As filed with the Securities and Exchange Commission on June 16, 1999.
Registration Nos. 333-75729
811-7543
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=
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31 [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
( ) on [date] pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
( ) on [date] pursuant to paragraph (a) of Rule 485
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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. . . . . . . . . .Definitions
3. . . . . . . . . .Summary of Certificate Features
Fee Table
Examples
Explanation of Fee Tables and Examples
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
PART A
July 1, 1999 Prospectus for
Keyport Advisor Charter Variable Annuity
Including Eligible Fund Prospectuses for
AIM VARIABLE INSURANCE FUNDS, INC.
THE ALGER AMERICAN FUND
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
LIBERTY VARIABLE INVESTMENT TRUST
STEINROE VARIABLE INVESTMENT TRUST
TEMPLETON VARIABLE PRODUCTS SERIES FUND
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.
- ---------------------------------------------------------------------------
Prospectus for
The Keyport Advisor Charter Variable Annuity
Group and Individual Flexible Purchase Payment
Deferred Variable Annuity Contracts
issued by
Variable Account A
of
Keyport Life Insurance Company
- ---------------------------------------------------------------------------
This prospectus describes the Keyport Advisor Charter variable annuity
group Contracts and Certificates offered by Keyport Life Insurance Company.
The prospectus also offers the Certificates in the form of Individual
Contracts, where required by certain states. All discussion of Certificates
applies to the Contracts and Individual Contracts unless specified
otherwise.
Under the Certificate, you may elect to have value accumulate on a variable
or fixed basis. You may also elect to receive periodic annuity payments on
either a variable or a fixed basis. This prospectus generally describes
only the variable features of the Certificate. For a summary of the Fixed
Account and its features, see Appendix A. The Certificates are designed to
help you in your retirement planning. You may purchase them on a tax
qualified or non-tax qualified basis. Because they are offered on a
flexible payment basis, you are permitted to make multiple payments (except
in Oregon where they are offered only on a single purchase payment basis).
We will allocate your purchase payments to the investment options and the
Fixed Account in the proportions you choose. The Certificate currently
offers twenty-two investment options, each of which is a Sub-account of
Variable Account A. Currently, you may choose among the following Eligible
Funds:
AIM VARIABLE INSURANCE FUNDS, INC.: AIM V.I. Capital Appreciation Fund and
AIM V.I. Value Fund
THE ALGER AMERICAN FUND: Alger American Growth Portfolio and Alger American
Small Capitalization Portfolio
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.: Global Bond Portfolio;
Premier Growth Portfolio and Technology Portfolio
LIBERTY VARIABLE INVESTMENT TRUST: Colonial Global Equity Fund, Variable
Series; Colonial High Yield Securities Fund, Variable Series; Colonial
International Horizons Fund, Variable Series; Colonial Small Cap Value,
Variable Series; Colonial Strategic Income Fund, Variable Series; Colonial
U.S. Growth and Income Fund, Variable Series; Crabbe Huson Real Estate
Investment Fund, Variable Series; Liberty All-Star Equity Fund, Variable
Series; Newport Tiger Fund, Variable Series; and Stein Roe Global Utilities
Fund, Variable Series
STEINROE VARIABLE INVESTMENT TRUST: Stein Roe Balanced Fund, Variable
Series; Stein Roe Growth Stock Fund, Variable Series; Stein Roe Money
Market Fund, Variable Series; and Stein Roe Mortgage Securities Fund,
Variable Series
TEMPLETON VARIABLE PRODUCTS SERIES FUND: Templeton Developing Markets Fund
You may not purchase a Certificate if either you or the Annuitant are over
90 years old before we receive your application. You may not purchase a tax-
qualified Certificate if you or the Annuitant are over 75 years old before
we receive your application (age 90 applies to Roth IRAs).
The purchase of a Contract or Certificate involves certain risks.
Investment performance of the Eligible Funds to which you may allocate
purchase payments may vary. We do not guarantee any minimum Certificate
Value for amounts allocated to the Eligible Funds. Benefits provided by
this Certificate, when based on the Fixed Account, may be subject to a
market value adjustment, which may result in an upward or downward
adjustment in withdrawal benefits, death benefits, settlement values,
transfers to Eligible Funds, or periodic income payments.
The Variable Account may offer other certificates with different features,
fees and charges, and other Sub-accounts which may invest in different or
additional mutual funds. Separate prospectuses and statements of additional
information will describe other certificates. The agent selling the
Certificates has information concerning the eligibility for and the
availability of the other certificates.
This prospectus contains important information about the Contracts and
Certificates you should know before investing. You should read it before
investing and keep it for future reference. We have filed a Statement of
Additional Information ("SAI") with the Securities and Exchange Commission.
The current SAI has the same date as this prospectus and is incorporated by
reference in this prospectus. You may obtain a free copy by writing us 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 SAI appears on page 50 of this prospectus.
The date of this prospectus is July 1, 1999.
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Page
Definitions 4
Summary of Certificate Features 5
Fee Table 7
Examples 10
Explanation of Fee Table and Examples 11
Performance Information 11
Keyport and the Variable Account 13
Purchase Payments and Applications 14
Investments of the Variable Account 14
Allocations of Purchase Payments 14
Eligible Funds 15
Transfer of Variable Account Value 18
Limits on Transfers 18
Substitution of Eligible Funds and Other Variable Account Changes 19
Deductions 19
Deductions for Certificate Maintenance Charge 19
Deductions for Mortality and Expense Risk Charge 20
Deductions for Daily Distribution Charge 20
Deductions for Surrender Charge 20
Deductions for Optional Riders 21
Deductions for Transfers of Variable Account Value 21
Deductions for Premium Taxes 21
Deductions for Income Taxes 21
Total Variable Account Expenses 22
Certificate Value Deductions 22
Other Services 22
The Certificates 25
Variable Account Value 25
Valuation Periods 25
Net Investment Factor 25
Modification of the Certificate 25
Right to Revoke 26
Death Provisions for Non-Qualified Certificates 27
Death of Primary Owner, Joint Owner or Annuitant 27
Standard Death Benefit 27
Enhanced Death Benefit Rider 27
Payment of Death Benefit 33
Death Provisions for Qualified Certificates 33
Certificate Ownership 33
Assignment 34
Partial Withdrawals and Surrender 34
Annuity Provisions 35
Annuity Benefits 35
Annuity Option and Income Date 35
Annuity Options 35
Variable Annuity Payment Values 38
Proof of Age, Sex, and Survival of Annuitant 38
Guaranteed Income Benefit Rider 38
Suspension of Payments 42
Year 2000 Matters 43
Tax Status 43
Introduction 43
Taxation of Annuities in General 43
Qualified Plans 46
Tax-Sheltered Annuities 46
Individual Retirement Annuities 47
Corporate Pension and Profit-Sharing Plans 47
Deferred Compensation Plans with Respect to
Service for State and Local Governments 47
Annuity Purchases by Nonresident Aliens 47
Variable Account Voting Privileges 47
Sales of the Certificates 48
Legal Proceedings 49
Inquiries by Certificate Owners 49
Table of Contents--Statement of Additional Information 50
Appendix A--The Fixed Account (also known as the Modified
Guaranteed Annuity Account) 51
Appendix B--Telephone Instructions 55
Appendix C--Systematic Withdrawal Program 56
DEFINITIONS
Accumulation Unit: A unit of measurement which we use to calculate Variable
Account Value.
Annuitant: The natural person on whose life annuity benefits are based and
who will receive annuity payments starting on the Income Date.
Certificate Anniversary: Each anniversary of the Certificate Date.
Certificate Date: The date when the Certificate becomes effective that is
the date when we receive your completed application and initial purchase
payment.
Certificate Owner ("you"): The person(s) having the privileges of ownership
defined in the Certificate.
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 market value adjustment that applies to any Fixed Account Value less
any premium taxes, certificate maintenance charge and surrender charge.
Certificate Year: Each 12-month period beginning on the Certificate Date
and each Certificate Anniversary thereafter.
Company ("we", "us", "our", "Keyport"): Keyport Life Insurance Company.
Covered Person: The person(s) identified in the Certificate whose death may
result in an adjustment of Certificate Value, a waiver of any surrender
charges and a waiver of any market value adjustment or whose medical stay
in a hospital or nursing facility may allow the Certificate Owner to be
eligible for either a total or partial waiver of the surrender charge.
Designated Beneficiary: The person designated to receive any death benefits
under the Certificate.
Eligible Funds: The underlying mutual funds in which the Variable Account
invests.
Fixed Account: Part of our general account to which purchase payments or
Certificate Values may be allocated or 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. Later Guarantee Period Months begin
on the same day in the following months.
Guarantee Period Year: The 12-month period which begins on the Start Date.
Guarantee Period Years thereafter 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.
Qualified Certificate: Certificates issued under Qualified Plans.
Qualified Plan: A retirement plan which receives special tax treatment
under Sections 401, 403(b), 408(b) or 408A of the Internal Revenue Code
("Code") or a deferred compensation plan for a state and local government
or another tax exempt organization under Section 457 of the Code.
Start Date: The date money is first allocated to a Guarantee Period of the
Fixed Account.
Variable Account: Variable Account A which is a separate investment account
of the Company into which purchase payments under the Certificates may be
allocated. The Variable Account is divided into Sub-accounts which invest
in shares of an Eligible Fund.
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 us, signed by
you and a disinterested witness, and filed at our office.
SUMMARY OF CERTIFICATE FEATURES
Because this is a summary, it does not contain all of the information that
may be important to you. You should read the entire prospectus and
Statement of Additional Information before deciding to invest. Further,
individual state requirements, which are different from the information in
this prospectus, are described in supplements to this prospectus or in
endorsements to the Certificate.
Purchase of the Certificate
You may (except in Oregon) make multiple purchase payments. The minimum
initial payment is $5,000. For individual retirement annuities the minimum
payment is $2,000. (See "Purchase Payments and Applications".)
Investment Choices
You can allocate and reallocate your investment among the Sub-accounts of
the Variable Account which in turn invest in the following Eligible Funds:
AIM Variable Insurance Funds, Inc. ("AIM Insurance Funds")
AIM V.I. Capital Appreciation Fund ("AIM Capital Appreciation")
AIM V.I. Value Fund ("AIM Value")
The Alger American Fund ("Alger American Fund")
Alger American Growth Portfolio ("Alger Growth")
Alger American Small Capitalization Portfolio ("Alger Small Cap")
Alliance Variable Products Series Fund, Inc. ("Alliance Series Fund")
Global Bond Portfolio ("Alliance Global Bond")
Premier Growth Portfolio ("Alliance Premier Growth")
Technology Portfolio ("Alliance Technology")
Liberty Variable Investment Trust ("Liberty Trust")
Colonial Global Equity Fund, Variable Series ("Colonial Global Equity")
Colonial High Yield Securities Fund, Variable Series ("Colonial High
Yield Securities")
Colonial International Horizons Fund, Variable Series ("Colonial Int'l
Horizons")
Colonial Small Cap Value Fund, Variable Series ("Colonial Small Cap
Value")
Colonial Strategic Income Fund, Variable Series ("Colonial Strategic
Income")
Colonial U.S. Growth and Income Fund, Variable Series ("Colonial U.S.
Growth and Income")
Crabbe Huson Real Estate Investment Fund, Variable Series ("Crabbe
Huson Real Estate")
Liberty All-Star Equity Fund, Variable Series ("Liberty All-Star Equity")
Newport Tiger Fund, Variable Series ("Newport Tiger")
Stein Roe Global Utilities Fund, Variable Series ("Stein Roe Global
Utilities")
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")
Stein Roe Mortgage Securities Fund, Variable Series ("Stein Roe Mortgage
Securities")
Templeton Variable Products Series Fund ("Templeton Series Fund")
Templeton Developing Markets Fund ("Templeton Developing Markets")
Fees and Charges
Please see "Fee Table", "Explanation of Fee Table and Examples" and
"Deductions".
Federal Income Taxes
You will not pay federal income taxes on the increases in the value of your
Certificate. However, if you make a withdrawal in the form of a lump sum
payment, annuity payment, or make a gift or assignment you will be subject
to federal income taxes on the increases in value of your Certificate and
may also be subject to a 10% federal penalty tax. (See "Tax Status".)
