended December 31 1997 1996 1995
Expected income tax expense $ 60,427 $ 48,246 $ 37,779
Increase (decrease) in income
taxes resulting from:
Nontaxable investment income (1,416) (1,216) (1,737)
Amortization of goodwill 396 396 396
Other, net (317) (204) 1,893
Income tax expense $ 59,090 $ 47,222 $ 38,331
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
The components of deferred federal income taxes are as follows (in
thousands):
December 31 1997 1996
Deferred tax assets:
Policy liabilities $ 124,250 $ 171,327
Guaranty fund expense 2,795 6,260
Net operating loss carryforwards 2,111 2,667
Other 1,205 3,915
Total deferred tax assets 130,361 184,169
Deferred tax liabilities:
Deferred policy acquisition costs (56,331) (63,076)
Value of insurance in force and
intangible assets (18,022) (20,539)
Excess of book over tax basis of
investments (178,697) (118,403)
Separate account asset (645) (4,557)
Deferred loss on interest rate swaps (1,792) (2,765)
Other (7,877) (576)
Total deferred tax liabilities (263,364) (209,916)
Net deferred tax liability $ (133,003) $ (25,747)
As of December 31, 1997, the Company had approximately $6.0 million of
purchased net operating loss carryforwards (relating to the acquisition of
Independence Life). Utilization of these net operating loss carryforwards,
which expire through 2006, is limited to use against future profits of
Independence Life. The Company believes that it is more likely than not
that it will realize the benefit of its deferred tax assets.
Income taxes refunded were $8.0 million in 1997 and income taxes paid were
$46.9 million and $44.7 million in 1996 and 1995, respectively.
6. Retirement Plans
Keyport employees and certain employees of Liberty Financial are eligible
to participate in the Liberty Financial Companies, Inc. Pension Plan (the
"Plan"). It is the Company's practice to fund amounts for the Plan
sufficient to meet the minimum requirements of the Employee Retirement
Income Security Act of 1974. Additional amounts are contributed from time
to time when deemed appropriate by the Company. 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. Plan assets
consist principally of investments in certain mutual funds sponsored by an
affiliated company.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
6. Retirement Plans (continued)
The Company also has an unfunded non-qualified Supplemental Pension Plan
("Supplemental Plan") collectively with the Plan, (the "Plans"), to replace
benefits lost due to limits imposed on Plan benefits under the Internal
Revenue Code.
The following table sets forth the Plans' funded status.
December 31 1997 1996
(Dollars in thousands)
Actuarial present value of benefit obligations:
Vested benefit obligations $ 8,374 $ 7,172
Accumulated benefit obligation $ 9,500 $ 7,963
Projected benefit obligation $ 12,594 $ 10,559
Plan assets at fair value (7,801) (6,399)
Projected benefit obligation in excess of the
Plans' assets 4,793 4,160
Unrecognized net actuarial loss (1,727) (1,496)
Prior service cost not yet recognized in net
periodic pension cost (160) (183)
Accrued pension cost $ 2,906 $ 2,481
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:
Year Ended December 31 1997 1996 1995
Pension cost includes the following components:
Service cost benefits earned during the period $ 804 $ 717 $ 541
Interest cost on projected benefit obligation 829 725 603
Actual return on Plan assets (898) (732) (999)
Net amortization and deferred amounts 396 357 600
Total net periodic pension cost $1,131 $1,067 $ 745
Discount rate 7.25% 7.50% 7.25%
Rate of increase in compensation level 5.00% 5.25% 5.25%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
The Company provides various other funded and unfunded defined contribution
plans, which include savings and investment plans and supplemental savings
plans. For each of the years ended December 31, 1997, 1996 and 1995,
expenses related to these defined contribution plans totaled (in thousands)
$702, $590 and $595, respectively.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
7. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the fair value of the Company's financial instruments. The
aggregate fair value amounts presented herein do not necessarily represent
the underlying value of the Company, and accordingly, care should be
exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
The following methods and assumptions were used by the Company in
determining fair values of financial instruments:
Fixed maturities and equity securities: Fair values for fixed
maturity securities are based on quoted market prices, where
available. For fixed maturities not actively traded, the fair
values are determined using values from independent pricing
services, or, in the case of private placements, are determined
by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
securities. The fair values for equity securities are based on
quoted market prices.
Mortgage loans: The fair value of mortgage loans are determined
by discounting future cash flows to the present at current market
rates, using expected prepayment rates.
Policy loans: The carrying value of policy loans approximates
fair value.
Other invested assets: With the exception of call options, the
carrying value for assets classified as other invested assets in
the accompanying balance sheets approximates their fair value.
Fair values for call options are based on market prices quoted by
the counterparty to the respective call option contract.
Cash and cash equivalents: The carrying value of cash and cash
equivalents approximates fair value.
Policy liabilities: Deferred annuity contracts are assigned fair
value equal to current net surrender value. Annuitized contracts
are valued based on the present value of the future cash flows at
current pricing rates.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
7. Fair Value of Financial Instruments (continued)
The fair values and carrying values of the Company's financial instruments
are as follows (in thousands):
December 31 1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
Assets:
Fixed maturity securities $11,246,539 $11,246,539 $10,718,644 $10,718,644
Equity securities 40,856 40,856 35,863 35,863
Mortgage loans 60,662 63,007 67,005 73,424
Policy loans 554,681 554,681 532,793 532,793
Other invested assets 440,773 462,724 183,622 196,316
Cash and cash equivalents 1,162,347 1,162,347 767,385 767,385
Liabilities:
Policy liabilities 12,086,076 11,366,534 11,637,528 11,127,352
8. Quarterly Financial Data, in thousands (unaudited)
Quarter Ended 1997 March 31 June 30 September 30 December 31
Investment income $ 206,515 $ 210,655 $ 210,365 $ 219,513
Interest credited to
policyholders (147,313) (147,224) (150,875) (148,672)
Investment spread 59,202 63,431 59,490 70,841
Net realized
investment gains 12,796 2,669 4,951 4,307
Fee income 8,252 8,578 9,841 9,682
Pretax income 47,423 39,914 39,876 45,438
Net income 31,538 26,095 26,377 29,551
Quarter Ended 1996 March 31 June 30 September 30 December 31
Investment income $ 187,728 $ 188,334 $ 200,253 $ 214,050
Interest credited to
policyholders (138,109) (136,161) (146,071) (152,378)
Investment spread 49,619 52,173 54,182 61,672
Net realized
investment gains
(losses) 2,052 (2,487) 755 5,189
Fee income 7,769 8,006 9,015 8,744
Pretax income 30,340 29,650 34,575 43,281
Net income 19,688 19,943 22,289 28,704
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
9. Statutory Information
The Company is domiciled in Rhode Island and prepares its statutory
financial statements in accordance with accounting principles and practices
prescribed or permitted by the State of Rhode Island Insurance Department.
Statutory surplus and statutory net income differ from stockholder's equity
and net income reported in accordance with GAAP primarily because policy
acquisition costs are expensed when incurred, policy liabilities are based
on different assumptions, and income tax expense reflects only taxes paid
or currently payable. The Company's statutory surplus and net income are as
follows (in thousands):
Year Ended December 31 1997 1996 1995
Statutory surplus $ 702,610 $ 567,735 $ 535,179
Statutory net income 107,130 40,237 38,264
10. Transactions with Affiliated Companies
The Company reimbursed Liberty Financial and certain affiliates for
expenses incurred on its behalf for the years ended December 31, 1997, 1996
and 1995. 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 $7.8 million for the years ended December 31, 1997 and 1996 and $7.6
million for the year ended December 31, 1995. In addition, certain
affiliated companies distribute the Company's products and were paid $7.2
million, $6.4 million and $7.6 million by the Company for the years ended
December 31, 1997, 1996, and 1995, respectively.
Keyport has mortgage notes in the original principal amount of $100.0
million on properties owned by certain indirect subsidiaries of Liberty
Mutual. The notes were purchased for their face value. Liberty Mutual has
agreed to provide credit support to the obligors under these notes with
respect to certain payments of principal and interest thereon. As of
December 31, 1997 and 1996, the amounts outstanding were $39.5 million.
Dividend payments to Liberty Financial from the Company are governed by
insurance laws which restrict the maximum amount of dividends that may be
paid without prior approval of the State of Rhode Island Insurance
Department. As of December 31, 1997, the maximum amount of dividends
(based on statutory surplus and statutory net gains from operations) which
may be paid by Keyport was approximately $70.3 million without such
approval.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies
Leases: The Company leases data processing equipment, furniture and certain
office facilities from others under operating leases expiring in various
years through 2008. Rental expense (in thousands) amounted to $3,408,
$3,213 and $3,221 for the years ended December 31, 1997, 1996 and 1995,
respectively. For each of the next five years, and in the aggregate, as of
December 31, 1997, the following are the minimum future rental payments
under noncancelable operating leases having remaining terms in excess of
one year (in thousands):
Year Payments
1998 $ 3,536
1999 3,505
2000 3,273
2001 3,178
2002 288
Thereafter 1,248
$ 15,028
Legal Matters: The Company is involved at various times in litigation
common to its business. In the opinion of management, provisions made for
potential losses are adequate and the resolution of any such litigation is
not expected to have a material adverse effect on the Company's financial
condition or its results of operations.
Regulatory Matters: 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 1997, 1996 and 1995, the Company was assessed $5.9 million, $10.0
million, and $8.1 million, respectively. During 1997, 1996 and 1995, the
Company recorded $1.0 million, $1.0 million, and $2.0 million,
respectively, of provisions for state guaranty fund association expense.
At December 31, 1997 and 1996, the reserve for such assessments was $8.0
million and $12.9 million, respectively.
Report of Independent Auditors
To the Board of Directors of Keyport Life Insurance Company
and Contract Owners of Variable Account A
We have audited the accompanying statement of assets and liabilities of
Keyport Life Insurance Company-Variable Account A as of December 31, 1997,
and the related statement of operations and changes in net assets for the
year then ended and the period from January 30, 1996 (commencement of
operations) to December 31, 1996. These financial statements are the
responsibility of Keyport Life Insurance Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Keyport Life Insurance
Company - Variable Account A at December 31, 1997 and the results of its
operations and changes in net assets for the year then ended and the period
from January 30, 1996 (commencement of operations) to December 31, 1996, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
March 13, 1998
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Assets and Liabilities
December 31, 1997
Assets
Investments at market value:
Alger American Fund
Alger American Growth Portfolio
- 60,074 shares (cost $2,427,261) $ 2,568,781
Alger American Small Capitalization Portfolio
- 42,071 shares (cost $1,760,102) 1,840,619
Alliance Variable Products Series Fund, Inc.
Alliance Global Bond Portfolio
- 198,784 shares (cost $2,205,869) 2,206,503
Alliance Premier Growth Portfolio
- 211,715 shares (cost $4,101,524) 4,443,897
MFS Variable Insurance Trust
MFS Emerging Growth Series
- 157,233 shares (cost $2,346,335) 2,537,740
MFS Research Series
- 370,638 shares (cost $5,510,371) 5,852,371
Manning & Napier Insurance Fund, Inc.