Right to Revoke
Generally, you may revoke the Certificate by returning it to us within 10
days after you receive it. For most states, we will refund your Certificate
Value as of the date we receive the returned Certificate. You will bear the
investment risk during the revocation period. In other states, we will
return purchase payments. (See "Right to Revoke".)
FEE TABLE
Certificate Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Surrender Charge
(as a percentage of purchase payments): 7%
Years from Date of Payment Sales Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%
Maximum Total Certificate Owner Transaction Expenses
(as a percentage of purchase payments): 7%
Annual Certificate Maintenance Charge: $36
Transfer Charge (Maximum of $25): $ 0
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: 1.25%
Distribution Charge: .15%
Total Variable Account Annual Expenses: 1.40%
Charge for Optional Guaranteed Income Benefit Rider: .35%
(as a percentage of rider's benefit base amount)
Charge for Optional Enhanced Death Benefit Rider: .10%
(as a percentage of rider's benefit base amount; if you
elect both riders the charge is reduced to .05% but it
will return to .10% if you later revoke the guaranteed
income benefit rider)
AIM Insurance Funds, Alger American Fund, Alliance Series Fund,
Liberty Trust, SteinRoe Trust and Templeton Series Fund Annual Expenses1
(After any Fee Waivers and/or Expense Reimbursements)2
(as a percentage of average net assets)
Total Fund
Management Rule 12b-1 Other Operating
Fund Fees ___Fees___ Expenses Expenses
AIM Capital Appreciation .62% .05% .67%
AIM Value .61% .05% .66%
Alger Growth .75% .04% .79%
Alger Small Cap .85% .04% .89%
Alliance Global Bond3 .64%(.65%) .25% .29%(.53%) 1.18%(1.43%)
Alliance Premier Growth3 .97%(1.00%) .25% .09% 1.31%(1.34%)
Alliance Technology3 .81%(1.00%) .25% .14%(.20%) 1.20%(1.45%)
Colonial Global Equity3 .95% .25% .20%(.44%) 1.40%(1.64%)
Colonial High Yield Securities .60% .20%(1.24%) .80%(1.84%)
Colonial Int'l Horizons3 .95% .25% .20%(.27%) 1.40%(1.47%)
Colonial Small Cap Value .80% .20%(3.32%) 1.00%(4.32%)
Colonial Strategic Income .65% .13% .78%
Colonial U.S. Growth and Income .80% .10% .90%
Crabbe Huson Real Estate3 1.00% .25% .20%(.56%) 1.45%(1.81%)
Liberty All-Star Equity .80% .20%(.24%) 1.00%(1.04%)
Newport Tiger .90% .40% 1.30%
Stein Roe Global Utilities .65% .17% .82%
Stein Roe Balanced .45% .20% .65%
Stein Roe Growth Stock .50% .20% .70%
Stein Roe Money Market .35% .27% .62%
Stein Roe Mortgage Securities .40% .30% .70%
Templeton Developing Markets3 1.25% .25% .41% 1.91%
The above expenses for the Eligible Funds were provided by the Funds. We
have not independently verified the accuracy of the information.
1All Trust and Fund expenses are for 1998 with the exception for those of
Colonial Global Equity, Colonial International Horizons and Crabbe Huson
Real Estate, which are estimated since Colonial Global Equity, Colonial
International Horizons and Crabbe Huson Real Estate commenced operations in
June 1999. Data for Class B shares of the Alliance Series Fund, which will
include 12b-1 fees, is not available. Therefore, we have included estimates
for 1999 for Alliance Global Bond, Alliance Premier Growth and Alliance
Technology based on the historical expenses of the Fund's Class A shares
for the fiscal year ended December 31, 1998. The AIM Insurance Funds, Alger
American Funds, Alliance Series Fund, Liberty Trust and SteinRoe Trust
expenses reflect such Fund's or Trust's manager's agreement to reimburse
expenses above certain limits (see footnote 2).
2The manager of AIM Insurance Funds may from time to time waive all or a
portion of its advisory fees and/or assume certain expenses of the AIM
Insurance Funds. Fee waivers or reductions, other than those contained in
the AIM Insurance Funds' advisory agreement, may be modified or terminated
at any time. The AIM Insurance Funds' manager did not waive advisory fees
or assume expenses as of the date of this prospectus.
The manager of Alger American Fund has agreed to reimburse Alger Growth and
Alger Small Cap, to the extent that annual operating expenses, excluding
interest, taxes, fees for brokerage services and extraordinary expenses,
exceed 1.50% of a fund's average daily net assets for any fiscal year. The
Alger American Fund's manager was not required to reimburse expenses as of
the date of this prospectus.
The manager of Alliance Series Fund has agreed to continue voluntary
expense reimbursements for Alliance Global Bond, Alliance Premier Growth
and Alliance Technology for the foreseeable future. Because the Alliance
Series Funds did not have Class B shares until June 1, 1999, fees (other
than 12b-1 Fees) are estimates for 1999 based on the historical expenses of
the Fund's Class A shares. Each percentage shown in the parentheses is an
estimate of what the expenses would be in the absence of expense
reimbursement: for Alliance Global Bond - .65% for management fees, .53%
for other expenses and 1.43% for total expenses; for Alliance Premier
Growth - 1.00% for management fees and 1.34% for total expenses; and for
Alliance Technology - 1.00% for management fees, .20% for other expenses,
and 1.45% for total expenses.
The manager of Liberty Trust has agreed until April 30, 2000 to reimburse
all expenses, including management fees, but excluding interest, taxes,
brokerage, and other expenses which are capitalized in accordance with
accepted accounting procedures, and extraordinary expenses, in excess of
the following percentage of average net assets of each Eligible Fund: 1.00%
for Colonial Small Cap Value, Colonial U.S. Growth and Income, Liberty All-
Star Equity, and Stein Roe Global Utilities; 1.45% for Crabbe Huson Real
Estate; 1.40% for Colonial Global Equity and Colonial Int'l Horizons; 1.75%
for Newport Tiger Fund and .80% for Colonial High Yield Securities. The
following percentages are what the expenses would be without any expense
reimbursement: for Colonial Global Equity--.44% for other expenses and
1.64% for total expenses; for Colonial High Yield Securities--1.24% for
other expenses and 1.84% for total expenses; for Colonial Int'l Horizons--
.27% for other expenses and 1.47% for total expenses; for Colonial Small
Cap Value--3.32% for other expenses and 4.32% for total expenses; for
Crabbe Huson Real Estate--.56% for other expenses and 1.81% for total
expenses; and for Liberty All-Star Equity--.24% for other expenses and
1.04% for total expenses. The Liberty Trust manager reimbursed expenses at
these levels as of the date of the prospectus.
The manager of SteinRoe Trust has agreed until April 30, 2000 to reimburse
all expenses, including management fees, in excess of the following
percentage of the average net assets of the following Eligible Funds: for
Stein Roe Balanced--.75%; for Stein Roe Growth Stock--.80%; for Stein Roe
Mortgage Securities--.70%; and for Stein Roe Money Market--.65%. The
SteinRoe Trust's manager was not required to reimburse expenses as of the
date of this prospectus.
3The Eligible Fund has a distribution plan or "Rule 12b-1 Plan" which is
described in the Fund's prospectus.
EXAMPLES
Example #1 - If you surrender your Certificate at the end of the periods
shown you would pay the following expenses on a $1,000 investment, assuming
5% annual return on assets.
Sub-account 1 year 3 years 5 years 10 years
AIM Capital Appreciation $ 95 $131 $180 $359
AIM Value 95 131 179 357
Alger Growth 96 135 186 374
Alger Small Cap 97 138 192 386
Alliance Global Bond 100 147 208 422
Alliance Premier Growth 101 151 214 437
Alliance Technology 100 147 209 424
Colonial Global Equity 102 153 219 448
Colonial High Yield Securities 96 135 187 375
Colonial Int'l Horizons 102 153 219 448
Colonial Small Cap Value 98 141 198 400
Colonial Strategic Income 96 135 186 372
Colonial U.S. Growth and Income 97 138 192 387
Crabbe Huson Real Estate 103 155 222 454
Liberty All-Star Equity 98 141 198 400
Newport Tiger 101 150 214 436
Stein Roe Global Utilities 96 136 188 377
Stein Roe Balanced 95 131 178 356
Stein Roe Growth Stock 95 132 181 362
Stein Roe Money Market 94 130 177 352
Stein Roe Mortgage Securities 95 132 181 362
Templeton Developing Markets 107 168 246 507
Example #2 - If you annuitize or if you do not surrender your Certificate
at the end of the periods shown, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets.
Sub-account 1 year 3 years 5 years 10 years
AIM Capital Appreciation $21 $ 78 $144 $359
AIM Value 21 78 144 357
Alger Growth 22 82 151 374
Alger Small Cap 23 85 156 386
Alliance Global Bond 26 94 172 422
Alliance Premier Growth 27 98 179 437
Alliance Technology 26 95 173 424
Colonial Global Equity 28 101 184 448
Colonial High Yield Securities 22 82 151 375
Colonial Int'l Horizons 23 101 184 448
Colonial Small Cap Value 28 88 162 400
Colonial Strategic Income 24 81 150 372
Colonial U.S. Growth and Income 23 85 157 387
Crabbe Huson Real Estate 28 102 187 454
Liberty All-Star Equity 24 88 162 400
Newport Tiger 27 98 179 436
Stein Roe Global Utilities 22 83 153 377
Stein Roe Balanced 21 77 143 356
Stein Roe Growth Stock 21 79 146 362
Stein Roe Money Market 20 76 141 352
Stein Roe Mortgage Securities 21 79 146 362
Templeton Developing Markets 33 117 211 507
EXPLANATION OF FEE TABLE AND EXAMPLES
The purpose of the fee table is to illustrate the expenses you may directly
or indirectly bear under a Certificate. The table reflects expenses of the
Variable Account (including the combined charge for both optional riders)
as well as the Eligible Funds. You should read "Deductions" in this
prospectus and the sections relating to expenses of the Eligible Funds in
their prospectuses. The fee table and examples do not include any taxes or
tax penalties you may be required to pay if you surrender your Certificate.
We deduct surrender charges only if you totally or partially surrender the
Certificate. You will not incur a surrender charge in the following
instances:
o In the first Certificate Year, you may withdraw an aggregate
amount up to the Certificate's earnings. Earnings equal the
Certificate Value at the time of withdrawal less purchase payments
not previously withdrawn.
o In the second and later Certificate Years you may withdraw:
(a) earnings, and
(b) an amount up to (i) 10% of the Certificate Value as of the
preceding Certificate Anniversary, (ii) less earnings.
The examples assume you did not make any transfers. We reserve the right to
impose a transfer fee after we notify you. Currently, we do not impose any
transfer fee. Premium taxes are not shown. We deduct the amount of any
premium taxes (which range from 0% to 5%) from Certificate Value upon full
surrender or annuitization.
We waive the certificate maintenance charge on the first Certificate
Anniversary and in certain other instances.
The fee table and examples should not be considered a representation of
past or future expenses and charges of the Sub-accounts. Your actual
expenses may be greater or less than those shown. Similarly, the 5% annual
rate of return assumed in the example 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 prospectuses for the Alger American Fund and the Alliance
Series Fund, "Trust Management Organizations" and "Expenses of the Funds"
in the prospectus for Liberty Trust, "How the Funds are Managed" in the
prospectus for SteinRoe Trust, and "Portfolio Management" in the prospectus
for Templeton Series Fund.
The Certificates described in this prospectus have not previously been made
available for sale, and may include fees and charges that are different
from our other variable annuity contracts. These differences will produce
differing Accumulation Unit values. Therefore, no condensed financial
information is provided. Our full financial statements and those for the
Variable Account 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.
Performance information is not an indicator of either past or future
performance of a Certificate.
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 Sub-account
over a given period of time.
Average annual total return information shows the average annual
compounding percentage change applied to the value of an investment in the
Sub-account from the beginning of the measuring period to the end of that
period. This average annual total return reflects all historical investment
results, less all Sub-account and Certificate charges and deductions as
required by certain regulatory rules. This would include any surrender
charge that would apply if you surrendered the Certificate at the end of
each period indicated. Average total return is not reduced by any premium
taxes. Average total return would be less if these taxes were deducted.