Manning & Napier Small Cap Portfolio
- 463 shares (cost $5,125) 5,596
Manning & Napier Equity Portfolio
- 441 shares (cost $5,050) 5,598
SteinRoe Variable Investment Trust
SteinRoe Money Market Fund
- 3,418,082 shares (cost $3,418,082) 3,418,082
SteinRoe Special Venture Fund
- 157,763 shares (cost $3,011,139) 2,839,731
SteinRoe Balanced Fund
- 583,886 shares (cost $9,641,971) 9,815,131
SteinRoe Mortgage Securities Fund
- 517,100 shares (cost $5,325,438) 5,548,481
SteinRoe Growth Stock Fund
- 70,337 shares (cost $2,245,959) 2,541,265
Liberty Variable Investment Trust
Colonial Growth and Income Fund
- 782,071 shares (cost $11,597,854) 11,996,975
SteinRoe Global Utilities Fund
- 209,721 shares (cost $2,389,448) 2,499,879
Colonial International Fund for Growth
- 5,990,489 shares (cost $11,478,864) 10,663,071
Colonial Strategic Income Fund
- 858,054 shares (cost $9,584,408) 9,567,304
Colonial U.S. Stock Fund
- 685,510 shares (cost $10,660,010) 11,166,956
Newport Tiger Fund
- 1,282,209 shares (cost $2,644,447) 2,192,578
Liberty All-Star Equity Fund
- 2,207,644 shares (cost $22,085,610) 22,230,980
Total assets $113,941,538
Net assets
Variable annuity contracts (Note 5) $ 82,702,573
Annuity reserves (Note 2) 4,904,263
Due to Keyport Life Insurance Company (Note 2) 6,174,702
Retained by Keyport Life Insurance Company (Note 2) 20,160,000
Total net assets $113,941,538
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Alger American Alger American Small
Growth Portfolio Capitalization Portfolio
1997 1996 1997 1996
Income
Dividends $ 7,036 $ - $ 19,970 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 15,446 50 6,420 31
Net investment income
(expense) (8,410) (50) 13,550 (31)
Realized gain (loss) 4,303 - 884 -
Unrealized appreciation
(depreciation) during
the period 142,736 (1,217) 80,144 373
Net increase (decrease)
in net assets from
operations 138,629 (1,267) 94,578 342
Purchase payments from
contract owners 2,181,692 89,502 1,243,346 67,825
Transfers between
accounts 460,219 142 448,258 (129)
Contract terminations
and annuity payouts (346,642) (50) (37,571) (31)
Other transfers (to)
from Keyport Life
Insurance Company 46,506 50 23,970 31
Net increase in net
assets from contract
transactions 2,341,775 89,644 1,678,003 67,696
Net assets at beginning
of period 88,377 - 68,038 -
Net assets at end of
period $2,568,781 $ 88,377 $1,840,619 $ 68,038
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Alliance Global Alliance Premier
Bond Portfolio Growth Portfolio
1997 1996 1997 1996
Income
Dividends $ 46,153 $ - $ 1,673 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 13,195 16 23,650 25
Net investment income
(expense) 32,958 (16) (21,977) (25)
Realized gain (loss) (569) - 1,545 -
Unrealized appreciation
(depreciation) during
the period 567 67 342,779 (406)
Net increase (decrease)
in net assets from
operations 32,956 51 322,347 (431)
Purchase payments from
contract owners 2,259,490 36,537 3,624,819 51,575
Transfers between
accounts 113,704 381 544,957 701
Contract terminations
and annuity payouts (245,542) - (163,817) -
Other transfers (to)
from Keyport Life
Insurance Company 8,910 16 63,711 26
Net increase in net
assets from contract
transactions 2,136,562 36,934 4,069,670 52,311
Net assets at beginning
of period 36,985 - 51,880 -
Net assets at end of
period $2,206,503 $ 36,985 $4,443,897 $ 51,880
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
MFS Emerging MFS Research
Growth Series Series
1997 1996 1997 1996
Income
Dividends $ - $ - $ - $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 16,111 26 37,551 55
Net investment income
(expense) (16,111) (26) (37,551) (55)
Realized gain (loss) 3,701 - 9,594 -
Unrealized appreciation
(depreciation) during
the period 192,521 (1,116) 343,416 (1,416)
Net increase (decrease)
in net assets from
operations 180,111 (1,142) 315,459 (1,471)
Purchase payments from
contract owners 2,160,760 56,838 5,140,002 111,137
Transfers between
accounts 168,202 (766) 453,781 2,100
Contract terminations
and annuity payouts (66,034) - (237,046) -
Other transfers (to)
from Keyport Life
Insurance Company 39,745 26 68,355 54
Net increase in net
assets from contract
transactions 2,302,673 56,098 5,425,092 113,291
Net assets at beginning
of period 54,956 - 111,820 -
Net assets at end of
period $2,537,740 $ 54,956 $5,852,371 $111,820
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Manning & Napier Manning & Napier
Small Cap Portfolio Equity Portfolio
1997 1996 1997 1996
Income
Dividends $ - $ - $ 11 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 22 - 21 -
Net investment income
(expense) (22) - (10) -
Realized gain (loss) - - - -
Unrealized appreciation
(depreciation) during
the period 348 123 533 15
Net increase (decrease)
in net assets from
operations 326 123 523 15
Purchase payments from
contract owners - 2,500 - 2,500
Transfers between
accounts 2,632 15 2,534 26
Contract terminations
and annuity payouts - - - -
Other transfers (to)
from Keyport Life
Insurance Company - - - -
Net increase in net
assets from contract
transactions 2,632 2,515 2,534 2,526
Net assets at beginning
of period 2,638 - 2,541 -
Net assets at end of
period $ 5,596 $ 2,638 $ 5,598 $ 2,541
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
SteinRoe Money SteinRoe Special
Market Fund Venture Fund
1997 1996 1997 1996
Income
Dividends $ 88,861 $ 86 $ 272,821 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 22,431 12 19,873 34
Net investment income
(expense) 66,430 74 252,948 (34)
Realized gain (loss) - - 2,563 -
Unrealized appreciation
(depreciation) during
the period - - (171,408) -
Net increase (decrease)
in net assets from
operations 66,430 74 84,103 (34)
Purchase payments from
contract owners 4,086,249 21,129 2,598,769 59,199
Transfers between
accounts (210,857) 402 312,995 (180)
Contract terminations
and annuity payouts (507,784) - (213,965) -
Other transfers (to)
from Keyport Life
Insurance Company (37,573) 12 (1,190) 34
Net increase in net
assets from contract
transactions 3,330,035 21,543 2,696,609 59,053
Net assets at beginning
of period 21,617 - 59,019 -
Net assets at end of
period $3,418,082 $ 21,617 $2,839,731 $ 59,019
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
SteinRoe SteinRoe Mortgage
Balanced Fund Securities Fund
1997 1996 1997 1996
Income
Dividends $ 562,770 $ - $ - $ 9,327
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 70,541 76 39,014 67
Net investment income
(expense) 492,229 (76) (39,014) 9,260
Realized gain (loss) 38,346 - 5,479 -
Unrealized appreciation
(depreciation) during
the period 173,160 - 232,370 (9,327)
Net increase (decrease)
in net assets from
operations 703,735 (76) 198,835 (67)
Purchase payments from
contract owners 9,462,383 129,902 4,838,331 114,880
Transfers between
accounts 193,953 232 886,826 623
Contract terminations
and annuity payouts (672,546) - (484,716) -
Other transfers (to)
from Keyport Life
Insurance Company (2,528) 76 (6,298) 67
Net increase in net
assets from contract
transactions 8,981,262 130,210 5,234,143 115,570
Net assets at beginning
of period 130,134 - 115,503 -
Net assets at end of
period $9,815,131 $130,134 $5,548,481 $115,503
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
SteinRoe Growth Colonial Growth
Stock Fund and Income Fund
1997 1996 1997 1996
Income
Dividends $ 55,649 $ - $ 1,106,861 $ 16,380
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 18,450 14 85,976 152
Net investment income
(expense) 37,199 (14) 1,020,885 16,228
Realized gain (loss) 7,640 - 1,229 -
Unrealized appreciation
(depreciation) during
the period 295,306 - 415,501 (16,380)
Net increase (decrease)
in net assets from
operations 340,145 (14) 1,437,615 (152)
Purchase payments from
contract owners 1,911,470 23,757 10,591,566 259,571
Transfers between
accounts 356,189 (7) 497,551 1,038
Contract terminations
and annuity payouts (88,499) - (814,237) -
Other transfers (to)
from Keyport Life
Insurance Company (1,790) 14 23,871 152
Net increase in net
assets from contract
transactions 2,177,370 23,764 10,298,751 260,761
Net assets at beginning
of period 23,750 - 260,609 -
Net assets at end of
period $2,541,265 $ 23,750 $11,996,975 $260,609
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
SteinRoe Global Colonial International
Utilities Fund Fund for Growth
1997 1996 1997 1996
Income
Dividends $ 180,945 $ 1,226 $ 403,055 $ 8,228
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 16,814 16 73,074 78
Net investment income
(expense) 164,131 1,210 329,981 8,150
Realized gain (loss) 14,318 - (1,137) -
Unrealized appreciation
(depreciation) during
the period 111,657 (1,226) (807,565) (8,228)
Net increase (decrease)
in net assets from
operations 290,106 (16) (478,721) (78)
Purchase payments from
contract owners 2,094,656 26,950 9,865,737 134,121
Transfers between
accounts 306,662 502 1,902,103 119
Contract terminations
and annuity payouts (217,417) - (758,352) -
Other transfers (to)
from Keyport Life
Insurance Company (1,580) 16 (1,936) 78
Net increase in net
assets from contract
transactions 2,182,321 27,468 11,007,552 134,318
Net assets at beginning
of period 27,452 - 134,240 -
Net assets at end of
period $2,499,879 $ 27,452 $10,663,071 $134,240
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Colonial Strategic Colonial
Income Fund U.S. Stock Fund
1997 1996 1997 1996
Income
Dividends $ 422,411 $ 20,017 $ 930,220 $ 7,965
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 65,183 125 77,827 79
Net investment income
(expense) 357,228 19,892 852,393 7,886
Realized gain (loss) 1,156 - 12,679 -
Unrealized appreciation
(depreciation) during
the period 2,913 (20,017) 514,911 (7,965)
Net increase (decrease)
in net assets from
operations 361,297 (125) 1,379,983 (79)
Purchase payments from
contract owners 9,201,396 214,591 8,438,980 135,230
Transfers between
accounts 702,657 1,516 1,799,621 411
Contract terminations
and annuity payouts (908,548) - (621,133) -
Other transfers (to)
from Keyport Life
Insurance Company (5,605) 125 33,864 79
Net increase in net
assets from contract
transactions 8,989,900 216,232 9,651,332 135,720
Net assets at beginning
of period 216,107 - 135,641 -
Net assets at end of
period $9,567,304 $216,107 $11,166,956 $135,641
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Newport Liberty All-Star
Tiger Fund Equity Fund*
1997 1996 1997
Income
Dividends $ 14,295 $ 1,057 $ 21,113
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 18,422 57 913
Net investment income
(expense) (4,127) 1,000 20,200
Realized gain (loss) (22,847) - -
Unrealized appreciation
(depreciation) during
the period (450,812) (1,057) 145,370
Net increase (decrease)
in net assets from
operations (477,786) (57) 165,570
Purchase payments from
contract owners 2,256,281 96,510 722,965
Transfers between
accounts 345,389 108 1,212,627
Contract terminations
and annuity payouts (54,826) - (15,331)
Other transfers (to)
from Keyport Life
Insurance Company 26,902 57 20,145,149
Net increase in net
assets from contract
transactions 2,573,746 96,675 22,065,410
Net assets at beginning
of period 96,618 - -
Net assets at end of
period $2,192,578 $ 96,618 $22,230,980
* Commenced operations November 15, 1997
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets For the Year Ended
December 31, 1997
and the Period from January 30, 1996 to December 31, 1996
Total Total
1997 1996
Income
Dividends $ 4,133,844 $ 64,286
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 620,934 913
Net investment income
(expense) 3,512,910 63,373
Realized gain (loss) 78,884 -
Unrealized appreciation
(depreciation) during
the period 1,564,447 (67,777)
Net increase (decrease)
in net assets from
operations 5,156,241 (4,404)
Purchase payments from
contract owners 82,678,892 1,634,254
Transfers between
accounts 10,500,003 7,243
Contract terminations
and annuity payouts (6,454,006) (81)
Other transfers (to)
from Keyport Life
Insurance Company 20,422,483 913
Net increase in net
assets from contract
transactions 107,147,372 1,642,329
Net assets at beginning
of period 1,637,925 -
Net assets at end of
period $113,941,538 $ 1,637,925
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements
December 31, 1997
1. Organization
Variable Account A (the "Variable Account"), was established on January 30,
1996 as a segregated investment account of Keyport Life Insurance Company
(the "Company"). The Variable Account is registered with the Securities
and Exchange Commission as a Unit Investment Trust under the Investment
Company Act of 1940 and invests in shares of eligible funds. The Variable
Account is a funding vehicle for group and individual variable annuity
contracts. The Variable Account currently offers two contracts,
distinguished principally by the level of expenses, surrender charges, and
eligible fund options. The two contracts and their respective eligible
fund options are as follows:
Keyport Advisor Variable Annuity Manning & Napier Variable Annuity
Alger American Fund: Manning & Napier Insurance Fund, Inc:
Alger American Growth Portfolio Manning & Napier Small Cap Portfolio
Alger American Small Capitalization Manning & Napier Equity Portfolio
Portfolio Manning & Napier Moderate Growth
Portfolio
Manning & Napier Growth Portfolio
MFS Variable Insurance Trust: Manning & Napier Maximum Horizon
MFS Emerging Growth Series Portfolio
MFS Research Series Manning & Napier Bond Portfolio
SteinRoe Variable Investment Trust (SRVIT):
Stein Roe Money Market Fund
Stein Roe Special Venture Fund
Stein Roe Balanced Fund
Stein Roe Mortgaged Securities Fund
Stein Roe Growth Stock Fund
Liberty Variable Investment Trust (LVIT) (formerly Keyport Variable
Investment Trust):
Colonial Growth and Income Fund
SteinRoe Global Utilities Fund
Colonial International Fund for Growth
Colonial Strategic Income Fund
Colonial U.S. Stock Fund
Newport Tiger Fund
Liberty All-Star Equity Fund
Alliance Variable Products Series Fund, Inc:
Alliance Global Bond Portfolio
Alliance Premier Growth Portfolio
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
1. Organization (continued)
On December 6, 1996, the fund name Colonial-Keyport U.S. Fund for Growth
was changed to Colonial-Keyport U.S. Stock Fund. On November 15, 1997, the
fund names for Cash Income Fund, Capital Appreciation Fund, Managed Assets
Fund, Mortgage Securities Income Fund and Managed Growth Stock Fund were
changed to SteinRoe Money Market Fund, SteinRoe Special Venture Fund,
SteinRoe Balanced Fund, SteinRoe Mortgage Securities Fund and SteinRoe
Growth Stock Fund, respectively. Also on November 15, 1997, the fund names
for Colonial-Keyport Growth and Income Fund, Colonial-Keyport Utilities
Fund, Colonial-Keyport International Fund for Growth, Colonial-Keyport U.S.