In order to calculate average annual total return, we divide 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. We then annualize
the resulting total rate for the period to obtain the average annual
compounding percentage change during the period.
The Sub-accounts may present, along with any current required performance
information, additional non-standardized total return information that is
computed on a different basis:
o First, the Sub-accounts may present total return information as
described above, except for the deduction of the surrender charge.
This presentation assumes that the investment in the Certificate
continues beyond the period when the surrender charge applies. This
is consistent with the long-term investment and retirement
objectives of the Certificate. The total return percentage will be
higher using this method than the standard method described above.
o Second, the Sub-accounts may present total return information as
described above, except that there are no Certificate deductions
for the surrender charge, the certificate maintenance charge and
premium taxes. Because these charges are not deducted, the
calculation is simplified. We divide 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.
For longer periods it is a total rate for the period. We annualize
the total rate in order to obtain the average annual percentage
change in the Accumulation Unit value for that period. The
percentages would be less if these charges were included.
o Third, certain of the Eligible Funds have been available for other
variable annuity contracts prior to the beginning 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 and applying the fees and charges to
the Certificate for the specified time periods.
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 seven-day period. We annualize this
income by assuming that the amount of income generated by the investment
during that week is generated each week over a 52-week period. It is shown
as a percentage. The yield reflects the deduction of all charges assessed
against the Sub-account and a Certificate but does not include surrender
charges and premium tax charges. The yield would be lower if these charges
were included.
We calculate the effective yield of the Stein Roe Money Market Sub-account
in a similar manner but, when annualizing the yield, we assume income
earned by the Sub-account is reinvested. This compounding effect causes
effective yield to be higher than yield.
We may provide to you and prospective Contract Owners advertising and other
information on a variety of topics. Such topics may include the
relationship between certain economic sectors and the economy as a whole
and its effect on various securities markets, investment strategies and
techniques (such as value investing, dollar cost averaging and asset
allocation). Such topics may also include, the advantages and
disadvantages of investing in tax-advantaged and taxable instruments,
customer profiles and hypothetical purchase scenarios, financial management
and tax and retirement planning, and other investment alternatives,
including comparisons between the Certificates and the characteristics of
and market for such alternatives.
KEYPORT AND THE VARIABLE ACCOUNT
We were incorporated in Rhode Island in 1957 as a stock life insurance
company. Our executive and administrative offices are at 125 High Street,
Boston, Massachusetts 02110. Our home office is at 695 George Washington
Highway, Lincoln, Rhode Island 02865.
We write individual life insurance and individual and group annuity
contracts on a non-participating basis. We are licensed to do business in
all states except New York and are also licensed in the District of
Columbia and the Virgin Islands. We are rated A (Excellent) for financial
strength by A.M. Best and Company, independent analysts of the insurance
industry. Standard & Poor's ("S&P") rates us AA for very strong financial
security, Moody's rates us A2 for good financial strength and Duff & Phelps
rates us AA- for very high claims paying ability. The Best's A rating is in
the second highest rating category, which also includes a lower rating of 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 "2" modifier means that we are in the middle of the A
category. The Duff & Phelps "-" modifier signifies that we are at the lower
end of the AA category. These ratings reflect the opinion of the rating
company as to our relative financial strength and ability to meet
contractual obligations to our policyholders. Even though we hold the
assets in the Variable Account separately from our other assets, our
ratings may still be relevant to you since not all of our contractual
obligations relate to payments based on those segregated assets.
We are 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 we have chosen to participate in
IMSA's Life Insurance Ethical Market Conduct Program.
We are indirectly owned by Liberty Financial Companies, Inc. and are
ultimately controlled by Liberty Mutual Insurance Company of Boston,
Massachusetts, a multi-line insurance and financial services institution.
We established the Variable Account 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 mean the Securities and Exchange Commission
supervises us or the management of the Variable Account.
Obligations under the Certificates are our obligations. Although the assets
of the Variable Account are our property, these assets are held separately
from our other assets and are not chargeable with liabilities arising out
of any other business we 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 we may conduct.
PURCHASE PAYMENTS AND APPLICATIONS
The initial purchase payment is due on the Certificate Date. The minimum
initial purchase payment is $5,000 and $2,000 for individual retirement
annuities. You may make additional purchase payments. Each subsequent
purchase payment must be at least $1,000 or any lesser amount we may
permit, which is currently $250. For payments made under the systematic
investment program, the minimum is $50. We may reject any purchase payment
or any application. Purchase payments are allocated to a Certificate based
on the applicable Sub-account accumulation unit value(s) next determined
after we receive it.
If your application for a Certificate is complete and amounts are to be
allocated to the Variable Account, we will apply your initial purchase
payment to the Variable Account within two business days of receipt. If the
application is incomplete, we will notify you and try to complete it within
five business days. If it is not complete at the end of this period, we
will inform you of the reason for the delay. The purchase payment will be
returned immediately unless you specifically consent to our 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.
We will send you a written notification showing the allocation of all
purchase payments and the re-allocation of values after any transfer you
have requested. You must notify us immediately of any error.
We will permit others to act on your behalf in certain instances,
including:
o we will accept an application for a Certificate signed by an
attorney-in-fact if we receive a copy of the power of attorney with
the application.
o we will issue a Certificate to replace an existing life insurance
or annuity policy that we or an affiliated company issued even
though we did not previously receive a signed application from you.
Certain dealers or other authorized persons such as employers and Qualified
Plan fiduciaries may inform us of your responses to application questions
by telephone or by order ticket and cause the initial purchase payment to
be paid to us. If the information is complete, we will issue the
Certificate. We will send you the Certificate and a letter so you may
review the information and notify us of any errors. We may request you to
confirm that the information is correct by signing a copy of the letter or
a Certificate delivery receipt. We will send you a written notice
confirming all purchases. Our liability under any Certificate relates only
to amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
We will invest the purchase payments you applied to the Variable Account in
the Eligible Fund Sub-accounts you have chosen. Your selection must specify
the percentage of the purchase payment that is allocated to each Sub-
account or must specify the asset allocation model you select. (See "Other
Services, The Programs".) The percentage for each Sub-account, if not zero,
must be at least 5% and a whole number. You may change the allocation
percentages without fee, penalty or other charge. You must notify us in
writing of your allocation changes unless you, your attorney-in-fact, or
another authorized person have given us written authorization to accept
telephone allocation instructions. By allowing us to accept telephone
changes, you agree to accept our current conditions and procedures. The
current conditions and procedures are in Appendix B. We will notify you of
any changes in advance.
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. We may add or withdraw Eligible Funds and Sub-
accounts as permitted by applicable law.
Eligible Funds
The Eligible Funds are the separate funds listed within the AIM Insurance
Funds, Alger American Fund, Alliance Series Fund, Liberty Trust, SteinRoe
Trust and Templeton Series Fund. Keyport and the Variable Account may enter
into agreements with other mutual funds for the purpose of making such
mutual funds available as Eligible Funds under certain Certificates.
We do not promise that the Eligible Funds will meet their investment
objectives. Amounts you have allocated to Sub-accounts may grow, decline,
or grow less in value than you expect, depending on the investment
performance of the Eligible Funds in which the Sub-accounts invest. You
bear the investment risk that those Eligible Funds possibly will not meet
their investment objectives. You should carefully review their prospectuses
before allocating amounts to the Sub-accounts of the Variable Account.
Some of the Eligible Funds are funding vehicles for other variable annuity
contracts and variable life insurance policies offered by our separate
accounts. The Eligible Funds are also available for the separate accounts
of insurance companies affiliated and unaffiliated with us. The risks
involved in this "mixed and shared funding" are disclosed in the Eligible
Funds' prospectuses under the following captions: AIM Insurance
Funds-"Purchase and Redemption of Shares"; Alger American Fund--
"Participating Insurance Companies and Plans"; Alliance Series
Fund-"Introduction to the Fund"; Liberty Trust-"The Trust"; SteinRoe
Trust-"The Trust" and Templeton Series Fund-"Purchase of Shares".
AIM Advisors Inc. ("AIM") serves as the investment adviser to each of the
Eligible Funds of AIM Insurance Funds.
Fred Alger Management, Inc. ("Alger Management") is the investment manager
for the Eligible Funds of Alger American Fund.
Alliance Capital Management L.P. is the investment adviser for the Eligible
Funds of Alliance Series Fund. AIGAM International Limited is sub-adviser
for Alliance Global.
Liberty Advisory Services Corp. ("LASC"), our subsidiary, is the manager
for Liberty Trust and its Eligible Funds. Colonial Management Associates,
Inc. ("Colonial"), an affiliate, is the sub-adviser for the Eligible Funds
except for Crabbe Huson Real Estate, Newport Tiger, Stein Roe Global
Utilities and Liberty All-Star Equity. Crabbe Huson Group, Inc., an
affiliate, is sub-adviser for Crabbe Huson Real Estate. Newport Fund
Management, Inc., an affiliate, is sub-adviser for Newport Tiger. Liberty
Asset Management Company, an affiliate, is 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 Boston Partners Asset Management, L.P.
Stein Roe & Farnham Incorporated ("Stein Roe"), an affiliate, is the
investment adviser for each Eligible Fund of SteinRoe Trust and sub-adviser
for Stein Roe Global Utilities.
Templeton Asset Management LTD. is the investment adviser for Templeton
Developing Markets Fund.
We have briefly described the Eligible Funds below. You should read the
current prospectuses for the Eligible Funds for more details and complete
information. The prospectus is available, at no charge, from a salesperson
or by writing to us or by calling (800) 437-4466.
Eligible Funds of AIM Insurance
Funds and Variable Account
Sub-accounts Investment Objective
AIM Capital Appreciation (AIM Capital appreciation through
Capital Appreciation investments in common stocks,
Sub-account) with emphasis on medium-sized
and smaller emerging growth
companies.
AIM Value (AIM Value Sub-account) Long-term growth of capital by
investing primarily in equity
securities judged by AIM to be
undervalued relative to the
current or projected earnings of
the companies issuing the
securities, or relative current
market value of assets owned by the
companies issuing the securities
or relative to the equity markets
in general. Income is a secondary
objective.
Eligible Funds of Alger
American Fund and Variable Account
Sub-accounts Investment Objective
Alger Growth Long-term capital appreciation
(Alger Growth Sub-account)
Alger Small Cap Long-term capital appreciation.
(Alger Small Cap Sub-account)
Eligible Funds of Alliance Series
Fund and 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 Premier Growth Growth of capital rather than
(Alliance Premier Growth current income.
Sub-account)
Alliance Technology (Alliance Growth of capital through
Technology Sub-account) investment in companies expected
to benefit from advances in
technology.
Eligible Funds of Liberty Trust
and Variable Account
Sub-accounts Investment Objective
Colonial Global Equity (Colonial Long-term growth by investing
Global Equity Sub-account) primarily in global securities.
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 Int'l Horizons Preservation of capital purchasing
(Colonial Int'l Horizons power and long-term growth.
Sub-account)
Colonial Small Cap Value Long-term growth by investing in
(Colonial Small Cap Value smaller capitalization equity
Sub-account) securities.
Colonial Strategic Income A high level of current income, as
(Colonial Strategic Income is consistent with prudent risk and
Sub-account) maximizing total return, by
diversifying investments primarily
in U.S. and foreign government and
high yield, high risk corporate
debt securities.
Colonial U.S. Growth and Income Long-term growth and income
(Colonial U.S. Growth and Income by investing primarily in large
Sub-account) capitalization equity securities.
Crabbe Huson Real Estate Growth of capital and current
(Crabbe Huson Real Estate income by investing in a
Sub-account) diversified portfolio consisting
primarily of equity securities
of real estate investment trusts
(REITs) and other real estate
industry companies, in mortgage
backed securities and, to a lesser
extent, in debt securities of
such companies.
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.
Newport Tiger Long-term capital growth by
(Newport Tiger Sub-account) investing primarily in equity
securities of companies located in
the nine Tigers of Asia (Hong Kong,
Singapore, South Korea, Taiwan,
Malaysia, Thailand, Indonesia,
China and the Philippines).