Stock Fund, Colonial-Keyport Strategic Income Fund and Newport-Keyport
Tiger Fund were changed to Colonial Growth and Income Fund, SteinRoe Global
Utilities Fund, Colonial International Fund for Growth, Colonial U.S. Stock
Fund, Colonial Strategic Income Fund and Newport Tiger Fund, respectively.
2. Significant Accounting Policies
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect amounts reported therein. Although
actual results could differ from these estimates, any such differences are
expected to be immaterial to the Variable Account.
Shares of the eligible funds are sold to the Variable Account at the
reported net asset values. Transactions are recorded on the trade date.
Income from dividends is recorded on the ex-dividend date. Realized gains
and losses on sales of investments are computed on the basis of identified
cost of the investments sold.
Annuity reserves are computed for contracts in the income stage according
to the 1983a Individual Annuity Mortality Table. The assumed investment
rate is either 3.0%, 4.0%, 5.0% or 6.0% unless the annuitant elects
otherwise, in which case the rate may vary from 3.0% to 6.0%, as regulated
by the laws of the respective states. The mortality risk is fully borne by
the Company and may result in additional amounts being transferred into the
Variable Account by the Company.
Amounts due to Keyport Life Insurance Company represent mortality and
expense risk charges earned by the Company in 1997 but not transferred to
the Company until January 1998.
The net assets retained by the Company represent seed money shares invested
in certain sub-accounts required to commence operations. The seed money is
stated at market value (shares multiplied by net asset value per share).
The operations of the Variable Account are included in the federal income
tax return of the Company, which is taxed as a Life Insurance Company under
the provisions of the Internal Revenue Code. The Company anticipates no
tax liability resulting from the operations of the Variable Account.
Therefore, no provision for income taxes has been charged against the
Variable Account.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
3. Expenses
Keyport Advisor Variable Annuity
There are no deductions made from purchase payments for sales charges at
the time of purchase. In the event of a contract termination, a contingent
deferred sales charge, based on a graded table of charges, is deducted. An
annual contract maintenance charge of $36 to cover the cost of contract
administration is deducted from each contractholder's account on the
contract anniversary date. Daily deductions are made from each sub-account
for assumption of mortality and expense risk at an effective annual rate of
1.25% of contract value. A daily deduction is also made for distribution
costs incurred by the Company at an effective annual rate of 0.15% of
contract value. For the Contact series Keyport Advisor Employee, the
effective annual rate for daily deductions for the assumption of mortality
and expense risk is 0.35%; no other charges apply.
Manning & Napier Variable Annuity
There are no deductions from purchase payments for sales charges at the
time of purchase. There are also no contingent deferred sales charges or
distribution charges. An annual contract maintenance charge of $35 to
cover the cost of contract administration is deducted from each
contractholder's account on the contract anniversary date. Daily
deductions are made from each sub-account for assumption of mortality and
expense risk at an effective annual rate of 0.35% of contract value.
4. Affiliated Company Transactions
Administrative services necessary for the operation of the Variable Account
are provided by the Company. The Company has absorbed all organizational
expenses including the fees of registering the Variable Account and its
contracts for distribution under federal and state securities laws.
SteinRoe & Farnham, Inc., an affiliate of the Company, is the investment
advisor to the SRVIT. Liberty Advisory Services Corporation (formerly
Keyport Advisory Services Corporation), a wholly-owned subsidiary of the
Company, is the investment advisor to the LVIT. Colonial Management
Associates, Inc., an affiliate of the Company, is the investment sub-
advisor to the LVIT. Keyport Financial Services Corp., a wholly-owned
subsidiary of the Company, is the principal underwriter for SRVIT and LVIT.
The investment advisors' compensation is derived from the mutual funds.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
5. Unit Values
A summary of the accumulation unit values at December 31, 1997 and the
accumulation units and dollar value outstanding at December 31, 1997 are as
follows:
1996 1997
UNIT UNIT
VALUE VALUE UNITS DOLLARS
Alger American
Growth Portfolio
Keyport Advisor $ 9.900001 $ 12.277190 197,651.8440 $ 2,426,609
Employee - 12.187513 1,126.8070 13,733
Alger American
Small Capitalization
Portfolio
Keyport Advisor 10.064832 11.133567 161,530.0800 1,798,406
Employee - 11.771178 559.7980 6,589
Alliance Global
Bond Portfolio
Keyport Advisor 9.882608 9.811315 205,125.1470 2,012,547
Alliance Premier
Growth Portfolio
Keyport Advisor 10.197991 13.462574 317,794.3490 4,278,330
Employee - 12.945664 1,830.1810 23,693
MFS Emerging
Growth Series
Keyport Advisor 9.716229 11.680929 211,030.2340 2,465,029
Employee - 12.487521 893.3820 11,156
MFS Research Series
Keyport Advisor 9.978211 11.834080 476,726.2310 5,641,616
Employee - 11.567760 2,107.1950 24,376
Manning & Napier
Small Cap Portfolio
Keyport Advisor 10.713837 12.088643 244.7110 2,958
Manning & Napier
Equity Portfolio
Keyport Advisor 10.553923 12.774188 239.2930 3,057
SteinRoe Money
Market Fund
Keyport Advisor 13.288493 13.780309 141,307.6585 1,947,263
Employee - 12.034296 216.9429 2,611
SteinRoe Special
Venture Fund
Keyport Advisor 29.237169 31.085014 70,396.6380 2,188,280
Employee - 18.887039 434.8833 8,214
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
5. Unit Values (continued)
1996 1997
UNIT UNIT
VALUE VALUE UNITS DOLLARS
SteinRoe Balanced Fund
Keyport Advisor 21.263714 24.497018 334,687.6783 8,198,850
Employee - 16.476867 334.4144 5,510
SteinRoe Mortgage
Securities Fund
Keyport Advisor 16.621076 17.874172 278,722.7178 4,981,938
Employee - 12.883061 51.5966 665
SteinRoe Growth
Stock Fund
Keyport Advisor 27.242475 35.538075 62,290.5052 2,213,685
Employee - 22.305278 210.2543 4,690
Colonial Growth and
Income Fund
Keyport Advisor 15.216529 19.353674 567,111.3017 10,975,687
Employee - 20.146127 1,462.3641 29,461
SteinRoe Global
Utilities Fund
Keyport Advisor 12.095187 15.358133 152,453.0989 2,341,395
Colonial International
Fund for Growth
Keyport Advisor 10.074536 9.659572 968,792.4360 9,358,120
Employee - 10.293313 3,209.4245 33,036
Colonial Strategic
Income Fund
Keyport Advisor 12.642128 13.615795 559,013.2244 7,611,409
Employee - 14.021213 205.7553 2,885
Colonial U.S.
Stock Fund
Keyport Advisor 15.935084 20.780533 481,688.8629 10,009,751
Employee - 21.635681 533.4962 11,543
Newport Tiger Fund
Keyport Advisor 12.555053 8.525525 234,552.7128 1,999,685
Employee - 8.765513 1,537.8140 13,480
Liberty All-Star
Equity Fund
Keyport Advisor - 10.063176 180,236.9680 1,813,756
Employee - 10.075780 24,073.5060 242,560
5,640,383.5061 $82,702,573
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
6. Purchases and Sales of Securities
The cost of shares purchased and proceeds from shares sold by the Variable
Account during 1997 are shown below:
Purchases Sales
Alger American Growth Portfolio $ 2,650,509 $ 317,144
Alger American Small
Capitalization Portfolio 1,855,453 163,900
Alliance Global Bond Portfolio 2,685,989 516,469
Alliance Premier Growth Portfolio 4,418,548 370,855
MFS Emerging Growth Series 2,571,013 284,451
MFS Research Series 6,268,736 881,195
Manning & Napier Small Cap
Portfolio 2,637 27
Manning & Napier Equity
Portfolio 2,552 28
SteinRoe Money Market Fund 6,150,547 2,754,082
SteinRoe Special Venture Fund 4,905,812 1,956,255
SteinRoe Balanced Fund 11,750,379 2,276,888
SteinRoe Mortgage Securities Fund 5,751,538 556,409
SteinRoe Growth Stock Fund 3,514,107 1,299,538
Colonial Growth and Income Fund 13,254,478 1,934,842
SteinRoe Global Utilities Fund 2,913,439 566,987
Colonial International Fund
for Growth 12,113,765 776,232
Colonial Strategic Income Fund 10,063,285 716,157
Colonial U.S. Stock Fund 11,166,044 662,319
Newport Tiger Fund 3,080,449 510,830
Liberty All-Star Equity Fund 22,115,483 29,873
$127,234,763 $16,574,481
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
7. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments
of the segregated asset account on which the contract is based are not
adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification requirements set
forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that the Variable Account satisfies the
current requirements of the regulations, and it intends that the Variable
Account will continue to meet such requirements.
8. Year 2000 (Unaudited)
The Variable Account, like other business organizations and individuals,
would be adversely affected if the Company's computer systems and those of
its service providers do not properly process and calculate date related
information and data from and after January 1, 2000. The Company has
substantially completed an inventory of its computer programs and assessed
its Year 2000 readiness. In addition, the Company has initiated
communications with third parties to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not timely completed, or
if the systems of the companies on which the Company's interface system
relies are not timely converted, the Year 2000 issue could have a material
impact on the operations of the Variable Account.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Keyport Life Insurance Company:
Consolidated Balance Sheet - December 31, 1997 and 1996
Consolidated Income Statement for the years ended December 31,
1997, 1996 and 1995
Consolidated Statement of Stockholder's Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Variable Account A:
Statement of Assets and Liabilities - December 31, 1997
Statement of Operations and Changes in Net Assets for the years
ended December 31, 1997 and 1996
Notes to Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing Variable
Account A
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and Dealer
*** (3c) Manning & Napier Broker/Dealer's Agreement
* (4a) Form of Group Variable Annuity Contract of Keyport Life
Insurance Company
* (4b) Form of Variable Annuity Certificate of Keyport Life
Insurance Company
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
*** (4f) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company (M&N)
*** (4g) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company (M&N)
**** (4h) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company (KA)
**** (4i) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company (KA)
++ (4j) Form of Individual Variable Annuity Contract of Keyport
Life Insurance Company
++ (4k) Specimen Individual Variable Annuity Contract of Keyport
Life Insurance Company(KA)
++ (4l) Specimen Group Exchange Program Endorsement (KA)
++ (4m) Specimen Individual Exchange Program Endorsement (KA)
## (4n) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company (KAV)
## (4o) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company (KAV)
## (4p) Specimen Individual Variable Annuity Contract of Keyport
Life Insurance Company (KAV)
* (5a) Form of Application for a Group Variable Annuity Contract
* (5b) Form of Application for a Group Variable Annuity Certificate
* (6a) Articles of Incorporation of Keyport Life Insurance Company
* (6b) By-Laws of Keyport Life Insurance Company
(7) Not applicable
** (8a) Form of Participation Agreement
*** (8b) Participation Agreement Among Manning & Napier Insurance
Fund, Inc., Manning & Napier Investor Services, Inc.,
Manning
& Napier Advisors, Inc., and Keyport Life Insurance Company
**** (8c) Participation Agreement Among MFS Variable Insurance Trust,
Keyport Life Insurance Company, and Massachusetts Financial
Services Corp.
**** (8d) Participation Agreement Among The Alger American Fund,
Keyport Life Insurance Company, and Fred Alger and Company,
Incorporated
**** (8e) Participation Agreement Among Alliance Variable Products
Series Fund, Inc., Alliance Fund Distributors, Inc.,
Alliance
Capital Management L.P., and Keyport Life Insurance Company
(8f) Participation Agreement By and Among AIM Variable Insurance
Funds, Inc., Keyport Life Insurance Company, on Behalf of
Itself and its Separate Accounts, and Keyport Financial
Services Corp.
# (8g) Amended and Restated Participation Agreement By and Among
Keyport Variable Investment Trust, Keyport Financial
Services
Corp., Keyport Life Insurance Company and Liberty Life
Assurance Company of Boston
(8h) Amended and Restated Participation Agreement By and Among
SteinRoe Variable Investment Trust, Keyport Financial
Services Corp., Keyport Life Insurance Company and Liberty
Life Assurance Company of Boston
+ (9) Opinion and Consent of Counsel
(10) Consents of Independent Auditors
(11) Not applicable
(12) Not applicable
++++ (13) Schedule for Computations of Performance Quotations
+++ (15) Chart of Affiliations
### (16) Powers of Attorney
### (27) Financial Data Schedule
* Incorporated by reference to Registration Statement (File No. 333-
1043)
filed on or about February 16, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement (File No. 333-1043) filed on or about August
22,
1996.
*** Incorporated by reference to Pre-Effective Amendment No. 3 to
Registration Statement (File No. 333-1043) filed on or about October
15, 1996.
**** Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement (File No. 333-1043) filed on or about October
18, 1996.
+ Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement (File No. 333-1043) filed on or about May 1,
1997.
++ Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement (File No. 333-1043) filed on or about July 30,
1997.
+++ Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement (File No. 333-1043) filed on or about February
6, 1998.
++++ Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement (File No. 333-1043) filed on or about February
27, 1998.
# Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 of Variable Account J of Liberty
Life Assurance Company of Boston (Files No. 333-29811; 811-08269)
filed on or about July 17, 1997.
## Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement (File No. 333-1043) filed on or about March
20, 1998.
### Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement (File No. 333-1043) filed on or about April
24, 1998.
Item 25. Directors and Officers of the Depositor.
Name and Principal Positions and Offices
Business Address* with Depositor
Kenneth R. Leibler, President Director and Chairman of the Board
Liberty Financial Companies Inc.
Federal Reserve Plaza, 24th Floor
600 Atlantic Avenue
Boston, MA 02110
Frederick Lippitt Director
The Providence Plan
740 Hospital Trust Building
15 Westminster Street
Providence, RI 02903
Mr. Robert C. Nyman Director
12 Cooke Street
Providence, RI 02906-2006
John W. Rosensteel President, Chief Executive Officer
and Director
Stephen B. Bonner Executive Vice President
Paul H. LeFevre, Jr. Executive Vice President
Bernard R. Beckerlegge Senior Vice President and General
Counsel
Bernhard M. Koch Senior Vice President and Chief
Financial Officer
Stewart R. Morrison Senior Vice President and Chief
Investment Officer
Francis E. Reinhart Senior Vice President and Chief
Information Officer
Mark R. Tully Senior Vice President and Chief
Sales Officer
Garth A. Bernard Vice President
Daniel C. Bryant Vice President and Assistant
Secretary
Clifford O. Calderwood Vice President
James P. Greaton Vice President and Corporate
Actuary
Jacob M. Herschler Vice President
Kenneth M. Hughes Vice President
James J. Klopper Vice President and Secretary
Leslie J. Laputz Vice President
Jeffrey J. Lobo Vice President - Risk Management
Suzanne E. Lyons Vice President - Human Resources
Jeffery J. Whitehead Vice President and Treasurer
Peter E. Berkeley Assistant Vice President
John G. Bonvouloir Assistant Vice President &
Assistant Treasurer
Judith A. Brookins Assistant Vice President
Paul R. Coady Assistant Vice President
Alan R. Downey Assistant Vice President
Kenneth M. LeClair Assistant Vice President
Gregory L. Lapsley Assistant Vice President
Scott E. Morin Assistant Vice President and
Controller
Michael J. Mulkern Assistant Vice President
Sean P. O'Brien Assistant Vice President
Robert J. Scheinerman Assistant Vice President
Edward M. Shea Assistant Vice President
Teresa M. Shumila Assistant Vice President
Daniel T. Smyth Assistant Vice President
Donald A. Truman Assistant Vice President and
Assistant Secretary
Ellen L. Wike Assistant Vice President
Daniel Yin Assistant Vice President
Frederick Lippitt Assistant Secretary
*125 High Street, Boston, Massachusetts 02110, unless noted otherwise.
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant.
The Depositor controls the Registrant, KMA Variable Account, Keyport
401 Variable Account, Keyport Variable Account I, and Keyport Variable
Account II, under the provisions of Rhode Island law governing the
establishment of these separate accounts of the Company.
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 Liberty Advisory Services Corp. (LASC)
(formerly known as Keyport Advisory Services Corp.), a Massachusetts
corporation functioning as an investment adviser, through 100% stock
ownership. LASC 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 Depositor controls American Benefit Life Insurance Company
("American Benefit"), a New York corporation functioning as a life
insurance company, through 100% stock ownership. American Benefit files
separate financial statements.
The chart for the affiliations of the Depositor is incorporated by
reference to Post-Effective Amendment No. 7 to Registration Statement (File
No. 333-1043) filed on or about February 6, 1998.
Item 27. Number of Contract Owners.
None.
Item 28. Indemnification.
Directors and officers of the Depositor and the principal underwriter
are covered persons under Directors and Officers/Errors and Omissions
liability insurance policies issued by ICI Mutual Insurance Company,
Federal Insurance Company, Firemen's Fund Insurance Company, CNA and
Lumberman's Mutual Casualty Company. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
directors and officers under such insurance policies, or otherwise, the
Depositor has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Depositor of expenses incurred or paid by a director or officer in
the successful defense of any action, suit or proceeding) is asserted by
such director or officer in connection with the variable annuity contracts,
the Depositor will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters.
Keyport Financial Services Corp. is also principal underwriter of the
SteinRoe Variable Investment Trust and Liberty 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
James J. Klopper Director and Clerk
Francis E. Reinhart Director and Vice President,
Administration
Rogelio P. Japlit Treasurer
Paul T. Holman Assistant Clerk
Donald A. Truman Assistant 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.
Representation
Depositor represents that the fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by
the Depositor. Further, this representation applies to each form of the
contract described in a prospectus and statement of additional information
included in this registration statement.
SIGNATURES
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has duly caused this Registration Statement to be signed on its behalf,
in the City of Boston and Commonwealth of Massachusetts, on this 8th day of
May, l998.
Variable Account A
(Registrant)
BY: Keyport Life Insurance Company
(Depositor)
BY: /s/ John W. Rosensteel*
John W. Rosensteel
President
*BY: /s/James J. Klopper May 8, 1998
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 Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 filed on or about April 24, 1998 (File
No. 333-1043; 811-7543).
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/ Frederick Lippitt * /s/ Bernhard M. Koch*
Frederick Lippitt Bernhard M. Koch
Director Senior Vice President
(Chief Financial Officer)
/s/ Robert C. Nyman*
Robert C. Nyman
Director
/s/ John W. Rosensteel*
John W. Rosensteel
Director
*BY: /s/ James J. Klopper May 8, 1998
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 Post-Effective Amendment No. 10 to Registration Statement
on Form N-4 filed on or about April 24, 1998 (File No. 333-1043; 811-7543).
EXHIBIT INDEX
Item Page
(8f) Participation Agreement By and Among AIM Variable Insurance
Funds, Inc., Keyport Life Insurance Company, on Behalf of
Itself and its Separate Accounts, and Keyport Financial
Services Corp.
(8h) Amended and Restated Participation Agreement By and Among
Keyport Financial Services Corp., Keyport Life Insurance
Company, Liberty Life Assurance Company of Boston and
SteinRoe Variable Investment Trust
(10) Consents of Independent Auditors
EXHIBIT (8f)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
KEYPORT LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
KEYPORT FINANCIAL SERVICES CORP.
TABLE OF CONTENTS
Description Page
Section 1. Available Funds 2
1.1 Availability. 2
1.2 Addition, Deletion or Modification of Funds 2
1.3 No Sales to the General Public 2
Section 2. Processing Transactions 2
2.1 Timely Pricing and Orders 2
2.2 Timely Payments 3
2.3 Applicable Price 3
2.4 Dividends and Distributions 4
2.5 Book Entry 4
Section 3. Costs and Expenses 4
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Other (Sales-Related) 5
3.5 Parties To Cooperate 5
Section 4. Legal Compliance 5
4.1 Tax Laws 5
4.2 Insurance and Certain Other Laws 8
4.3 Securities Laws 8
4.4 Notice of Certain Proceedings and Other Circumstances 9
4.5 LIFE COMPANY To Provide Documents; Information About
AVIF 10
4.6 AVIF To Provide Documents; Information About LIFE
COMPANY 11
Section 5. Mixed and Shared Funding 12
5.1 General 12
5.2 Disinterested Directors 13
5.3 Monitoring for Material Irreconcilable Conflicts 13
5.4 Conflict Remedies 14
5.5 Notice to LIFE COMPANY 15
5.6 Information Requested by Board of Directors 15
5.7 Compliance with SEC Rules 15
5.8 Other Requirements 16
Section 6. Termination 16
6.1 Events of Termination 16
6.2 Notice Requirement for Termination 17
6.3 Funds To Remain Available 17
6.4 Survival of Warranties and Indemnifications 18
6.5 Continuance of Agreement for Certain Purposes 18
Section 7. Parties To Cooperate Respecting Termination 18
Section 8. Assignment 18
Section 9. Notices 18
Section 10. Voting Procedures 19
Section 11. Foreign Tax Credits 20
Section 12. Indemnification 20
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER 20
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF 22
12.3 Effect of Notice 25
12.4 Successors 25
Section 13. Applicable Law 25
Section 14. Execution in Counterparts 25
Section 15. Severability 25
Section 16. Rights Cumulative 25
Section 17. Headings 25
Section 18. Confidentiality 26
Section 19. Trademarks and Fund Names 26
Section 20. Parties to Cooperate 28
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of April, 1998
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); Keyport Life Insurance Company, a Rhode Island life
insurance company ("LIFE COMPANY"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties
hereto may amend from time to time (each, an "Account," and collectively,
the "Accounts"); and Keyport Financial Services Corp., an affiliate of LIFE
COMPANY and the principal underwriter of the Contracts ("UNDERWRITER")
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act
of 1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under
variable annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent
the context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth
on Schedule A hereto, as the Parties hereto may amend from time to time,
which Contracts (hereinafter collectively, the "Contracts"), if required by
applicable law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount
thereof to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts,
each of which is registered as a unit investment trust investment company
under the 1940 Act (or exempt therefrom), and the security interests deemed
to be issued by the Accounts under the Contracts will be registered as
securities under the 1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the
Funds on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
1.1 Availability.
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges,
subject to the terms and conditions of this Agreement. The Board of
Directors of AVIF may refuse to sell Shares of any Fund to any person, or
suspend or terminate the offering of Shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Directors acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine,
or modify existing Funds, by amending Schedule A hereto. Upon such
amendment to Schedule A, any applicable reference to a Fund, AVIF, or its
Shares herein shall include a reference to any such additional Fund.
Schedule A, as amended from time to time, is incorporated herein by
reference and is a part hereof.
1.3 No Sales to the General Public
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall
mean any day on which (i) the New York Stock Exchange is open for regular
trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE
COMPANY is open for business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit
values and to process transactions that receive that same Business Day's
Account unit values. LIFE COMPANY will perform such Account processing
the same Business Day, and will place corresponding orders to purchase or
redeem Shares with AVIF by 9:00 a.m. Central Time the following Business
Day; provided, however, that AVIF shall provide additional time to LIFE
COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated
in paragraph (a) immediately above. Such additional time shall be equal to
the additional time that AVIF takes to make the net asset values available
to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase
and redemption orders with respect to each Fund and shall transmit one net
payment per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be
entitled to an adjustment to the number of Shares purchased or redeemed to
reflect the correct net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share, dividend or capital
gain information shall be reported promptly upon discovery to LIFE COMPANY.
2.2 Timely Payments
LIFE COMPANY will wire payment for net purchases to a custodial
account designated by AVIF by 1:00 p.m. Central Time on the same day as the
order for Shares is placed, to the extent practicable. AVIF will wire
payment for net redemptions to an account designated by LIFE COMPANY by
1:00 p.m. Central Time on the same day as the Order is placed, to the
extent practicable, but in any event within five (5) calendar days after
the date the order is placed in order to enable LIFE COMPANY to pay
redemption proceeds within the time specified in Section 22(e) of the 1940
Act or such shorter period of time as may be required by law.
2.3 Applicable Price.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions
under Contracts (collectively, "Contract transactions") and that LIFE
COMPANY receives prior to the close of regular trading on the New York
Stock Exchange on a Business Day will be executed at the net asset values
of the appropriate Funds next computed after receipt by AVIF or its
designated agent of the orders. For purposes of this Section 2.3(a), LIFE
COMPANY shall be the designated agent of AVIF for receipt of orders
relating to Contract transactions on each Business Day and receipt by such
designated agent shall constitute receipt by AVIF; provided that AVIF
receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with
Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the order therefor, and
such orders will be irrevocable.
2.4 Dividends and Distributions
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund.
LIFE COMPANY hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-
dividend date net asset values until LIFE COMPANY otherwise notifies AVIF
in writing, it being agreed by the Parties that the ex-dividend date and
the payment date with respect to any dividend or distribution will be the
same Business Day. LIFE COMPANY reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in
cash.
2.5 Book Entry.
Issuance and transfer of AVIF Shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY. Shares ordered from
AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf
of its Account.
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 Registration.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the
1933 Act, and keeping such registrations current and effective;
including, without limitation, the preparation of and filing with the SEC
of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares
and payment of all applicable registration or filing fees with respect to
any of the foregoing.
(b) LIFE COMPANY will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to each Account and its units of interest and
payment of all applicable registration or filing fees with respect to any
of the foregoing.
3.3 Other (Non-Sales-Related)
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements
thereto (collectively, the "AVIF Prospectus"), periodic reports to
shareholders, AVIF proxy material and other shareholder communications.
(b) LIFE COMPANY will bear the costs of preparing, filing with the
SEC and setting for printing each Account's prospectus, statement of
additional information and any amendments or supplements thereto
(collectively, the "Account Prospectus"), any periodic reports to Contract
owners, annuitants, insureds or participants (as appropriate) under the
Contracts (collectively, "Participants"), voting instruction solicitation
material, and other Participant communications.
(c) LIFE COMPANY will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form.
AVIF will print the AVIF statement of additional information, proxy
materials relating to AVIF and periodic reports of AVIF.