Stein Roe Global Utilities
(Stein Roe Global Utilities Current income and long-term growth
Sub-account) of capital and 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) mix of securities.
Stein Roe Growth Stock Long-term growth of capital through
(Stein Roe Growth Stock investment primarily in common
Sub-account) stocks.
Stein Roe Money Market High current income from short-term
(Stein Roe Money Market money market instruments while
Sub-account) emphasizing preservation of capital
and maintaining excellent
liquidity.
Stein Roe Mortgage Securities Highest possible level of current
(Stein Roe Mortgage Securities income consistent with safety of
Sub-account) principal and maintenance of
liquidity through investment
primarily in mortgage-backed
securities.
Eligible funds of Templeton Series
Fund & Variable Account Sub-accounts Investment Objective
Templeton Developing Markets Long-term capital appreciation by
(Templeton Developing Markets investing primarily in equity
Sub-account) securities of issuers in countries
having developing markets.
Transfer of Variable Account Value
You may transfer Variable Account Value from one Sub-account to another Sub-
account and/or to the Fixed Account.
We may charge a transfer fee and limit the number of transfers that you can
make in a time period. Transfer limitations may prevent you from making a
transfer on the date you select. This may result in your Certificate Value
being lower than it would have been if you had been able to make the
transfer.
Limits on Transfers
Currently, we do not limit the number or frequency of transfers. We do not
charge a transfer fee for each transfer in excess of 12 in each Certificate
Year, except as follows:
o We impose a transfer limit of one transfer every 30 days, or such
other period as we may permit, for transfers on behalf of
multiple Certificates by a common attorney-in-fact, or transfers
that are, in our determination, based on the recommendation of a
common investment adviser or broker/dealer, and
o We limit each transfer to a maximum of $500,000, or such greater
amount as we may permit. We treat all transfer requests for a
Certificate made on the same day as a single transfer. We may
treat as a single transfer all transfers you request on the same
day for every Certificate you own. The total combined transfer
amount is subject to the $500,000 limitation. If the total amount
of the requested transfers exceeds $500,000, we will not execute
any of the transfers, and
o We treat as a single transfer all transfers made on the same day on
behalf of multiple Certificates by a common attorney-in-fact, or
transfers that are, in our determination, based on the
recommendation of a common investment adviser or broker/dealer. The
$500,000 limitation applies to such transfers. If the total amount
of the requested transfers exceeds $500,000, we will not execute
any of the transfers.
If we have executed a transfer with respect to your Certificate as part of
a multiple transfer request, we will not execute another transfer request
for your Certificate for 30 days.
By applying these limitations we intend to protect the interests of
individuals who do and those who do not engage in significant transfer
activity among Sub-accounts. We have determined that the actions of
individuals engaging in significant transfer activity may cause an adverse
affect on the performance of the Eligible Fund for the Sub-account
involved. The movement of values from one Sub-account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because the Eligible Fund must maintain a liquid position in
order to handle redemptions. Such movement may also cause a substantial
increase in fund transaction costs which all Certificate Owners must
indirectly bear.
We will notify you prior to charging any transfer fee or a change in the
limitation on the number of transfers. The fee will not exceed $25.
You must notify us in writing of your transfer requests unless you have
given us written authorization to accept telephone transfer requests from
you or your attorney-in-fact. By authorizing us to accept telephone
transfer instructions, you agree to accept our current conditions and
procedures. The current conditions and procedures are in Appendix B. You
will be given prior notification of any changes. A person acting on your
behalf as an attorney-in-fact may make written transfer requests.
If we receive your transfer requests before 4:00 P.M. Eastern Time, we will
initiate them at the close of business that day. We will initiate any
requests received after that time at the close of the next business day. We
will execute your request to transfer value by both redeeming and acquiring
Accumulation Units on the day we initiate the transfer.
If you transfer 100% of any Sub-account's value, and the allocation formula
for purchase payments on your application includes that Sub-account, the
allocation formula for future purchase payments will automatically change
unless you tell us otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If shares of any of the Eligible Funds are no longer available for
investment by the Variable Account, or further investment in the shares of
an Eligible Fund is no longer appropriate under the Certificate, we may add
or substitute shares of another Eligible Fund or of another mutual fund for
Eligible Fund shares already purchased or to be purchased in the future.
Any substitution of securities will comply with the requirements of the
Investment Company Act of 1940.
We also reserve the right to make the following changes in relation to the
Variable Account and Eligible Funds:
o to operate the Variable Account in any form permitted by law;
o to take any action necessary to comply with applicable law or
obtain and continue any exemption from applicable law;
o to transfer any assets in any Sub-account to another or to one or
more separate investment accounts, or to our general account;
o to add, combine or remove Sub-accounts in the Variable Account; and
o to change how we assess charges, so long as we do not increase them
above the current total amount charged to the Variable Account and
the Eligible Funds in connection with your Certificate.
DEDUCTIONS
Deductions for Certificate Maintenance Charge
We charge an annual certificate maintenance charge of $36 per Certificate
Year. Before the Income Date we do not guarantee the amount of the
certificate maintenance charge and may change it. This charge reimburses us
for our expenses incurred in maintaining your Certificate.
Before the Income Date, we will deduct the certificate maintenance charge
from the Variable Account Value on each Certificate Anniversary and on the
date of any total surrender not falling on the Certificate Anniversary. We
will waive this charge before the Income Date if:
o it is the first Certificate Anniversary;
o the Certificate Value is at least $40,000 on the date we impose
this charge, or
o in the prior Certificate Year, purchase payments of at least $2,000
have been made and you have not made any partial withdrawals.
On the Income Date, we will subtract a pro-rata portion of the charge due
on the next Certificate Anniversary from the Variable Account Value. This
pro-rata charge covers the period from the prior Certificate Anniversary to
the Income Date.
We will deduct the certificate maintenance charge proportionally from each
Sub-account based upon the value each Sub-account bears to the Variable
Account Value.
Once annuity payments begin, the certificate maintenance charge is deducted
only from variable annuity payments and the charge amount is guaranteed not
to increase. We will subtract this charge in equal parts from each annuity
payment. For example, if annuity payments are monthly, then we will deduct
one-twelfth of the annual charge from each payment.
We will waive the charge on and after the Income Date for the current year
if:
o you have selected variable annuity Option A; and
o the present value of all of the remaining payments is at least
$40,000 at the time of the first payment of the year.
Deductions for Mortality and Expense Risk Charge
Variable annuity payments fluctuate depending on the investment performance
of the Sub-accounts. The payments will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the
general population. We guarantee the standard death benefit described in
"Death Provisions". We also assume an expense risk since the certificate
maintenance charge after the Income Date remains the same and does not
change to reflect variations in expenses.
We deduct a mortality and expense risk charge from each Sub-account. The
mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the average daily net asset value of each Sub-account. We deduct the charge
both before and after the Income Date. We may deduct less than the full
charge from Sub-account values attributable to Certificates issued to our
employees and to other persons specified in "Sales of the Certificates".
Deductions for Daily Distribution Charge
We deduct from each Sub-account for each valuation period a daily
distribution charge equal on an annual basis to 0.15% of the average daily
net asset value of each Sub-account. This charge compensates us for certain
sales distribution expenses relating to the Certificates. We do not deduct
the distribution charge during the annuity payment period.
We do not deduct this charge from the values of Certificates issued to our
employees and other persons specified in "Sales of the Certificates". We
may decide not to deduct the charge from Sub-account values attributable to
a Certificate issued in an internal exchange or transfer of an annuity
contract from our general account.
Deductions for Surrender Charge
We do not deduct a sales charge from the Certificate when you purchase it.
We may deduct such a charge if you make a withdrawal from your Certificate.
To determine whether we will deduct a surrender charge on a withdrawal, we
maintain a separate set of records. These records identify the date and
amount of each purchase payment you have made and the Certificate Value
over time. This allows us to determine if a charge is due with respect to a
withdrawal from a particular purchase payment.
You may make partial withdrawals during the Accumulation Period without
incurring a surrender charge. During the first Certificate Year, you may
withdraw an amount up to the Certificate's earnings. Earnings equal the
Certificate Value at the time of withdrawal, less purchase payments not
previously withdrawn. Beginning with the second Certificate Year, you may
withdraw earnings, and up to an amount equal to 10% of the Certificate
Value on the prior Certificate Anniversary, less earnings. In each Year, we
will deduct a surrender charge with respect to any portion of your
withdrawals in excess of these "free withdrawal amounts".
We will deduct the excess withdrawal amount in any Certificate Year from
the purchase payments beginning with the oldest payment until we have
deducted the full amount.
The amount of the surrender charge for each purchase payment from which an
excess withdrawal is deducted will equal the amount so deducted multiplied
by the applicable percentage for the number of years that have elapsed from
the date of the purchase payment to the date of surrender. We measure years
from the date of each purchase payment you make. The applicable percentages
for each year are 7% during the first year, and decreasing by 1% each
following year until the percentage is 0%. We will deduct the surrender
charges from the Sub-accounts and the Fixed Account in the same manner as
we deduct the amount you withdraw.
The surrender charge is used to cover the expenses of selling the
Certificate, including the cost of sales literature and compensation paid
to selling dealers. Selling dealers may receive up to 6.00% or 7.00% of
purchase payments. (See "Sales of the Certificates".) We pay any expenses
not covered by the charge from our general account, which may include
monies deducted from the Variable Account for the mortality and expense
risk charge.
We will waive the surrender charge in the event a Covered Person is
confined in a medical facility in accordance with the provisions and
conditions of an endorsement to the Certificate relating to such
confinement.
The surrender charge is not applicable to Certificates issued to our
employees and other persons specified in "Sales of the Certificates".
We may reduce or change any surrender charge percentage to 0% under a
Certificate issued in an internal exchange or transfer of an annuity
contract from our general account.
Under the "Systematic Withdrawal Program" on page 24 and under other
permitted circumstances, we may allow the 10% "free withdrawal amount" to
be available in the first Certificate Year.
Deductions for Optional Riders
The yearly charge for the guaranteed income benefit rider is .35%. The
yearly charge for the enhanced death benefit rider is .05% if you purchase
it along with the income rider. If you purchase only the enhanced death
benefit rider or purchase both and later revoke the income benefit rider,
the yearly charge for the enhanced death benefit rider alone will be .10%.
As long as a rider remains in effect, the applicable charge percentage is
multiplied on each Certificate Anniversary by the greater of two defined
benefit base amounts and the resulting dollar amount of the charge is
deducted from the Certificate Value. A pro-rata portion of the charge
amount is also deducted upon a total surrender unless the charge is waived,
for example, because of death. (See "Enhanced Death Benefit Rider" and
"Guaranteed Income Benefit Rider".)
As stated above, the enhanced death benefit rider charge is a percentage of
the greater of two benefit base amounts. One of the benefits base amounts
is based on the same Certificate Anniversary values used by us to calculate
the standard death benefit and we charge for that benefit as part of the
mortality and expense risk charge. Thus, the rider potentially charges
again for the same benefit. If, however, the charge base for the rider did
not include the Certificate Anniversary values, we would need to set the
rider charge higher than the applicable .05% or .10%.
Deductions for Transfers of Variable Account Value
Currently, we do not charge a transfer fee. However, the Certificate allows
us to charge up to $25 for each transfer in excess of 12 per year that
occur outside of the optional investment related programs. We will notify
you prior to the imposition of any fee.
Deductions for Premium Taxes
We deduct the amount of any premium taxes required by any state or
governmental entity. Currently, we deduct premium taxes from Certificate
Value upon full surrender (including a surrender for the Death Benefit) or
annuitization. The actual amount of any such premium taxes will depend,
among other things, on the type of Certificate you purchase (Qualified or
Non-Qualified), on your state of residence, the state of residence of the
Annuitant, 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
We will deduct income taxes from any amount payable under the Certificate
that a governmental authority requires us to withhold. See "Income Tax
Withholding" and "Tax-Sheltered Annuities".
Total Variable Account Expenses
Total Variable Account expenses you will incur will be the certificate
maintenance charge, the mortality and expense risk charge, the daily
distribution charge, and, if applicable a tax charge factor. (See "Net
Investment Factor".)
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and the deductions and expenses paid out of the assets
of the Eligible Funds. The prospectus for the Eligible Fund describes these
deductions and expenses.
Certificate Value Deductions
The certificate maintenance charge, surrender charge, the charge for the
optional riders, transfer fee and premium taxes are each calculated
independent of the other charges for purposes of determining the applicable
charge amount and/or whether a charge waiver applies. Next, each charge
amount is then deducted from the appropriate value under the Certificate.
The above approach can be contrasted with a processing order that
calculates a particular charge first and then deducts it from the
appropriate value, then calculates another charge on the new net value and
deducts that charge, and so on until all charges are calculated and
deducted. As a result, the amount of a particular charge could vary
depending on whether it was determined first, second, third, etc. We do
not use this approach.
OTHER SERVICES
The Programs. We offer the following optional investment-related programs
under your Certificate which are only available prior to the Income Date:
o dollar cost averaging;
o asset allocation;
o systematic investment; and
o systematic withdrawal.
A rebalancing program is available before and after the Income Date.
Under each program that uses transfers, there will never be a charge for
the transfers between and among Sub-accounts and the Fixed Account. Each of
the programs has its own requirements, as discussed below. We reserve the
right to terminate any program.
If you have submitted a telephone authorization form, you may make certain
changes by telephone. For those programs involving transfers, you may
change instructions by telephone with regard to which Sub-account value or
Fixed Account Value may be transferred. We describe the current conditions
and procedures in Appendix B.
Dollar Cost Averaging Program. Under the program, we make automatic
transfers of Accumulation Units 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 you select. The program allows you to
invest in the Sub-accounts over time rather than all at once. The program
is available for purchase payments and amounts transferred into the Stein
Roe Money Market Sub-account or the One-Year Guarantee Period. We reserve
the right to limit the number of Sub-accounts you may choose; currently,
there are no limits.
If you wish to participate in the program you must specify in writing the
Stein Roe Money Market Sub-account or the One-Year Guarantee Period from
which you want the transfers made. You must also tell us the monthly
amount you want transferred (minimum $100) and the Sub-account(s) to which
you want the transfers made. The first transfer will occur at the close of
the valuation period designated by us that is within 30 days after we
receive your request. Each subsequent periodic transfer will occur at the
close of the same valuation period one month later. For example, if you
select monthly transfers and the first transfer occurs on 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, we will transfer that remaining value and the program will end.
Before this final transfer, you may extend the program by allocating
additional purchase payments, or by transferring Certificate Value, to the
Stein Roe Money Market Sub-account or the One-Year Guarantee Period.
You may change the monthly amount you want transferred, the Sub-account(s)
to which you want transfers made, or end the program. The program will
automatically end on the Income Date. We reserve the right to end the
program at any time by sending you a notice one month in advance.
We must receive your written or telephone instructions by 4:00 PM Eastern
Time of the business day before the next scheduled transfer in order for
the new instructions to be in effect for that transfer. We establish
conditions and procedures for telephone instructions for dollar cost
averaging from time to time. The current conditions and procedures appear
in Appendix B, and you will be notified prior to any changes.
We may from time to time offer a variation of the program described above
that applies only to your initial purchase payment and that makes transfers
to the Sub-account(s) you select from a One-Year Guarantee Period that is
only available with dollar cost averaging. This One-Year Guarantee Period
will have a higher interest rate than the regular One-Year Guarantee
Period. We set the transfer time period(s) that you may select which is
generally 6 or 12 months.
We calculate the monthly transfer amount by dividing the purchase payment
amount allocated to the One-Year Guarantee Period by the number of months
in the transfer time period. The last monthly transfer amount also includes
all the interest credited to the One-Year Guarantee Period over the
transfer time period. You may not change the transfer time period and/or
the monthly transfer amount.
Asset Allocation Program. You may create your own asset allocation
portfolio model using the variable Sub-accounts and the Guarantee Periods
of the Fixed Account. Your allocation percentages must total 100% and each
allocation percentage, if not zero, must be at least 5% and a whole number.
Alternatively, you may choose one of the following five asset allocation
model portfolios for the Certificate that have been separately developed by
Ibbotson Associates and Standard & Poor's:
o Model A -- Capital Preservation,
o Model B -- Income and Growth,
o Model C -- Moderate Growth,
o Model D -- Growth, and
o Model E -- Aggressive Growth.
If you create your own model or choose one of the models A through E, we
will allocate your initial and subsequent purchase payments among the
specific Sub-accounts used in the applicable model based on the model's Sub-
account percentages.
Before requesting us to apply any model to your Certificate, you should
review its Sub-account allocations to determine that they correspond to
your risk tolerance and time horizons. An optional questionnaire and
scoring system is available for models A through E to help you determine
the model you may wish to select.
For any particular model A through E, the percentage allocations of its Sub-
accounts and the type of broad asset class (e.g., stocks, bonds) of each
Sub-account determines the model's percentage allocations among the broad
asset classes. These percentage allocations among Sub-accounts and broad
asset classes under your Certificate may differ from those used in the same
five models A through E offered under another certificate of ours that are
described in other prospectuses.
Periodically Ibbotson Associates and Standard & Poor's will review models A
through E and may determine that a reconfiguration of the Sub-accounts and
percentage allocations among those Sub-accounts is appropriate. You will
receive notification prior to any reconfiguration.
The Fixed Account is not available in models A through E. You may, however,
allocate initial or subsequent purchase payments, or Certificate Value,
between models A through E and the Fixed Account.
Rebalancing Program. Rebalancing allows you to maintain the percentage of
your Certificate Value allocated to each Sub-account at a pre-set level.
Over time, the variations in each Sub-account's investment results will
shift the balance of your Certificate Value allocations. Under the
rebalancing program, each period, if the allocations change from your
desired percentages, we will automatically transfer your Certificate Value,
including new purchase payments (unless you tell us otherwise), back to the
percentages you specify. Rebalancing maintains your percentage allocations
among Sub-accounts, although it is accomplished by reducing your
Certificate Value allocated to the better performing Sub-accounts.
You may choose to have rebalancing done on a quarterly basis. We will
automatically rebalance the Certificate Value of each Sub-account on the
last day of the calendar quarter to match your current percentage
allocations. We will not charge a transfer fee for rebalancing.
Generally, you may change your allocation percentages, choice of Sub-
accounts, or terminate the program at any time by notifying us in writing.
We must receive your changes 10 days before the end of the calendar
quarter.
Certificate Value allocated to the Fixed Account is not included in the
rebalancing program. After the Income Date, the rebalancing program applies
only to variable annuity payments, and we will rebalance the number of
Annuity Units in each Sub-account. Annuity Units are used to calculate the
amount of each annuity payment.
If your total Certificate Value subject to rebalancing falls below any
minimum value that we may establish, we may prohibit or limit your use of
rebalancing. We may change, terminate, limit or suspend rebalancing at any
time.
Systematic Investment Program. You may make purchase payments for Non-
Qualified Certificates through monthly deductions from your bank account or
payroll. You may elect this program by completing and returning a
systematic investment program application and authorization form to us. You
may obtain an application and authorization form from us or your sales
representative. There is a current minimum of $50 per payment for the
program.
Systematic Withdrawal Program. To the extent permitted by law, if you
enroll in the systematic withdrawal program, we will make monthly,
quarterly, semi-annual or annual distributions directly to you. We will
treat such distributions for federal tax purposes as any other withdrawal
or distribution of Certificate Value. We will also treat such distributions
as partial withdrawals for all purposes under the Certificate, including
the calculation of the amount you would receive if you revoke the
Certificate under the "Right to Revoke" provision. You may make systematic
withdrawals from any Sub-accounts or any Guarantee Period of the Fixed
Account. However, any withdrawal from a Guarantee Period with an original
length of three or more years may be subject to a market value adjustment
(see Appendix A).
In each Certificate Year, your systematic withdrawals and any additional
partial withdrawals you make outside the program will not incur a surrender
charge if the withdrawals do not exceed the "free withdrawal amounts" (see
"Deductions for Surrender Charge"). If any portion of those withdrawals
exceeds the "free withdrawal amounts", the excess amount, if any, is:
(a) In the first Certificate Year, the amount of each partial
withdrawal either under or outside the program which is greater
than any earnings of the Certificate at the time of the
withdrawal, and
(b) In the second or later Certificate Year, any portion of the
current withdrawal amount which is greater than any earnings at
the time of the withdrawal and which, when added to any similar
excess portion of each prior withdrawal made in the same year
either under or outside the program, is greater that the 10%
"free withdrawal amount".
For the first systematic withdrawal payment type (Percentage Method)
described in Appendix C, the prior paragraph will be modified in three ways
only for withdrawals occurring in the first Certificate Year. First, the
"free withdrawal amounts" shall include the Certificate's standard first-
year amount of earnings plus a special additional amount equal to 10% of
the Certificate Value on the date of the first systematic withdrawal, less
earnings. Second, (b) in the prior paragraph, instead of (a), shall apply
in the first Certificate Year. Third, if you revoke the program in the
first Certificate Year, then any subsequent partial withdrawals will
immediately become subject to the standard first-year rule in (a) above
that the "free withdrawal amount" is only earnings.
Unless you specify the Sub-account(s) or the Fixed Account from which you
want withdrawals of Certificate Value made, or if the amount in a specified
Sub-account is less than the predetermined amount, we will make withdrawals
under the program in the manner specified for partial withdrawals in
"Partial Withdrawals and Surrender". We will process all Sub-account
withdrawals under the program by canceling Accumulation Units equal in
value to the amount to be distributed to you and to the amount of any
applicable surrender charge.
You may combine the program with all other programs except the systematic
investment program.
It may not be advisable to participate in the systematic withdrawal program
and incur a surrender charge and income taxes when making additional
purchase payments under the Certificate.
Appendix C describes the systematic withdrawal program in greater detail,
including the five payment types currently available.
THE CERTIFICATES
Variable Account Value
The Variable Account Value for a Certificate is the sum of the value of
each Sub-account to which you have allocated values. We determine the value
of each Sub-account at any time by multiplying the number of Accumulation
Units attributable to that Sub-account by its Accumulation Unit value.
Each purchase payment you make results in the credit of additional
Accumulation Units to your Certificate and the appropriate Sub-account. 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
We determine the value of the Variable Account each valuation period using
the net asset value of the Eligible Fund shares. A valuation period is the
period generally beginning at 4:00 P.M. (EST), or any other time for the
close of trading on the New York Stock Exchange, and ending at the close of
trading for the next business day. 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
Your Variable Account Value will fluctuate with the investment results of
the underlying Eligible Funds you have selected. In order to determine how
these fluctuations affect value, we use an Accumulation Unit value. Each
Sub-account has its own Accumulation Units and value per unit. We determine
the unit value applicable during any valuation period at the end of that
period.
When we first purchased Eligible Fund shares on behalf of the Variable
Account, we 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. We calculate a net investment factor for each Sub-account
according to the following formula (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 the Eligible Fund made
if the "ex-dividend" date occurs during that same valuation
period.
(b) is the net asset value per share of the Eligible Fund at the end of
the prior valuation period.
(c) is equal to:
(i) the valuation period equivalent of the mortality and expense
risk charge; plus
(ii) the valuation period equivalent of the daily distribution
charge; plus
(iii) a charge factor established by us for any taxes resulting
from the operations of that Sub-account (currently zero).
For Certificates issued to our employees and other persons specified in
"Sales of the Certificates", the mortality and expense risk charge in
(c)(i) above is .35% and the daily distribution charge in (c)(ii) above is
eliminated. We may eliminate the daily distribution charge in (c)(ii) above
for certain Certificates we issue in an internal exchange or transfer.
Modification of the Certificate
Only our President or Secretary may agree to alter the Certificate or waive
any of its terms. A change may be made to the Certificate if there have
been changes in applicable law or interpretation of law. Any changes will
be made in writing and with your consent, except as may be required by
applicable law.
Right to Revoke
You may return the Certificate within 10 days after you receive it by
delivering or mailing it to us. The postmark on a properly addressed and
postage-prepaid envelope determines if a Certificate is returned within the
period. We will treat the returned Certificate as if we never issued it and
will refund either the Certificate Value or purchase payments, whichever is
required by state law. You may ask us which standard applies to your state.