3.4 Other (Sales-Related)
LIFE COMPANY will bear the expenses of distribution. These expenses
would include by way of illustration, but are not limited to, the costs
of distributing to Participants the following documents, whether they
relate to the Account or AVIF: prospectuses, statements of additional
information, proxy materials and periodic reports. These costs would also
include the costs of preparing, printing, and distributing sales literature
and advertising relating to the Funds, as well as filing such materials
with, and obtaining approval from, the SEC, the NASD, any state insurance
regulatory authority, and any other appropriate regulatory authority, to
the extent required.
3.5 Parties To Cooperate.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
Section 4. Legal Compliance
4.1 Tax Laws.
(a) AVIF represents and warrants that each Fund is currently
qualified as a regulated investment company ("RIC") under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and represents
that it will use its best efforts to qualify and to maintain qualification
of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon
having a reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
(b) AVIF represents that it will use its best efforts to comply and
to maintain each Fund's compliance with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code. AVIF will notify LIFE COMPANY immediately
upon having a reasonable basis for believing that a Fund has ceased to so
comply or that a Fund might not so comply in the future. In the event of a
breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Section 1.817-5 of the regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service
("IRS") asserts in writing in connection with any governmental audit or
review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant,
that any Fund has failed to comply with the diversification requirements of
Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any
facts that could give rise to any claim against AVIF or its affiliates as a
result of such a failure or alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions
of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or
alleged failure;
(iii)LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to
the Commissioner of the IRS that such failure was
inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection
with any of the foregoing proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of
Section 18, at least ten (10) business days or such shorter
period to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted, and (b)
shall not be submitted by LIFE COMPANY to any such person
without the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii) LIFE COMPANY shall not with respect to any claim of the
IRS or any Participant that would give rise to a claim
against AVIF or its affiliates (a) compromise or settle any
claim, (b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which
shall not be unreasonably withheld, provided that LIFE
COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided
an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii)AVIF and its affiliates shall have no liability as a result
of such failure or alleged failure if LIFE COMPANY fails to
comply with any of the foregoing clauses (i) through (vii),
and such failure could be shown to have materially
contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability
hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its
affiliates to act in the name of LIFE COMPANY in, and to control the
conduct of, such conferences, discussions, proceedings, contests or appeals
and all administrative or judicial appeals thereof, and in that event AVIF
or its affiliates shall bear the fees and expenses associated with the
conduct of the proceedings that it is so authorized to control; provided,
that in no event shall LIFE COMPANY have any liability resulting from
AVIF's refusal to accept the proposed settlement or compromise with respect
to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined
in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts
currently are and will be treated as annuity contracts or life insurance
contracts under applicable provisions of the Code and that it will use its
best efforts to maintain such treatment; LIFE COMPANY will notify AVIF
immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated
in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue
to meet such definitional requirements, and it will notify AVIF immediately
upon having a reasonable basis for believing that such requirements have
ceased to be met or that they might not be met in the future.
4.2 Insurance and Certain Other Laws
(a) AVIF will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested
in writing by LIFE COMPANY, including, the furnishing of information not
otherwise available to LIFE COMPANY which is required by state insurance
law to enable LIFE COMPANY to obtain the authority needed to issue the
Contracts in any applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an
insurance company duly organized, validly existing and in good standing
under the laws of the State of Rhode Island and has full corporate power,
authority and legal right to execute, deliver and perform its duties and
comply with its obligations under this Agreement, (ii) it has legally and
validly established and maintains each Account as a segregated asset
account under Rhode Island Insurance Law and the regulations thereunder,
and (iii) the Contracts comply in all material respects with all other
applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to
execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
4.3 Securities Laws
(a) LIFE COMPANY represents and warrants that (i) interests in
each Account pursuant to the Contracts will be registered under the 1933
Act to the extent required by the 1933 Act, (ii) the Contracts will be duly
authorized for issuance and sold in compliance with all applicable federal
and state laws, including, without limitation, the 1933 Act, the 1934 Act,
the 1940 Act and Rhode Island law, (iii) each Account is and will remain
registered under the 1940 Act, to the extent required by the 1940 Act, (iv)
each Account does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, to the extent
required, (v) each Account's 1933 Act registration statement relating to
the Contracts, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and
the rules thereunder, (vi) LIFE COMPANY will amend the registration
statement for its Contracts under the 1933 Act and for its Accounts under
the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply
in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant
to this Agreement will be registered under the 1933 Act to the extent
required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) AVIF is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend
the registration statement for its Shares under the 1933 Act and itself
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares, (iv) AVIF does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, (v) AVIF's 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material respects with
the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other jurisdiction if and
to the extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a
majority of whom are not "interested" persons of the Fund, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities
having access to the funds and/or securities of the Fund are and continue
to be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than the minimal coverage
as required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) AVIF will immediately notify LIFE COMPANY of (i) the
issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to AVIF's registration
statement under the 1933 Act or AVIF Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or AVIF Prospectus
that may affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any
Fund in any state or jurisdiction, including, without limitation, any
circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an
underlying investment medium of the Contracts issued or to be issued by
LIFE COMPANY. AVIF will make every reasonable effort to prevent the
issuance, with respect to any Fund, of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the
issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to each Account's
registration statement under the 1933 Act relating to the Contracts or each
Account Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or Account Prospectus that may affect the offering
of Shares of AVIF, (iii) the initiation of any proceedings for that purpose
or for any other purpose relating to the registration or offering of each
Account's interests pursuant to the Contracts, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of said interests
in any state or jurisdiction, including, without limitation, any
circumstances in which said interests are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order
and, if any such order is issued, to obtain the lifting thereof at the
earliest possible time.
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at
least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction
solicitation material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to each
Account or the Contracts, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at
least five (5) Business Days prior to its use or such shorter period as the
Parties hereto may, from time to time, agree upon. No such material shall
be used if AVIF or its designated agent objects to such use within five (5)
Business Days after receipt of such material or such shorter period as the
Parties hereto may, from time to time, agree upon. AVIF hereby designates
AIM as the entity to receive such sales literature, until such time as AVIF
appoints another designated agent by giving notice to LIFE COMPANY in the
manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give
any information or make any representations or statements on behalf of or
concerning AVIF or its affiliates in connection with the sale of the
Contracts other than (i) the information or representations contained in
the registration statement, including the AVIF Prospectus contained
therein, relating to Shares, as such registration statement and AVIF
Prospectus may be amended from time to time; or (ii) in reports or proxy
materials for AVIF; or (iii) in published reports for AVIF that are in the
public domain and approved by AVIF for distribution; or (iv) in sales
literature or other promotional material approved by AVIF, except with the
express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that
is intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker
only materials") is so used, and neither AVIF nor any of its affiliates
shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media, (e.g., on-line networks such as the Internet or other
electronic messages), sales literature (i.e., any written communication
distributed or made generally available to customers or the public,
including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials
or other communications distributed or made generally available to some or
all agents or employees, registration statements, prospectuses, statements
of additional information, shareholder reports, and proxy materials and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.6 AVIF To Provide Documents; Information About LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete
copy of all SEC registration statements, AVIF Prospectuses, reports, any
preliminary and final proxy material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate
to AVIF or the Shares of a Fund, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY camera ready or computer
diskette copies of all AVIF prospectuses and printed copies, in an amount
specified by LIFE COMPANY, of AVIF statements of additional information,
proxy materials, periodic reports to shareholders and other materials
required by law to be sent to Participants who have allocated any Contract
value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely
manner so as to enable LIFE COMPANY, as the case may be, to print and
distribute such materials within the time required by law to be furnished
to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which LIFE COMPANY, or any of its respective
affiliates is named, or that refers to the Contracts, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if LIFE
COMPANY or its designated agent objects to such use within five (5)
Business Days after receipt of such material or such shorter period as the
Parties hereto may, from time to time, agree upon. LIFE COMPANY shall
receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section
9 hereof.
(d) Neither AVIF nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning LIFE COMPANY, each Account, or the Contracts other than (i) the
information or representations contained in the registration statement,
including each Account Prospectus contained therein, relating to the
Contracts, as such registration statement and Account Prospectus may be
amended from time to time; or (ii) in published reports for the Account or
the Contracts that are in the public domain and approved by LIFE COMPANY
for distribution; or (iii) in sales literature or other promotional
material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and
implement procedures reasonably designed to ensure that information
concerning LIFE COMPANY, and its respective affiliates that is intended for
use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials")
is so used, and neither LIFE COMPANY, nor any of its respective affiliates
shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media, (e.g., on-line networks such as the Internet or other
electronic messages), sales literature (i.e., any written communication
distributed or made generally available to customers or the public,
including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials
or other communications distributed or made generally available to some or
all agents or employees, registration statements, prospectuses, statements
of additional information, shareholder reports, and proxy materials and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
Section 5. Mixed and Shared Funding
5.1 General.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be
available for investment by certain other entities, including, without
limitation, separate accounts funding variable annuity contracts or
variable life insurance contracts, separate accounts of insurance companies
unaffiliated with LIFE COMPANY, and trustees of qualified pension and
retirement plans (collectively, "Mixed and Shared Funding"). The Parties
recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section
5. Sections 5.2 through 5.8 below shall apply pursuant to such an
exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that,
in the event that AVIF implements Mixed and Shared Funding, it may be
appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared
Funding.
5.2 Disinterested Directors
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not
interested persons of AVIF within the meaning of Section 2(a)(19) of the
1940 Act and the rules thereunder and as modified by any applicable orders
of the SEC, except that if this condition is not met by reason of the
death, disqualification, or bona fide resignation of any director, then the
operation of this condition shall be suspended (a) for a period of forty-
five (45) days if the vacancy or vacancies may be filled by the Board; (b)
for a period of sixty (60) days if a vote of shareholders is required to
fill the vacancy or vacancies; or (c) for such longer period as the SEC may
prescribe by order upon application.
5.3 Monitoring for Material Irreconcilable Conflicts
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing
AVIF ("Participating Insurance Companies"), including each Account, and
participants in all qualified retirement and pension plans investing in
AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of
Directors of AVIF of the existence of or any potential for any such
material irreconcilable conflict of which it is aware. The concept of a
"material irreconcilable conflict" is not defined by the 1940 Act or the
rules thereunder, but the Parties recognize that such a conflict may arise
for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax
or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by
Participants of different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will
assist the Board of Directors in carrying out its responsibilities by
providing the Board of Directors with all information reasonably necessary
for the Board of Directors to consider any issue raised, including
information as to a decision by LIFE COMPANY to disregard voting
instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of the Disinterested
Directors that a material irreconcilable conflict exists, LIFE COMPANY
will, if it is a Participating Insurance Company for which a material
irreconcilable conflict is relevant, at its own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not
limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets in
a different investment medium, including another Fund of
AVIF, or submitting the question whether such segregation
should be implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any particular
group (e.g., annuity Participants, life insurance
Participants or all Participants) that votes in favor of such
segregation, or offering to the affected Participants the
option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a
management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
LIFE COMPANY may be required, at AVIF's election, to withdraw each
Account's investment in AVIF or any Fund. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal must take
place within six (6) months after AVIF gives notice to LIFE COMPANY that
this provision is being implemented, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase
and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to LIFE COMPANY
conflicts with the majority of other state regulators, then LIFE COMPANY
will withdraw each Account's investment in AVIF within six (6) months after
AVIF's Board of Directors informs LIFE COMPANY that it has determined that
such decision has created a material irreconcilable conflict, and until
such withdrawal AVIF shall continue to accept and implement orders by LIFE
COMPANY for the purchase and redemption of Shares of AVIF. No charge or
penalty will be imposed as a result of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any
of its affiliates be required to establish a new funding medium for any
Contracts. LIFE COMPANY will not be required by the terms hereof to
establish a new funding medium for any Contracts if an offer to do so has
been declined by vote of a majority of Participants materially adversely
affected by the material irreconcilable conflict.
5.5 Notice to LIFE COMPANY
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and
the implications of such conflict.
5.6 Information Requested by Board of Directors
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials
or data as the Board of Directors may reasonably request so that the Board
of Directors may fully carry out the obligations imposed upon it by the
provisions hereof or any exemptive order granted by the SEC to permit
Mixed and Shared Funding, and said reports, materials and data will be
submitted at any reasonable time deemed appropriate by the Board of
Directors. All reports received by the Board of Directors of potential or
existing conflicts, and all Board of Directors actions with regard to
determining the existence of a conflict, notifying Participating Insurance
Companies and Participating Plans of a conflict, and determining whether
any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate
records, and such minutes or other records will be made available to the
SEC upon request.
5.7 Compliance with SEC Rules
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to Mixed and Shared Funding, AVIF agrees that it will
comply with the terms and conditions thereof and that the terms of this
Section 5 shall be deemed modified if and only to the extent required in
order also to comply with the terms and conditions of such exemptive relief
that is afforded by any of said rules that are applicable.
5.8 Other Requirements
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in
substance the same provisions as are set forth in Sections 4.1(b), 4.1(d),
4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement.