In states where we will refund your Certificate Value, you bear the
investment risk during the period prior to our receiving your request for
cancellation.
If we deliver your Certificate to you in California and you are age 60 or
older, you may return the Certificate to us or to the agent from whom you
purchased it. If you return the Certificate within 30 days after you
received it, we will refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
Death of Primary Owner, Joint Owner or Annuitant
If, the Certificate is In Force, you, any joint Certificate Owner or the
Annuitant dies, we will treat the Designated Beneficiary as the Certificate
Owner after such a death. The Designated Beneficiary will be the first
person among the following who is alive on the date of death: you; the
joint Certificate Owner; the primary beneficiary; the contingent
beneficiary; and if none of the prior persons are alive, your estate. If
you and the joint Certificate Owner are both alive, both of you will be the
Designated Beneficiary.
If the Annuitant was the decedent and he or she was not a Certificate
Owner, and you and any Joint Certificate Owner are all natural persons, the
Designated Beneficiary may surrender the Certificate after the Annuitant's
death for the Death Benefit. If the Designated Beneficiary elects instead
to continue the Certificate until another death occurs, the Designated
Beneficiary may surrender the Certificate for the Death Benefit after that
death. All of "Death Provisions", including this paragraph which gives the
Designated Beneficiary the option of surrendering or continuing the
Certificate after the death of a non-Owner Annuitant, will apply to that
subsequent death. If the Certificate is continued after the death of a non-
Owner Annuitant, (a) the new Annuitant will be any living contingent
Annuitant, or the person you designate in writing within 60 days of death,
or you and (b) you will continue to be the Certificate Owner and treated as
the Designated Beneficiary.
The following two paragraphs apply if the decedent is the Certificate Owner
or any joint Certificate Owner and the second paragraph applies if there is
a non-natural Certificate Owner such as a trust and the decedent is the
Annuitant.
If the decedent's surviving spouse is the sole Designated Beneficiary, he
or she will automatically become the new sole primary Certificate Owner as
of the decedent's date of death. If the decedent was the Annuitant, the new
Annuitant will be any living contingent annuitant, otherwise the surviving
spouse. If the surviving spouse does not surrender the Certificate for the
Death Benefit, it will continue until he or she or the Annuitant, if a
different person, dies. Except for this paragraph, all of "Death Provisions
for Non-Qualified Certificates" will apply to that subsequent death.
In all other cases (i.e., either when a sole Designated Beneficiary is
other than the decedent's surviving spouse or when there is more than one
Designated Beneficiary), the Death Benefit will apply whether the
Designated Beneficiary chooses to surrender the Certificate or continue it
for a period not to exceed five years from the date of death. During this
continuation period, the Designated Beneficiary may exercise all ownership
rights, including the right to make transfers or partial withdrawals and/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
five-year continuation period, we will automatically end it then by paying
the Certificate Value less any premium taxes to the Designated Beneficiary.
If the Designated Beneficiary is not alive then, we will pay any person(s)
named by the Designated Beneficiary in writing; otherwise we will pay the
Designated Beneficiary's estate.
Standard Death Benefit
The Covered Persons shall be you, any joint Certificate Owner, and the
Annuitant. If there is a non-natural Certificate Owner such as a trust, the
Annuitant shall be the sole Covered Person.
We will calculate the Death Benefit when the first Covered Person dies
while the Certificate is In Force and we have received due proof of death
and a written request from the Designated Beneficiary to surrender or
continue the Certificate. In the following two instances, if the Designated
Beneficiary elects to continue the Certificate rather than surrender it,
the Death Benefit calculation will not occur and will automatically be
deferred to a subsequent death:
o when the decedent's surviving spouse is the sole Designated
Beneficiary; if he or she chooses to continue the Certificate
rather than surrender it for the Death Benefit, the Death Benefit
may be calculated following the death of that surviving spouse or
the Annuitant, if different; and
o when the decedent is a non-Owner Annuitant and you and any joint
Certificate Owner(s) are all natural persons; if you choose to
continue the Certificate rather than surrender it for the Death
Benefit, the Death Benefit may be calculated following your
death, the death of any joint Certificate Owner, or the new
Annuitant.
We will calculate the Death Benefit only once during the life of your
Certificate. The Death Benefit is the greatest of the following three
amounts at the time we receive due proof of death and the Designated
Beneficiary's election request in writing:
o the current "net purchase payment death benefit",
o the current "greatest Anniversary value", or
o the current Certificate Value.
The Death Benefit amount does not change your Certificate Value at any time
prior to the death of a Covered Person and does so after such a death only
under the conditions described below.
If the Designated Beneficiary is surrendering the Certificate for the Death
Benefit, we will pay the greatest of the three amounts defined above less
any premium taxes. If (a) the Designated Beneficiary is continuing the
Certificate and the Death Benefit calculation is applicable to that
continuation and (b) on the date we receive due proof of death and the
written election to continue the Certificate, the current "net purchase
payment death benefit" and/or the current "greatest Anniversary value" is
greater than the current Certificate Value, then we will add the higher
difference in amounts to the current Certificate Value. We allocate this
additional amount to the Variable Account and/or the Fixed Account based on
the current purchase payment allocation selection then in effect.
Net Purchase Payment Death Benefit. The "net purchase payment death
benefit" is:
o the initial purchase payment, plus
o any additional purchase payments made prior to the Death Benefit
calculation date, less
o any partial withdrawals (including any applicable surrender
charges) made prior to the Death Benefit calculation date.
We calculate the "net purchase payment death benefit" daily for each
Covered Person so that it will be available if the Death Benefit
calculation is applicable to that person's death.
Greatest Anniversary Value. On the Certificate Date, we will determine if
any Covered Person is age 80 or older. If so, the "greatest Anniversary
value" will not apply upon his or her death. Thus, for purposes of the
calculation of the Death Benefit, described in "Standard Death Benefit"
above, the "greatest Anniversary value" shall be zero. This zero treatment
effectively changes the Death Benefit applicable to the particular Covered
Person from the greatest of three defined amounts to the greater of just
two of those amounts.
If any Covered Person is under age 80 on the Certificate Date, we calculate
the "greatest Anniversary value" on Certificate Anniversaries with
adjustments between Certificate Anniversaries if you make a purchase
payment or partial withdrawal. We do this calculation for each Covered
Person under the age of 80 on the Certificate Date so that the "greatest
Anniversary value" will be available if the Death Benefit calculation is
applicable to that person's death. The "greatest Anniversary value" for
each applicable Covered Person initially equals the Certificate Value on
the first Certificate Anniversary. Then, each following day in the second
Certificate Year, we will adjust the "greatest Anniversary value" by adding
any additional purchase payments made that day, and subtracting the
following amount for each partial withdrawal made that day:
o the amount of the partial withdrawal (including any applicable
surrender charge),
o divided by the Certificate Value immediately before the withdrawal,
and
o multiplied by the "greatest Anniversary value" immediately before
the withdrawal.
On the second and each subsequent Certificate Anniversary, we compare the
current Certificate Value to the "greatest Anniversary value", adjusted as
described above if you made any purchase payments and/or partial
withdrawals during the Certificate Year ending on that Certificate
Anniversary. If the current Certificate Value exceeds the adjusted
"greatest Anniversary value", the current Certificate Value will become the
new "greatest Anniversary value". Except for the two instances relating to
adding or changing a Covered Person that are described in the last two
paragraphs of this section, our last Certificate Anniversary calculation
for each applicable Covered Person will occur:
o If the Covered Person dies prior to his or her 81st birthday, on
the Certificate Anniversary before that person's death, or
o If the Covered Person dies on or after his or her 81st birthday, on
the Certificate Anniversary before his or her 81st birthday.
On the last Certificate Anniversary specified in the prior two sentences
that is applicable to a Covered Person, we will set that Covered Person's
last "greatest Anniversary value" equal to the greater of his or her
current Certificate Value and the adjusted "greatest Anniversary value".
Between the last Certificate Anniversary and the date of death, the last
"greatest Anniversary value" for each applicable Covered Person will not
change unless you make purchase payments and/or partial withdrawals, in
which case the person's last value will be adjusted as described above.
Between the date of death and the calculation of the Death Benefit upon
receipt of the Designated Beneficiary's request to surrender or continue
the Certificate for the Death Benefit, the "greatest Anniversary value" for
each applicable Covered Person last determined before death under the prior
sentence will not change unless you make purchase payments and/or partial
withdrawals, in which case the person's value will be further adjusted on a
dollar-for-dollar basis as described above for the "net purchase payment
death benefit".
If (a) at least one current Covered Person has not yet reached the
Certificate Anniversary before his or her 81st birthday and (b) you either
add or replace any Covered Person with a person who is age 80 or older as
of the Certificate Date, the "greatest Anniversary value" will not apply
upon the new Covered Person's death. Thus, for purposes of the calculation
of the Death Benefit described in "Standard Death Benefit" above, the
"greatest Anniversary value" shall be zero. This zero treatment
effectively changes the Death Benefit applicable to the new Covered Person
from the greatest of three defined amounts to the greater of only two of
those amounts.
If each Covered Person lives until the Certificate Anniversary before his
or her 81st birthday and then you add or replace a Covered Person, the
current "greatest Anniversary value" for the youngest of the other Covered
Persons will become the "greatest Anniversary value" for the new Covered
Person. If this value is zero, it will never change from zero; this zero
treatment effectively changes the Death Benefit applicable to the new
Covered Person from the greatest of three defined amounts to the greater of
only two of those amounts. If the "greatest Anniversary value" for the new
Covered Person is greater than zero, it will not change unless you make
purchase payments and/or partial withdrawals, in which case we will adjust
the value in the same manner as is described in the two paragraphs above
that begin with "Between".
Systematic Withdrawal and Systematic Investment Programs. After we receive
due proof of death or receive information about a death that we reasonably
believe to be true, we will end any systematic withdrawal program and/or
systematic investment program except as follows:
o for systematic withdrawals, the Designated Beneficiary is a
Certificate Owner who requested us to begin the program and/or has
been the sole or joint recipient of the payments
o for systematic investments, the decedent is a non-owner Annuitant.
If we end your systematic withdrawal program based on the above but have
paid any systematic withdrawal(s) after death to a person other than the
Designated Beneficiary, we will use reasonable efforts to get the recipient
to return the systematic withdrawal amount(s) so that it may be paid to the
Designated Beneficiary or added to the Certificate Value if the Designated
Beneficiary elects to continue the Certificate. If the recipient does not
return the payment(s), we are not responsible to pay the Designated
Beneficiary for those payments.
Enhanced Death Benefit Rider
The prior section provides that, for a total surrender or a continuation of
the Certificate where the Death Benefit is to be calculated, the Death
Benefit will generally be the greatest of three defined amounts. If you
elect in writing at the time of your purchase of the Certificate to add to
your Certificate the optional enhanced death benefit rider, the applicable
Death Benefit will be the greatest of those three defined amounts and the
fourth amount defined in this section, which is referred to as "Purchase
Payments with Interest" (PPI). You may not elect the rider if you, any
Joint Certificate Owner(s), and the Annuitant are all over age 75 on the
Certificate Date or the rider is not available in your state. If, however,
the rider becomes available within 60 days of your Certificate Date, we
will notify you and/or the agent who sold you the Certificate and allow you
to elect the rider within 60 days from the date of first availability. If
you elect the rider, it will be effective from the Certificate Date for all
purposes, including the calculation of charges.
The enhanced death benefit rider does not change your Certificate Value at
any time prior to the death of a Covered Person and does so after such a
death only if the PPI amount is the applicable Death Benefit.
Purchase Payments with Interest. On the Certificate Date, we will determine
if any Covered Person is age 80 or older. If so, PPI will not apply upon
his or her death. Thus, for purposes of the above calculation of the Death
Benefit, the PPI amount shall be zero. This zero treatment, in conjunction
with the same zero treatment applicable to the "greatest Anniversary
value", effectively changes the Death Benefit applicable to the particular
Covered Person from the greatest of four defined amounts to the greater of
only two of those amounts.
If any Covered Person is under age 80 on the Certificate Date, we calculate
the PPI amount on Certificate Anniversaries with adjustment between
Certificate Anniversaries if you make a purchase payment or partial
withdrawal. We do this calculation for each Covered Person under age 80 on
the Certificate Date so that the PPI amount will be available if the Death
Benefit calculation under the rider is applicable to that person's death.