Section 6. Termination
6.1 Events of Termination
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the other
parties, or, if later, upon receipt of any required exemptive relief from
the SEC, unless otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding LIFE COMPANY's
obligations under this Agreement or related to the sale of the Contracts,
the operation of each Account, or the purchase of Shares, if, in each case,
AVIF reasonably determines that such proceedings, or the facts on which
such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Fund with respect to which the
Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment
adviser by the NASD, the SEC, or any state insurance regulator or any other
regulatory body regarding AVIF's obligations under this Agreement or
related to the operation or management of AVIF or the purchase of AVIF
Shares, if, in each case, LIFE COMPANY reasonably determines that such
proceedings, or the facts on which such proceedings would be based, have a
material likelihood of imposing material adverse consequences on LIFE
COMPANY, or the Subaccount corresponding to the Fund with respect to which
the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects, issued and sold in
accordance with any applicable federal or state law, or (ii) such law
precludes the use of such Shares as an underlying investment medium of the
Contracts issued or to be issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as
a RIC under Subchapter M of the Code or under successor or similar
provisions, or if LIFE COMPANY reasonably believes that the Fund may fail
to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY
cease to qualify as annuity contracts or life insurance contracts under the
Code (other than by reason of the Fund's noncompliance with Section 817(h)
or Subchapter M of the Code) or if interests in an Account under the
Contracts are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal
or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 Notice Requirement for Termination
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the
other Party to this Agreement of its intent to terminate, and such notice
shall set forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be
given at least six (6) months in advance of the effective date of
termination unless a shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be
given at least ninety (90) days in advance of the effective date of
termination unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior
written notice shall be given as soon as possible within twenty-four (24)
hours after the terminating Party learns of the event causing termination
to be required.
6.3 Funds To Remain Available
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Fund (as in effect on such date), redeem
investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties
agree that this Section 6.3 will not apply to any terminations under
Section 5 and the effect of such terminations will be governed by Section 5
of this Agreement.
6.4 Survival of Warranties and Indemnifications
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 Continuance of Agreement for Certain Purposes
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i) hereof, this Agreement shall nevertheless continue in effect as to
any Shares of that Fund that are outstanding as of the date of such
termination (the "Initial Termination Date"). This continuation shall
extend to the earlier of the date as of which an Account owns no Shares of
the affected Fund or a date (the "Final Termination Date") six (6) months
following the Initial Termination Date, except that LIFE COMPANY may, by
written notice shorten said six (6) month period in the case of a
termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i).
Section 7. Parties To Cooperate Respecting Termination
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the
purpose of ensuring that an Account owns no Shares of a Fund after the
Final Termination Date with respect thereto, or, in the case of a
termination pursuant to Section 6.1(a), the termination date specified in
the notice of termination. Such steps may include combining the affected
Account with another Account, substituting other mutual fund shares for
those of the affected Fund, or otherwise terminating participation by the
Contracts in such Fund.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
Section 9. Notices
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will
be given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in
writing:
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
Keyport Life Insurance Company
Keyport Financial Corp.
125 High Street
Boston, MA 02110
Facsimile: (617) 526-1618
Attn: Bernard R. Beckerlegge, Esq.
General Counsel
James J. Klopper, Clerk
Section 10. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF
to Participants to whom pass-through voting privileges are required to be
extended and will solicit voting instructions from Participants. LIFE
COMPANY will vote Shares in accordance with timely instructions received
from Participants. LIFE COMPANY will vote Shares that are (a) not
attributable to Participants to whom pass-through voting privileges are
extended, or (b) attributable to Participants, but for which no timely
instructions have been received, in the same proportion as Shares for which
said instructions have been received from Participants, so long as and to
the extent that the SEC continues to interpret the 1940 Act to require pass
through voting privileges for Participants. Neither LIFE COMPANY nor any
of its affiliates will in any way recommend action in connection with or
oppose or interfere with the solicitation of proxies for the Shares held
for such Participants. LIFE COMPANY reserves the right to vote shares held
in any Account in its own right, to the extent permitted by law. LIFE
COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of
other Participating Insurance Companies or in the manner required by the
Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will
notify LIFE COMPANY of any changes of interpretations or amendments to
Mixed and Shared Funding exemptive order it has obtained. AVIF will comply
with all provisions of the 1940 Act requiring voting by shareholders, and
in particular, AVIF either will provide for annual meetings (except insofar
as the SEC may interpret Section 16 of the 1940 Act not to require such
meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF
is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will
act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with
whatever rules the SEC may promulgate with respect thereto.
Section 11. Foreign Tax Credits
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to
pass through the benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless
AVIF, its affiliates, and each person, if any, who controls AVIF or its
affiliates within the meaning of Section 15 of the 1933 Act and each of
their respective directors and officers, (collectively, the "Indemnified
Parties" for purposes of this Section 12.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of LIFE COMPANY and UNDERWRITER) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise; provided, the Account owns shares
of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided, that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY or UNDERWRITER by or on
behalf of AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY, UNDERWRITER
or their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or
fraudulent conduct of LIFE COMPANY, UNDERWRITER or their
respective affiliates or persons under their control
(including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph
(m) of Article I of the NASD's By-Laws), in connection with
the sale or distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon and in conformity with information furnished to
AVIF or its affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in AVIF's
1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement, or any material breach of any representation
and/or warranty made by LIFE COMPANY or UNDERWRITER in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h)
of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under
this Section 12.1 with respect to any losses, claims, damages, liabilities
or actions to which an Indemnified Party would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance by that Indemnified Party of its duties or by reason of that
Indemnified Party's reckless disregard of obligations or duties (i) under
this Agreement, or (ii) to AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under
this Section 12.1 with respect to any action against an Indemnified Party
unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the action shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify LIFE
COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY
and UNDERWRITER from any liability which they may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
Section 12.1. Except as otherwise provided herein, in case any such action
is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall
be entitled to participate, at their own expense, in the defense of such
action and also shall be entitled to assume the defense thereof, with
counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party
will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the
fees and expenses of any additional counsel retained by it, and neither
LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense
thereof, other than reasonable costs of investigation.
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who
controls LIFE COMPANY, UNDERWRITER or their respective affiliates within
the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of AVIF) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law, or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement,
any Account Prospectus, sales literature or advertising for
the Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AVIF or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF or its affiliates or persons under its
control (including, without limitation, their employees and
"Associated Persons" as that term is defined in Section (n)
of Article I of the NASD By-Laws), in connection with the
sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY,
UNDERWRITER or their respective affiliates by or on behalf of
AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any
other material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become
subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund
to operate as a regulated investment company in compliance with (i)
Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h)
of the Code and regulations thereunder, including, without limitation, any
income taxes and related penalties, rescission charges, liability under
state law to Participants asserting liability against LIFE COMPANY pursuant
to the Contracts, the costs of any ruling and closing agreement or other
settlement with the IRS, and the cost of any substitution by LIFE COMPANY
of Shares of another investment company or portfolio for those of any
adversely affected Fund as a funding medium for each Account that LIFE
COMPANY reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect
to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement,
or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect
to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF in writing within a reasonable time after the
summons or other first legal process giving information of the nature of
the action shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify AVIF of any such action shall not
relieve AVIF from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Section 12.2. Except as otherwise provided herein, in case any such action
is brought against an Indemnified Party, AVIF will be entitled to
participate, at its own expense, in the defense of such action and also
shall be entitled to assume the defense thereof (which shall include,
without limitation, the conduct of any ruling request and closing agreement
or other settlement proceeding with the IRS), with counsel approved by the
Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any
additional counsel retained by it, and AVIF will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof, other than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including, without limitation, LIFE COMPANY, UNDERWRITER or any other
Participating Insurance Company or any Participant, with respect to any
losses, claims, damages, liabilities or expenses that arise out of or
result from (i) a breach of any representation, warranty, and/or covenant
made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by LIFE COMPANY
or any Participating Insurance Company to maintain its segregated asset
account (which invests in any Fund) as a legally and validly established
segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any
Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or
control of any action by the indemnifying Party will in no event be deemed
to be an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
12.4 Successors.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby.
Section 16. Rights Cumulative
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, that the Parties are entitled to under
federal and state laws.
Section 17. Headings
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
Section 18. Confidentiality
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY Protected
Parties" for purposes of this Section 18), information maintained regarding
those customers, and all computer programs and procedures or other
information developed by the LIFE COMPANY Protected Parties or any of their
employees or agents in connection with LIFE COMPANY's performance of its
duties under this Agreement are the valuable property of the LIFE COMPANY
Protected Parties. AVIF agrees that if it comes into possession of any
list or compilation of the identities of or other information about the
LIFE COMPANY Protected Parties' customers, or any other information or
property of the LIFE COMPANY Protected Parties, other than such information
as may be independently developed or compiled by AVIF from information
supplied to it by the LIFE COMPANY Protected Parties' customers who also
maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing
any of such information or other property except: (a) with LIFE COMPANY's
prior written consent; or (b) as required by law or judicial process. LIFE
COMPANY acknowledges that the identities of the customers of AVIF or any of
its affiliates (collectively, the "AVIF Protected Parties" for purposes of
this Section 18), information maintained regarding those customers, and all
computer programs and procedures or other information developed by the AVIF
Protected Parties or any of their employees or agents in connection with
AVIF's performance of its duties under this Agreement are the valuable
property of the AVIF Protected Parties. LIFE COMPANY agrees that if it
comes into possession of any list or compilation of the identities of or
other information about the AVIF Protected Parties' customers or any other
information or property of the AVIF Protected Parties, other than such
information as may be independently developed or compiled by LIFE COMPANY
from information supplied to it by the AVIF Protected Parties' customers
who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will
hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with AVIF's prior written consent; or (b) as required by law or
judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable
harm to the other parties for which there would be no adequate remedy at
law and agree that in the event of such a breach, the other parties will be
entitled to equitable relief by way of temporary and permanent injunctions,
as well as such other relief as any court of competent jurisdiction deems
appropriate.
Section 19. Trademarks and Fund Names
(a) A I M Management Group Inc. ("AIM" or "licensor"), an
affiliate of AVIF, owns all right, title and interest in and to the name,
trademark and service mark "AIM" and such other tradenames, trademarks and
service marks as may be set forth on Schedule B, as amended from time to
time by written notice from AIM to LIFE COMPANY (the "AIM licensed marks"
or the "licensor's licensed marks") and is authorized to use and to license
other persons to use such marks. LIFE COMPANY and its affiliates are
hereby granted a non-exclusive license to use the AIM licensed marks in
connection with LIFE COMPANY's performance of the services contemplated
under this Agreement, subject to the terms and conditions set forth in this
Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this
Agreement. Upon automatic termination, the licensee shall cease to use the
licensor's licensed marks, except that LIFE COMPANY shall have the right to
continue to service any outstanding Contracts bearing any of the AIM
licensed marks. Upon AIM's elective termination of this license, LIFE
COMPANY and its affiliates shall immediately cease to issue any new annuity
or life insurance contracts bearing any of the AIM licensed marks and shall
likewise cease any activity which suggests that it has any right under any
of the AIM licensed marks or that it has any association with AIM, except
that LIFE COMPANY shall have the right to continue to service outstanding
Contracts bearing any of the AIM licensed marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing
the licensor's licensed marks. The licensor's approvals shall not be
unreasonably withheld.
(d) During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any of the
licensor's licensed marks which were previously approved by the licensor
but, due to changed circumstances, the licensor may wish to reconsider.
If, on reconsideration, or on initial review, respectively, any such
samples fail to meet with the written approval of the licensor, then the
licensee shall immediately cease distributing such disapproved materials.
The licensor's approval shall not be unreasonably withheld, and the
licensor, when requesting reconsideration of a prior approval, shall assume
the reasonable expenses of withdrawing and replacing such disapproved
materials. The licensee shall obtain the prior written approval of the
licensor for the use of any new materials developed to replace the
disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that,
to the best of the knowledge of the licensee, the licensor's licensed marks
are valid and enforceable trademarks and/or service marks and that such
licensee does not own the licensor's licensed marks and claims no rights
therein other than as a licensee under this Agreement; (ii) agrees never to
contend otherwise in legal proceedings or in other circumstances; and (iii)
acknowledges and agrees that the use of the licensor's licensed marks
pursuant to this grant of license shall inure to the benefit of the
licensor.
Section 20. Parties to Cooperate
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation,
the SEC, the NASD and state insurance regulators) and will permit each
other and such authorities reasonable access to its books and records
(including copies thereof) in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/Nancy L. Martin By: /s/Robert H. Graham
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
KEYPORT LIFE INSURANCE COMPANY, on
behalf of itself and its separate
accounts
Attest: /s/James J. Klopper By: /s/Jacob M. Herschler
Name: James J. Klopper Name: Jacob M. Herschler
Title: Secretary Title: Vice President
KEYPORT FINANCIAL SERVICES CORP.
Attest: /s/Donald A. Truman By: /s/James J. Klopper
Name: Donald A. Truman Name: James J. Klopper
Title: Assistant Clerk Title: Clerk
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. International Equity Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Variable Account A
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
DVA
SCHEDULE B
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Fund
AIM and Design
EXHIBIT (8h)
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
AMONG
KEYPORT FINANCIAL SERVICES CORP.,
KEYPORT LIFE INSURANCE COMPANY,
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
and
STEINROE VARIABLE INVESTMENT TRUST
This Agreement, made and entered into as of this 3rd day of April,
1998 by and among Keyport Life Insurance Company and Liberty Life Assurance
Company of Boston (the "Companies"), on their own behalf and on behalf of
their Separate Accounts, each of which is a segregated asset account of one
of the Companies, SteinRoe Variable Investment Trust (the "Trust"), and
Keyport Financial Services Corp. ("KFSC").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares (such series being hereinafter referred to individually as
a "Series" or collectively as the "Series"); and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance
separate accounts exemptions from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the Investment Company Act of 1940, as amended (the
"1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, Stein Roe & Farnham Incorporated. ("Stein Roe") is duly
registered as an investment adviser under the Advisers Act and applicable
state securities laws; and provides certain administrative services; and
WHEREAS, Liberty Investment Services, Inc. ("LIS") serves as transfer
agent to the Trust; and
WHEREAS, the Companies have registered or will register certain
Variable Insurance Products under the 1933 Act; and
WHEREAS, the Companies have established duly organized, validly
existing segregated asset accounts (the "Separate Accounts") by resolution
of the Board of Directors of the Companies; and
WHEREAS, the Companies have registered or will register certain
Separate Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Companies rely on certain provisions of the 1940 and 1933
Acts that exempt certain Separate Accounts and Variable Insurance Products
from the registration requirements of the Acts in connection with the sale
of Variable Insurance Products under certain tax-advantaged retirement
programs, described in Article II., Section 2.12. and as provided for by
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, KFSC is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Companies intend to purchase shares of the Trust on behalf
of each Separate Account to fund certain Variable Insurance Products and
KFSC is authorized to sell such shares to unit investment trusts such as
each Separate Account at net asset value; and
WHEREAS, this Agreement is being amended and restated hereby in order
to effect certain technical corrections to this Agreement from the form
hereof as originally executed and delivered, such amendment and restatement
to be effective nunc pro tunc as of the date first written above.
NOW, THEREFORE, in consideration of their mutual promises, the
Companies, the Trust and KFSC agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. KFSC will sell to the Companies those shares of the Trust which
each Separate Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Separate Accounts of
purchase payments or for the business day on which transactions under
Variable Insurance Products are effected by the Separate Accounts. For
purposes of this Section 1.1., LIS shall be the designee of the Trust for
receipt of such orders from each Separate Account and receipt by such
designee shall constitute receipt by the Trust. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading and any
other day on which the Trust calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Trust will make its shares available indefinitely for
purchase at the applicable net asset value per share by the Companies and
their Separate Accounts on those days on which the Trust calculates its net
asset value pursuant to rules of the SEC and the Trust shall use reasonable
efforts to calculate such net asset value on each Business Day.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Trustees") may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Series.
1.3. The Trust and KFSC agree that shares of the Trust will be sold
only to Participating Insurance Companies and their Separate Accounts. No
shares of any Series will be sold to the general public.
1.4. The Trust and KFSC will not sell Trust shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles I., III., V., VII. and Sections 2.5. and
2.12. of Article II. of this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Companies' request, any
full or fractional shares of the Trust held by the Companies, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Separate Accounts of redemption requests or for the Business
Day on which transactions under Variable Insurance Products are effected by
the Separate Accounts. For purposes of this Section 1.5., Stein Roe shall
be the designee of the Trust for receipt of requests for redemption for
each Separate Account.
Subject to the applicable rules and regulations, if any, of the SEC,
the Trust may pay the redemption price for shares of any Series in whole or
in part by a distribution in kind of securities from the portfolio of the
Trust allocated to such Series in lieu of money, valuing such securities at
their value employed for determining net asset value governing such
redemption price, and selecting such securities in a manner the Trustees
may determine in good faith to be fair and equitable.
1.6. The Trust may suspend the redemption of any full or fractional
shares of the Trust (1) for any period (a) during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings) or
(b) during which trading on the New York Stock Exchange is restricted; (2)
for any period during which an emergency exists as a result of which (a)
disposal by the Trust of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or (3) for such other periods as the
SEC may by order permit for the protection of shareholders of the Trust.
1.7. The Companies will purchase and redeem the shares of each Series
offered by the then current prospectus of the Trust and in accordance with
the provisions of such prospectus and statement of additional information
(the "SAI") (collectively referred to as "Prospectus," unless otherwise
provided). The Companies agree that all net amounts available under the
Variable Insurance Products with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as
such Schedule A may be amended from time to time hereafter by mutual
written agreement of all the parties hereto (the "Contracts"), shall be
invested in the Trust, in such other trusts advised by Stein Roe as may be
mutually agreed to in writing by the parties hereto, or in the Companies'
general accounts, provided that such amounts may also be invested in an
investment company other than the Trust if (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of each
of the Series of the Trust; or (b) one or both of the Companies give the
Trust and KFSC forty-five (45) days written notice of its or their
intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and one or both of the Companies so inform the Trust and KFSC
prior to their signing this Agreement; or (d) the Trust or KFSC consents to
the use of such other investment company.
1.8. The Companies shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1. hereof. Payment shall be in federal funds
transmitted by wire, or may otherwise be provided by separate agreement.
1.9. Issuance and transfer of the Trusts' shares will be by book entry
only. Stock certificates will not be issued to either the Companies or the
Separate Accounts. Shares ordered from the Trust will be recorded in an
appropriate title for each Separate Account or the appropriate subaccount
of each Separate Account.
1.10. The Trust, through its designee LIS, shall furnish same day
notice (by wire or telephone, followed by written confirmation) to the
Companies of any income dividends or capital gain distributions payable on
the shares of any Series. The Companies hereby elect to receive all such
income, dividends and capital gain distributions as are payable on the
shares of each Series in additional shares of that Series. The Companies
reserve the right to revoke this election and to receive all such income,
dividends and capital gain distributions in cash. The Trust shall notify
the Companies through its designee, LIS, of the number of shares so issued
as payment of such income, dividends and distributions.
1.11. The Trust shall make the net asset value per share for each
Series available to the Companies on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use
its best efforts to make such net asset value per share available by 7
p.m., Boston time.
ARTICLE II. Representations and Warranties
2.1. The Companies represent and warrant that the Contracts are or
will be registered under the 1933 Act to the extent required by the 1933
Act; that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state
insurance suitability requirements. The Companies further represent and
warrant that they are insurance companies duly organized and in good
standing under applicable law and that prior to any issuance or sale of any
Contract they have legally and validly established each Separate Account as
a segregated asset account under the applicable state insurance laws and
have registered or, prior to any issuance or sale of the Contracts, will
register each Separate Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment
account for the Contracts, to the extent required by the 1940 Act.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act to the extent
required by the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the Commonwealth of Massachusetts and all
applicable federal and any state securities laws and that the Trust is and
shall remain registered under the 1940 Act to the extent required by the
1940 Act. The Trust shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order
to effect the continuous offering of its shares. The Trust shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or KFSC.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will make
every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Companies
immediately upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
2.4. The Companies represent that the Contracts are currently treated
as endowment, annuity or life insurance contracts under applicable
provisions of the Code and that they will make every effort to maintain
such treatment and that they will notify the Trust and KFSC immediately
upon having a reasonable basis for believing that the Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future consistent with
applicable law. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Trust undertakes to have its Trustees,
a majority of whom are not interested persons of the Trust, formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Trust represents that it is currently in compliance
and shall at all times remain in compliance with the applicable insurance
laws of the domiciliary states of the Participating Insurance Companies to
the extent that the Participating Insurance Company advises the Trust, in
writing, of such laws or any changes in such laws.
2.7. KFSC represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the SEC. KFSC
further represents that it will sell and distribute the Trust shares in
accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material aspects with the 1940 Act.
2.9. The Trust represents and warrants that STEIN ROE is and shall
remain duly registered as an investment adviser in all material aspects
under all applicable federal and state securities laws and that STEIN ROE
shall perform its obligations for the Trust in compliance in all material
respects with the applicable laws of the Commonwealth of Massachusetts and
any applicable state and federal securities laws.
2.10. The Trust represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a joint fidelity bond in an amount not less than
three million seven hundred fifty thousand dollars ($3,750,000) with no
deductible amount. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable fidelity insurance
company.
2.11. The Companies represent and warrant that all of their directors,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Trust, in an amount not less than ten million dollars
($10,000,000) with no deductible amount. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
fidelity insurance company.
2.12. The Companies represent and warrant that they will not, without
the prior written consent of KFSC, purchase Trust shares with Separate
Account assets derived from the sale of Contracts to individuals or
entities which qualify under current or future state or federal law for any
type of tax advantage (whether by a reduction or deferral of, deduction or
exemption from, or credit against income or otherwise). Examples of such
types of funds under current law include: any tax-advantaged retirement
program, whether maintained by an individual, employer, employee
association or otherwise (including, without limitation, retirement
programs which qualify under Sections 401(a), 401(k), 403(a), 403(b), 408
and 457 of the Code), and any retirement programs maintained for employees
of the Government of the United States or by the government of any state or
political subdivision thereof, or by any agency or instrumentality of any
of the foregoing.
2.13. The Companies represent and warrant that they will not transfer
or otherwise convey shares of the Trust, without the prior written consent
of KFSC.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. KFSC shall provide the Companies with as many copies of the
Trust's current prospectus, excluding the SAI, as the Companies may
reasonably request in connection with delivery of the prospectus, excluding
the SAI, to shareholders and purchasers of Variable Insurance Products. If
requested by the Companies in lieu thereof, the Trust shall provide such
documentation (including a final copy of the new prospectus, excluding the
SAI, as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the Companies once each year (or more
frequently if the prospectus for the Trust is amended) to have the
prospectus for the Contracts and the Trust's prospectus, excluding the SAI,
printed together in one document (such printing to be at the Companies'
expense).
3.2. The Trust's prospectus shall state that the SAI for the Trust is
available from KFSC and the Trust, at its expense, shall provide final copy
of such SAI to KFSC for duplication and provision to any prospective owner
who requests the SAI and to any owner of a Variable Insurance Product
("Owners").
3.3. The Trust, at its expense, shall provide the Companies with
copies of its proxy material, reports to shareholders and other
communications to shareholders in such quantity as the Companies shall
reasonably require for distribution to Owners.
3.4. If and to the extent required by law, the Companies and, so long
as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received
from Owners; and
(iii) vote Trust shares for which no instructions have been received
in
the same proportion as Trust shares of such Series for which
instructions have been received;
The Companies reserve the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their Separate Accounts participating in the Trust calculates
voting privileges in a manner consistent with the standards to be provided
in writing to the Participating Insurance Companies.
3.5. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders. The Trust reserves the right to take all
actions, including but not limited to, the dissolution, merger, and sale of
all assets of the Trust upon the sole authorization of its Trustees, to the
extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
ARTICLE IV. Sales Material and Information
4.1. The Companies shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust or STEIN ROE, or any sub-adviser
("Sub-Adviser"), or KFSC is named, at least fifteen (15) days prior to its
use. No such material shall be used if the Trust or its designee object to
such use within fifteen (15) days after receipt of such material.
4.2. The Companies shall not give any information or make any
representations or statements on behalf of the Trust or concerning the
Trust in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
Prospectus for the Trust shares, as such registration statement and
Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Trust, or in sales literature or other
promotional material approved by the Trust or its designee or by KFSC,
except with the permission of the Trust or KFSC or the designee of either.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Companies or their designees, each piece of sales
literature or other promotional material in which the Companies and/or
their Separate Account(s), are named at least fifteen (15) days prior to
its use. No such material shall be used if the Companies or their designee
object to such use within fifteen (15) days after receipt of such material.
4.4. The Trust and KFSC shall not give any information or make any
representations or statements on behalf of the Companies or concerning the
Companies, any Separate Account, or the Variable Insurance Products other
than the information or representations contained in a registration
statement or prospectus for such Variable Insurance Products, as such
registration statement and prospectus may be amended or supplemented from
time to time, or in published reports for such Separate Account which are
in the public domain or approved by the Company for distribution to Owners,
or in sales literature or other promotional material approved by the
Companies or their designee, except with the permission of the Companies.
4.5. The Trust will provide to the Companies at least one complete
copy of all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and other promotional materials, applications
for exemption, requests for no-action letters, and all amendments to any of
the above, that relate to the Trust or its shares, contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
4.6. The Companies will provide to the Trust at least one complete
copy of all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions, sales literature and other
promotional materials, applications for exemption, requests for no-action
letters, and all amendments to any of the above, that relate to the
Variable Insurance Products or any Separate Account, contemporaneously with
the filing of such document with the SEC.
4.7. For purposes of this Article IV., the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Trust and KFSC shall pay no fee or other compensation to the
Companies under this Agreement, except that if the Trust or any Series
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then KFSC may make payments to the Companies or to the
underwriter for the Variable Insurance Products if and in amounts agreed to
by KFSC in writing and such payments will be made out of existing fees
payable to KFSC by the Trust for this purpose. No such payments shall be
made directly by the Trust. Currently, no such plan pursuant to Rule 12b-1
or payments are contemplated.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all
its shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Trust, in accordance with applicable state laws prior to their sale. The
Trust shall bear the expenses of registration and qualification of the
Trust's shares, preparation and filing of the Trust's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required
by any federal or state law, and all taxes on the issuance or transfer of
the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
proxy materials and reports to Owners.