The PPI amount for each applicable Covered Person equals, on each
Certificate Anniversary, the initial purchase payment increased from the
Certificate Date to the date of the Certificate Anniversary based on an
annual compound interest rate of 6%. On any day that you made a purchase
payment or partial withdrawal, we adjust the PPI amount accumulating at 6%
by adding the additional purchase payment amount or subtracting the
following amount for the partial withdrawal:
o the amount of the partial withdrawal (including any applicable
surrender charge),
o divided by the Certificate Value immediately before the withdrawal,
and
o multiplied by the PPI amount immediately before the withdrawal.
Except for the two instances relating to adding or changing a Covered
Person that are described in the last two paragraphs of this section, our
last Certificate Anniversary calculation of the PPI amount for each
applicable Covered Person will occur:
o If the Covered Person dies prior to his or her 81st birthday, on
the Certificate Anniversary before that person's death, or
o If the Covered Person dies on or after his or her 81st birthday, on
the Certificate Anniversary before his or her 81st birthday.
Between our last Certificate Anniversary calculation and the date of death,
the PPI amount for each applicable covered Person will not change unless
you make purchase payments and/or partial withdrawals, in which case we
will increase or decrease, respectively, the person's PPI amount in the
manner described in the second paragraph of PPI above.
Between the date of death and the calculation of the Death Benefit upon
receipt of the Designated Beneficiary's request to surrender or continue
the Certificate for the Death Benefit, the PPI amount last determined
before death under the prior sentence will not change unless you make
purchase payments and/or partial withdrawals, in which case we will
increase or decrease, respectively, the PPI amount on a dollar-for-dollar
basis at the time of payment or withdrawal.
If (a) at least one current Covered Person has not yet reached the
Certificate Anniversary before his or her 81st birthday and (b) you either
add or replace any Covered Person with a person who is age 80 or older as
of the Certificate Date, the PPI amount will not apply upon the new Covered
Person's death. Thus, for purposes of the calculation of the Death
Benefit, the PPI amount shall be treated as equaling zero. This zero
treatment, in conjunction with the same zero treatment applicable to the
"greatest Anniversary value", effectively changes the Death Benefit
applicable to the new Covered Person from the greatest of four defined
amounts to the greater of only two of those amounts.
If each Covered Person lives until the Certificate Anniversary before his
or her 81st birthday and then you add or replace a Covered Person, the
current PPI amount for the youngest of the other Covered Persons will
become the PPI amount for the new Covered Person. If this value is zero,
it will never change from zero; this zero treatment effectively changes the
Death Benefit applicable to the new Covered Person from the greatest of
four defined amounts to the greater of only two of those amounts. If the
PPI amount for the new Covered Person is greater than zero, it will change
only if you make purchase payments and/or partial withdrawals, in which
case we will adjust the PPI amount in the same manner as is described above
in the two paragraphs above that begin with "Between".
Charge for the Rider. The yearly charge for the enhanced death benefit
rider is .05% if you purchase the rider along with the optional guaranteed
income benefit rider and you do not revoke the income rider. The yearly
charge for the death benefit rider is .10% if you purchase it separately or
you purchase both riders together but then revoke the income rider. If the
income rider is revoked, the .10% charge for the death benefit rider will
begin after the seventh Certificate Anniversary since revocation can only
occur on that Anniversary. These charge percentages will not change over
the life of the riders.
On each Certificate Anniversary on or before the end of the rider's
coverage (see "Revocability and Other Ending of Rider Coverage" below), we
calculate and deduct the dollar amount of the rider's yearly charge as
follows:
o we identify the youngest Covered Person and determine on each
Certificate Anniversary the greater of his or her PPI amount and
the "greatest Anniversary value", both defined above,
o then, we multiply the prior amount by the applicable charge
percentage in order to determine the dollar amount of the charge,
and
o then, we then deduct the dollar amount of the charge from your
Certificate Value. We will deduct the charge 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
or insufficient value in the Variable Account, we will deduct the
charge amount, or insufficient portion, from the Fixed Account in
the ratio that each Guarantee Period's value bears to the total
Fixed Account Value.
If you surrender your Certificate during a Certificate Year before the
Certificate Anniversary, we will deduct a pro-rata amount of the full
yearly charge from your Certificate Value. We first determine the
applicable full yearly charge. We will use the yearly charge we computed
as of the prior Certificate Anniversary unless you have made any purchase
payments and/or partial withdrawals since then. If so, we will use a
yearly charge that may be higher or lower since we will substitute the
following for both the PPI amount and the "greatest Anniversary value" we
used in the Anniversary calculations: those two amounts after both are
adjusted for each purchase payment and withdrawal you made since the
Anniversary. We will then calculate a pro-rata amount of the applicable
yearly charge by multiplying it further by the ratio of the number of days
from the Certificate Anniversary until the day of surrender to the total
number of days (generally 365) in the Certificate Year of surrender.
No charge amount will be due:
o upon surrender of the Certificate if the Death Benefit is being
calculated at that time because the Designated Beneficiary has
elected to surrender the Certificate (see "Standard Death
Benefit"), or
o on the Income Date.
Also, if we deduct a charge amount on any Certificate Anniversary during
the period
o starting when we receive due proof of death or similar information
we reasonably believe to be true and
o ending when we calculate the Death Benefit because the Designated
Beneficiary has elected to surrender or continue the Certificate,
we will refund each such charge amount by adding it either to the surrender
payment or to the Certificate Value in the case of a continuation.
Revocability and Other Ending of Rider Coverage. You may revoke the
enhanced death benefit rider in writing only on, or within 30 days after,
the seventh Certificate Anniversary. There is no charge to do this since
the final (seventh) year's charge for the rider will already have been
calculated and deducted on the seventh Certificate Anniversary.
Coverage under the enhanced death benefit rider ends upon the earliest of:
o the seventh Certificate Anniversary if you revoke the rider within
30 days after that Anniversary;
o the total surrender of your Certificate;
o the calculation of the Death Benefit either at the time of total
surrender or a continuation of your Certificate;
o the start of annuity payments on the Income Date.
After the rider ends, there will be no further charges for the rider and no
past charges will be refunded. The PPI amount will no longer apply as a
fourth component of the rider's Death Benefit. Instead, the Death Benefit
will be as described in "Standard Death Benefit" above.
Payment of Death Benefit
Instead of receiving a lump sum, you or any Designated Beneficiary may
direct us in writing to pay any surrender Death Benefit of $5,000 or more
under an annuity payment option that meets the following:
o the first payment to the Designated Beneficiary must be made no
later than one year after the date of death;
o payments must be made over the life of the Designated Beneficiary
or over a period not extending beyond that person's life
expectancy; and
o 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 during which the remaining
payments are to be made.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
If the Annuitant dies while the Certificate is In Force, the Designated
Beneficiary will control the Certificate. If the Designated Beneficiary
chooses in writing to surrender the Certificate for the Death Benefit, we
will pay the greatest of the three amounts determined in "Standard Death
Benefit" above, less any premium taxes. If you elect the optional enhanced
death benefit rider, the "Purchase Payments with Interest" section above
shall apply and the Death Benefit will instead be based on the greatest of
four amounts, less any premium taxes. This surrendered Death Benefit may be
applied to an annuity payment option in accordance with "Payment of Death
Benefit" above.
If the Annuitant's surviving spouse is the sole Designated Beneficiary and
he or she chooses to continue the Certificate instead of surrendering it
for the Death Benefit, the Death Benefit will be calculated following his
or her death in the same manner as the non-qualified Certificate Death
Benefit.
If any other Designated Beneficiary chooses to continue the Certificate
instead of surrendering it for the Death Benefit, both the Death Benefit
calculation and any addition to the current Certificate Value will be
handled in the same manner as the non-qualified Certificate Death Benefit.
The Certificate may continue for the time period permitted by the Internal
Revenue Code provisions applicable to the particular Qualified Plan.
During this continuation 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 continuation period, we will automatically end it then by paying
the Certificate Value less any premium taxes to the Designated Beneficiary.
If the Designated Beneficiary is not alive then, we will pay any person(s)
named by the Designated Beneficiary in writing; otherwise we will pay the
Designated Beneficiary's estate.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application and
you may exercise all the rights of the Certificate. Joint Certificate
Owners are permitted. Contingent Certificate Owners are not permitted.
You may direct us in writing to change the Certificate Owner, primary
beneficiary, contingent beneficiary or contingent annuitant. An irrevocably-
named person may be changed only with the written consent of that person.
Because a change of Certificate Owner by means of a gift may be a taxable
event, you 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.
You should consult the plan administrator and a competent tax adviser as to
the tax consequences resulting from such a transfer.
ASSIGNMENT
You may assign the Certificate at any time. You must file a copy of any
assignment with us. Your rights and those of any revocably-named person
will be subject to the assignment. A Qualified Certificate may have
limitations on your ability to assign the Certificate.
Because an assignment may be a taxable event, you should consult a
competent tax adviser as to the tax consequences resulting from any such
assignment.
PARTIAL WITHDRAWALS AND SURRENDER
You may make partial withdrawals from the Certificate by notifying us in
writing. The minimum withdrawal amount is $300. We may permit a lesser
amount with the systematic withdrawal program. If the Certificate Value
after a partial withdrawal would be below $2,500, we will treat the request
as a withdrawal of only the amount over $2,500. The amount withdrawn will
include any applicable surrender charge and may be greater than the amount
of the surrender check requested. Unless you specify otherwise, we will
deduct the total amount withdrawn 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 or insufficient value in the
Variable Account, 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.
You may totally surrender the Certificate by notifying us in writing.
Surrendering the Certificate will end it. Upon surrender, you will receive
the Certificate Withdrawal Value.
We will pay the amount of any surrender within seven days of receipt of
your request. Alternatively, you may purchase for yourself an annuity
payment option with any surrender benefit of at least $5,000. If the
Certificate Owner is not a natural person, we must consent to the selection
of an annuity payment option.
You may not surrender annuity options based on life contingencies after
annuity payments have begun. You may surrender Option A, described in
"Annuity Options" below, which is not based on life contingencies, if you
have selected a variable payout.
Because of the potential tax consequences of a full or partial surrender,
you 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, we will begin payments to the Annuitant under the Annuity Option or
Options you have chosen. We determine the amount of the initial payment(s)
on the Income Date by using the following formula:
o your Certificate Value,
o plus any positive or negative market value adjustment
applicable to any Fixed Account Value (see Appendix A),
o less any premium taxes not previously deducted, and
o less any applicable certificate maintenance charge on the Income
Date.
Annuity Option and Income Date
You may select an Annuity Option and Income Date at the time of application
or later. Any Income Date must be:
o for variable annuity options, not earlier than the first day after
the Certificate Date,
o for fixed annuity options, not earlier than the first Certificate
Anniversary, and
o 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.
If you do not select an Annuity Option, we automatically choose Option B.
If you do not select an Income Date for the Annuitant, the Income Date will
automatically be the latest date specified above.
You may choose or change an Annuity Option or the Income Date by writing to
us at least 30 days before the Income Date.
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;
Option C: Joint and Last Survivor Income; and
Option D: Life Income.
You may arrange other options if we agree. 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 our general account Fixed Account. Variable
annuity payments will fluctuate. Fixed annuity payments will not
fluctuate. We determine the dollar amount of each fixed annuity payment by:
(a) deducting from the Fixed Account Value, increased or decreased by
a market value adjustment described in Appendix A, any
premium taxes not previously deducted and any applicable
certificate maintenance charge;
(b) dividing the remainder by $1,000; and
(c) multiplying the result by the greater of:
(i) the applicable factor shown in the appropriate table in
the Certificate; and
(ii) the factor we currently offer at the time annuity
payments begin. We may base this current factor on the sex
of the payee unless we are prohibited by law from doing so.
If you do not select an Annuity Option, we will automatically apply Option
B. Unless you choose otherwise, we will apply:
(a) Variable Account Value, less any premium taxes not previously
deducted and less any applicable certificate maintenance charge,
in its entirety to a variable annuity option, and
(b) Fixed Account Value, increased or decreased by a market
value adjustment described in Appendix A less any premium taxes
not previously deducted, to a fixed annuity option.