ARTICLE VI. Diversification
6.1. The Trust will at all times invest money from the Variable
Insurance Products in such a manner as to ensure that, insofar as such
investment is required to assure such treatment, the Variable Insurance
Products will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope of the
foregoing, the Trust will at all times comply with Section 817(h) of the
Code and the Treasury Regulations thereunder relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulations.
ARTICLE VII. Potential Conflicts
7.1. The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Owners of
separate accounts of the Companies investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a)
an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Series
are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance policy owners; or (f)
a decision by an insurer to disregard the voting instructions of Owners.
The Trustees shall promptly inform the Companies if they determine that a
material irreconcilable conflict exists and the implications thereof.
7.2. The Companies will report any potential or existing conflicts
(including the occurrence of any event specified in paragraph 7.1. which
may give rise to such a conflict) of which they are aware to the Trustees.
The Companies will assist the Trustees in carrying out their
responsibilities under the Shared Funding Exemptive Order, by providing the
Trustees with all information reasonably necessary for the Trustees to
consider any issues raised. This includes, but is not limited to, an
obligation by the Companies to inform the Trustees whenever Owner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Trustees, or a majority
of its disinterested Trustees, that a material irreconcilable conflict
exists, the Companies and other Participating Insurance Companies shall, at
their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary
to remedy or eliminate the material irreconcilable conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the
separate accounts of Participating Insurance Companies from the Trust or
any Series and reinvesting such assets in a different investment medium,
including (but not limited to) another Series of the Trust, or submitting
the question whether such segregation should be implemented to a vote of
all affected Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Owners the option of making such a change; (2), establishing a new
registered management investment company or managed separate account; and
(3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a
decision by one or both of the Companies to disregard Owner voting
instructions and that decision represents a minority position or would
preclude a majority vote, one or both of the Companies may be required, at
the Trust's election, to withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement; provided, however
that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by
a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented, and until the end
of that six (6) month period KFSC and Trust shall continue to accept and
implement orders by one or both of the Companies for the purchase (and
redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to one or both of the
Companies conflicts with the majority of other state regulators, then one
or both of the Companies will withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement within six (6) months
after the Trustees inform one or both of the Companies in writing that they
have determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until
the end of the foregoing six (6) month period, KFSC and Trust shall
continue to accept and implement orders by one or both of the Companies for
the purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
event will the Trust be required to establish a new funding medium for the
Variable Insurance Products. One or both of the Companies shall not be
required by Section 7.3. to establish a new funding medium for the Variable
Insurance Products if an offer to do so has been declined by vote of a
majority of Owners materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then one or both of the Companies will withdraw the affected
Separate Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform one or both of the
Companies in writing of the foregoing determination, provided, however,
that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) or terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Trust and/or the Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4., 3.5., 7.1., 7.2., 7.3., 7.4.,
and 7.5. of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained
in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Companies
8.1.(a). The Companies will indemnify and hold harmless the Trust and
each of its Trustees and Officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1.) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of one or both of the Companies) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Variable Insurance
Products or contained in the sales literature for the Variable
Insurance Products (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished in writing to one or
both
of the Companies by or on behalf of the Trust for use in the
registration statement or prospectus for the Variable Insurance
Products or in the Variable Insurance Products or sales
literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Insurance Products or
Trust shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, Prospectus or sales literature of the
Trust not supplied by one or both of the Companies, or persons
under their control) or wrongful conduct of one or both of the
Companies or persons under their control, with respect to the
sale
or distribution of the Variable Insurance Products or Trust
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a
material fact contained in a registration statement, Prospectus,
or sales literature of the Trust or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary
to make the statements therein not misleading if such a statement
or omission was made in reliance upon information furnished in
writing to the Trust by or on behalf of one or both of the
Companies; or
(iv) arise out of or result from any failure by one or both of the
Companies to provide the services and furnish the materials
contemplated by this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by one or both of the
Companies in this Agreement or arise out of or result from any
other material breach of this Agreement by one or both of the
Companies.
8.1.(b). The Companies shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Trust, whichever is applicable.
8.1.(c). The Companies shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Companies in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Companies of any such claim shall not relieve the Companies from any
liability which they may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Companies shall be entitled to participate, at their own
expense, in the defense of such action. The Companies also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from one or both of the Companies
to such party of the election of one or both of the Companies to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Companies will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.1.(d). The Indemnified Parties will promptly notify the Companies of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts
or the operation of the Trust.
8.2. Indemnification By the Trust
8.2.(a). The Trust will indemnify and hold harmless the Companies, and
each of their directors and officers and each person, if any, who controls
the Companies within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2.)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Trust) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, regulation at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Trustees or any member
thereof, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI. of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement
or arise out of or result from any other material breach of this
Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.2.(b).
and 8.2.(c). hereof.
8.2.(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise by subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Companies, the Trust, KFSC or each
Separate Account, whichever is applicable.
8.2.(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trustees will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable cases of investigations.
8.2.(d). The Companies and KFSC agree promptly to notify the Trust of
the commencement of any litigation or proceedings against them or any of
their respective officers or directors in connection with this Agreement,
the issuance or sale of the Contracts, with respect to the operation of
either Account, or the sale or acquisition of shares of the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts provided, however, that if such laws or any of the provisions
of this Agreement conflict with applicable provisions of the 1940 Act, the
latter shall control.
9.2. This Agreement shall be made subject to the provisions of the
1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one (1) year advance written
notice to the other parties; provided, however such notice shall not be
given earlier than one (1) year following the date of this Agreement; or
(b) at the option of one or both of the Companies to the extent that
shares of Series are not reasonably available to meet the requirements of
the Variable Insurance Products as determined by one or both of the
Companies, provided however, that such termination shall apply only to the
Series not reasonably available. Prompt notice of the election to
terminate for such cause shall be furnished by one or both of the
Companies; or
(c) at the option of the Trust in the event that formal administrative
proceedings are instituted against one or both of the Companies or KFSC by
the NASD, the SEC, the Insurance Commissioner or any other regulatory body
regarding the duties of one or both of the Companies under this Agreement
or related to the sale of the Variable Insurance Products, with respect to
the operation of a Separate Account, or the purchase of the Trust shares,
provided, however, that the Trust determines in its sole judgement
exercised in good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of one or both of the Companies
to perform their obligations under this Agreement or of KFSC to perform its
obligations under its underwriting agreement with the Trust; or
(d) at the option of one or both of the Companies in the event that
formal administrative proceedings are instituted against the Trust by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, provided, however, that one or both of the Companies
determine in their sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the
ability of the Trust to perform its obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the
Variable Insurance Products for which those Series shares had been selected
to serve as the underlying investment media. The Companies will give
thirty (30) days' prior written notice to the Trust of the date of any
proposed action to replace the Trust shares; or
(f) at the option of one or both of the Companies, in the event any of
the Trust's shares are not registered, issued or sold in accordance with
applicable federal and any state law or such law precludes the use of such
shares as the underlying investment media of the Variable Insurance
Products issued or to be issued by the Companies; or
(g) at the option of one or both of the Companies, if the Trust ceases
to qualify as a Regulated Investment Company under Subchapter M of the Code
or under any successor or similar provision, or if one or both of the
Companies reasonably believes that the Trust may fail to so qualify; or
(h) at the option of one or both of the Companies, if the Trust fails
to meet the diversification requirements specified in Article VI. hereof;
or
(i) at the option of either the Trust or KFSC, if (1) the Trust or
KFSC, respectively, shall determine, in their sole judgement reasonably
exercised in good faith, that one or both of the Companies has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse publicity
will have a material adverse impact upon the business and operations of
either the Trust or KFSC, (2) the Trust or KFSC shall notify one or both of
the Companies in writing of such determination and its intent to terminate
this Agreement, and (3) after considering the actions taken by one or both
of the Companies and any other changes in circumstances since the giving of
such notice, such determination of the Trust or KFSC shall continue to
apply on the sixtieth (60th) day following the giving of such notice, which
sixtieth (60th) day shall be the effective date of termination; or
(j) at the option of one or both of the Companies, if (1) one or both
of the Companies shall determine, in its sole judgment reasonably exercised
in good faith, that either the Trust or KFSC has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse publicity will have a
material adverse impact upon the business and operations of one or both of
the Companies, (2) one or both of the Companies shall notify the Trust and
KFSC in writing of such determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the Trust and/or
KFSC and any other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the sixtieth (60th)
day following the giving of such notice, which sixtieth (60th) day shall be
the effective date of termination; or
(k) at the option of either the Trust or KFSC, if one or both of the
Companies gives the Trust and KFSC the written notice specified in Section
10.3.(a). hereof and at the time such notice was given there was no notice
of termination outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1.(k). shall be
effective forty-five (45) days after the notice specified in 10.3.(a). was
given.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1.(a). may be exercised
for any reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate which notice shall set forth the basis for such termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII., or the provision of Section 10.1.(a)., 10.1.(i)., 10.1.(j).
or 10.1.(k). of this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c). or 10.1.(d). of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust and KFSC shall at the option of one or both of the
Companies, continue to make available additional shares of the Trust
pursuant to the terms and conditions of this Agreement, for all Variable
Insurance Products in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Products"). Specifically,
without limitation, the Owners of the Existing Products shall be permitted
to reallocate investments in the Trust, redeem investments in the Trust
and/or invest in the Trust upon the making of additional purchase payments
under the Existing Products. The parties agree that this Section 10.4.
shall not apply to any terminations under Article VII. and the effect of
such Article VII. terminations shall be governed by Article VII. of this
Agreement.
10.5. The Companies shall not redeem Trust shares attributable to the
Variable Insurance Products (as opposed to Trust shares attributable to the
Companies' assets held in a Separate Account) except (i) as necessary to
implement Owner initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (hereinafter referred to as a "Legally Required Redemption").
Upon request, the Companies will promptly furnish to the Trust and KFSC the
opinion of counsel for the Companies (which counsel shall be reasonably
satisfactory to the Trust and KFSC) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the
Variable Insurance Products, the Companies shall not prevent Owners from
allocating payments to a Series that was otherwise available under the
Variable Insurance Products without first giving the Trustee or KFSC ninety
(90) days notice of their intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Trust:
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Secretary
If to one or both of the Companies:
Keyport Life Insurance Company
125 High Street
Oliver Street Tower
Thirteenth Floor
Boston, MA 02110
Attention: General Counsel
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Attention: General Counsel
If to KFSC:
Keyport Financial Services, Corp.
125 High Street
Boston, Massachusetts 02110
Attention: Secretary
ARTICLE XII. Miscellaneous
12.1. All persons dealing with Trust must look solely to the property
of the Trust for the enforcement of any claims against the Trust hereunder
and otherwise understand that neither the Trustees, officers, agents or
shareholders of the Trust have any personal liability for any obligations
entered into by or on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each Party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing be any other party hereto and, except as permitted
by this Agreement, shall not disclose, disseminate or utilize such names
and addresses and other confidential information until such time as it may
come into the public domain without the express written consent of the
affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, the Internal Revenue Service and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
12.7. The Trust and KFSC agree that to the extent any advisory or
other fees received by the Trust, KFSC, or Stein Roe are determined to be
unlawful in appropriate legal or administrative proceedings, the Trust
shall indemnify and reimburse the Companies for any out of pocket expenses
and actual damages the Companies have incurred as a result of any such
proceeding, provided however that the provision of Section 8.2.(b). of this
and 8.2.(c). shall apply to such indemnification and reimbursement
obligation. Such indemnification and reimbursement obligation shall be in
addition to any other indemnification and reimbursement obligations of the
Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligation, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as of
the date specified below.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/John W. Rosensteel
Title: President & CEO
Date: 4/3/98
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
By its authorized officer,
By: /s/Elliot J. Williams
Title: Treasurer
Date: 4/29/98
STEINROE VARIABLE INVESTMENT TRUST
By its authorized officer,
By: /s/Kevin M. Carome
Title: Assistant Secretary
Date: as of 4/3/98
KEYPORT FINANCIAL SERVICES CORP.
By its authorized officer,
By: /s/James J. Klopper
Title: Clerk
Date: 4/3/98
Schedule A
Individual and group variable annuity contracts and certificates.
Individual variable life contracts.
EXHIBIT (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Statement of Additional Information and to the use of our reports dated
February 3, 1998, with respect to the consolidated financial statements of
Keyport Life Insurance Company, and March 13, 1998, with respect to the
financial statements of Keyport Life Insurance Company-Variable Account A,
included in this Post-Effective Amendment No. 12 to the Registration
Statement (Form N-4, Nos. 333-1043 and 811-7543).
/s/ERNST & YOUNG LLP
Boston, Massachusetts
May 8, 1998
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 with respect to
the consolidated financial statements of Keyport Life Insurance Company and
subsidiaries included herein and to the reference to our firm under the
heading "Experts" in the Statement of Additional Information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
May 8, 1998