The same amount applied to a variable option and a fixed option will
produce a different initial annuity payment and different subsequent
payments.
The payee is the person who will receive the sum payable under a payment
option. Any payment option that provides for payments to continue after the
death of the payee will not allow the successor payee to extend the period
of time over which the remaining payments are to be made.
If the amount available under any variable or fixed option is less than
$5,000, we reserve the right to pay such amount in one sum to the payee in
lieu of the payment otherwise provided for.
We will make annuity payments monthly unless you have requested in writing
quarterly, semi-annual or annual payments. However, if any payment would be
less than $100, we have the right to reduce the frequency of payments to a
period that will result in each payment being at least $100.
Option A: Income For a Fixed Number of Years. We will pay an annuity for a
chosen number of years, not less than 5 nor more than 50. You may choose a
period of years over 30 only if it does not exceed the difference between
age 100 and the Annuitant's age on the date of the first payment. We refer
to Option A as Preferred Income Plan (PIP) when we are making variable
annuity payments. At any time while we are making variable annuity
payments, the payee may elect to receive the following amount:
(a) the present value of the remaining variable annuity payments,
commuted at the interest rate used to create the annuity factor
for this option (this interest rate for variable annuity payments
is also referred to as the assumed investment rate (AIR) or
benchmark rate and it is 6% per year (5% per year for Oregon and
Texas Certificates), unless you chose 3% per year at the time the
option was selected); less
(b) any surrender charge due by treating the value defined in (a) as a
total surrender.
Instead of receiving a lump sum, the payee may elect another payment option
and we will not reduce the amount applied to the new option by the
surrender charge above.
If, at the death of the payee, Option A payments, whether variable or
fixed, have been made for fewer than the chosen number of years:
o we will continue payments during the remainder of the period to the
successor payee; or
o the 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.
The mortality and expense risk charge is deducted during the Option A
payment period if a variable payout has been selected, but we have no
mortality risk during this period.
You may choose a "level monthly" payment option for variable payments under
Option A. Under this option, we convert your annual payment into 12 equal
monthly payments. Thus the monthly payment amount changes annually instead
of monthly. We will determine each annual payment as described below in
"Variable Annuity Payment Values", place each annual payment in our general
account, and distribute it in 12 equal monthly payments. The sum of the 12
monthly payments will exceed the annual payment amount because of an
interest rate factor we use, which may vary from year to year but will not
be less than 2.0% per year. If the payments are commuted, we will use the
commutation method described above for calculating the present value of
remaining annual payments and use the interest rate that determined the
current 12 monthly payments to commute any unpaid monthly payments.
Currently, we permit the original payee to make a number of changes to
variable payments under Option A. No new change is permitted if a change
has occurred with the prior year (i.e., the prior 365 days). For regular
PIPs, the permissible changes, which can be made at any time followed by
the yearly waiting period, include:
o shortening or lengthening the period certain provided the payments
already made and those to be made meet the 5 - 50 year and age 100
limits described above;
o changing to a life option - note that this option does not allow
the payee to end the payments for a commuted value;
o changing to the "level monthly" option;
o changing the AIR or benchmark rate;
o changing the payment frequency; and
o changing the day of the month on which payment occurs.
For "level monthly" PIPs, the permissible changes, which can only be made
on the anniversary date we convert your annual payment into 12 equal
monthly payments, include:
o shortening or lengthening the period certain provided the payments
already made and those to be made meet the 5 - 50 year and age 100
limits described above;
o changing to a life option - note that this option does not allow
the payee to end the payments for a commuted value;
o changing to the regular PIP option;
o changing the AIR or benchmark rate; and
o changing the day of the month on which payment occurs.
See "Annuity Payments" for the manner in which Option A may be taxed.
Option B: Life Income with 10 Years of Payments Guaranteed. We 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:
o we will continue payments during the remainder of the period to the
successor payee; or
o the 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 you chose 3% per year at the time
the option was selected.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. We 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.
Option D: Life Income. We will pay an annuity for as long as the payee is
alive. 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. It is
possible under this option to receive only one annuity payment if the payee
dies after the receipt of the first payment, or to receive only two annuity
payments if the payee dies after receipt of the second payment, and so on.
Variable Annuity Payment Values
We determine the amount of the first variable annuity payment by using an
annuity purchase rate based on an assumed annual investment rate (AIR or
benchmark rate) of 6% per year (5% per year for Oregon and Texas
Certificates), unless you choose 3% in writing. (See below and "Variable
Annuity Payment Values" in the Statement of Additional Information for more
information on AIRs.) 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 rate. The total dollar amount
of each variable annuity payment will be equal to:
(a) the sum of all Sub-account payments, less
(b) the pro-rata amount of the annual certificate maintenance charge.
(See "Deductions for Certificate Maintenance Charge" for the
circumstances under which this charge will be waived under
variable payments Option A.)
Currently, there is no limit on the number of times or the frequency with
which a payee may instruct us to change the Sub-account(s) used to
determine the amount of the variable annuity payments. Currently, there is
also no charge for such transfers.
If you apply an amount of Sub-account value to a particular payment option,
your initial payment will be smaller if you select a 3% AIR instead of a 6%
AIR but, all other things being equal, your subsequent 3% AIR payments have
the potential for increasing in amount by a larger percentage and for
decreasing in amount by a smaller percentage. Note that these changes in
payment amounts are on a percentage basis and do not illustrate when, if
ever, the 3% AIR payment amount might become larger than the 6% AIR payment
amount. Note though that if you select Option A (Income for a Fixed Number
of Years) 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.
Proof of Age, Sex, and Survival of Annuitant
We 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, we
will compute the amount payable based on the correct age and sex. If income
payments have begun, we will pay in full any underpayments with the next
annuity payment and deduct any overpayments, unless repaid in one sum, from
future annuity payments until we are repaid in full.
Guaranteed Income Benefit Rider
This rider is optional and you may elect in writing at the time you
purchase the Certificate to add it to your Certificate. You may not elect
the rider if the Annuitant is over age 75 on the Certificate Date or the
rider is not available in your state. If, however, the rider becomes
available within 60 days of your Certificate Date, we will notify you
and/or the agent who sold you the Certificate and allow you to elect the
rider within 60 days from the date of first availability. If you elect the
rider, it will be effective from the Certificate Date for all purposes,
including the calculation of charges.
You may direct us under the rider to make fixed annuity income payments to
the Annuitant as follows:
o your selected payment option must be either Option B (Life Income
with 10 Years of Payments Guaranteed) or Option D (Life Income)
o the periodic fixed payment amount under the selected option will be
the greater of:
o the rider's guaranteed income benefit base amount less any
premium taxes and any surrender charge, then divided by $1,000,
and then multiplied by the guaranteed payout factor shown in the
payment table in the Certificate for the Annuitant's age on the
Income Date adjusted by the Certificate's age setback provision
o your Certificate Value less any premium taxes and any
certificate maintenance charge, and reduced or increased by the
amount of any market value adjustment applicable to any
Fixed Account Value. Next, the resulting Value is divided by
$1,000, and then multiplied by our current payout factor on the
Income Date for the Annuitant's then-current age adjusted by the
Certificate's age setback provision
o your selected Income Date must be
o on or within 30 days after the seventh or later Certificate
Anniversary, and
o no later than the maximum Income Date specified in "Change In
Annuity Option and Income Date".
The guaranteed income benefit rider never changes your Certificate Value
nor does it guarantee that your Certificate Value will increase over time
at any minimum rate. Instead, the rider provides for guaranteed fixed
lifetime income payments based generally on the "Purchase Payments with
Interest" value on the Income Date and payout factors based on conservative
actuarial assumptions. Thus, in deciding whether to elect the rider and
incur its .35% yearly charge, you should compare:
o the rider's potential fixed annuity payment amount that is based on
(a) a guaranteed income benefit base amount equal on the Income
Date to no less than the purchase payment(s) compounded at 6%
interest yearly (adjusted downward for any prior partial
withdrawals) and (b) our guaranteed annuity payout tables that are
calculated using an interest rate of 3% per year, to
o the Certificate's potential standard fixed annuity payment amount
that is based on (a) the Certificate Withdrawal Value (without any
surrender charge deduction) on the Income Date and (b) our current
annuity payout tables that are calculated using an interest rate of
at least 3% per year.
The amount guaranteed by the income rider (the first amount above) may
often be less than the standard amount available under the Certificate (the
second amount above). The rider should therefore be regarded as a hedge
against potentially poor Sub-account performance prior to the Income Date.
You may also wish to consider how important the rider's guaranteed fixed
income payment amounts for life are to you if one of your reasons for
purchasing the Certificate is to have variable annuity payments begin on
the Income Date.
Guaranteed Income Benefit Base. The rider's guaranteed income benefit base
amount on the Income Date is the greater of the current "Purchase Payments
with Interest" (PPI) and the current "greatest Anniversary value".
Purchase Payments with Interest. We calculate the PPI amount on Certificate
Anniversaries with adjustments between Certificate Anniversaries if you
make a purchase payment or partial withdrawal. We do this calculation so
that the PPI amount will be available on the Income Date if the rider's
guaranteed income benefit base amount is applicable to the Annuitant. The
PPI amount equals, on each Certificate Anniversary, the initial purchase
payment increased from the Certificate Date to the date of the Anniversary
based on an annual compound interest rate of 6%. On any day that you made a
purchase payment or partial withdrawal, we adjust the PPI amount
accumulating at 6% by adding the additional purchase payment amount or
subtracting the following amount for the partial withdrawal:
o the amount of the partial withdrawal (including any applicable
surrender charge),
o divided by the Certificate Value immediately before the withdrawal,
and
o multiplied by the PPI amount immediately before the withdrawal.
Except for the three Annuitant death instances described in the last three
paragraphs of this section,
o If the Income Date is prior to the Annuitant's 81st birthday, we
will determine the PPI portion of the benefit base amount using the
amount on the Certificate Anniversary before the Income Date.
o If the Income Date is on or after the Annuitant's 81st birthday, we
will determine the PPI portion of the benefit base amount using the
amount on the Certificate Anniversary before the Annuitant's 81st
birthday; plus
o any additional purchase payments made prior to the Income Date;
minus
o for any partial withdrawal made prior to the Income Date, the
adjusted partial withdrawal amount described above.
If the Annuitant dies on or after the Certificate Anniversary before his or
her 81st birthday and the Certificate continues to remain In Force with a
new Annuitant, the PPI amount for the new Annuitant will initially equal
the current value for the deceased Annuitant. This PPI amount for the new
Annuitant will not change unless you make purchase payments and/or partial
withdrawals, in which case the PPI amount will be adjusted as described
above.
If the Annuitant dies before the Certificate Anniversary before his or her
81st birthday and the Certificate continues to remain In Force with a new
Annuitant who is age 81 or older as of the Certificate Anniversary before
the Annuitant's date of death, the PPI amount for the new Annuitant will
initially equal the current value for the deceased Annuitant. This PPI
amount for the new Annuitant will not change unless you make purchase
payments and/or partial withdrawals, in which case the PPI amount will be
adjusted as described above.
If the Annuitant dies before the first Certificate Anniversary and the
Certificate continues to remain In Force with a new Annuitant who was older
than the rider's maximum issue age of 75 on the Certificate Date, coverage
under the guaranteed income benefit rider will immediately end and we will
not deduct any charge for the rider on the first Certificate Anniversary.
Greatest Anniversary Value. We calculate the "greatest Anniversary value"
on Certificate Anniversaries with adjustments between Certificate
Anniversaries, as described below, if you make a purchase payment or
partial withdrawal. We do this calculation so that the "greatest
Anniversary value" will be available on the Income Date if the rider's
guaranteed income benefit base amount is applicable to the Annuitant. The
"greatest Anniversary value" initially equals the Certificate Value on the
first Certificate Anniversary. Then, each following day in the second
Certificate Year, we will adjust the "greatest Anniversary value" by adding
any additional purchase payments made that day, and subtracting the
following amount for each partial withdrawal made that day:
o the amount of the partial withdrawal (including any applicable
surrender charge),
o divided by the Certificate Value immediately before the withdrawal,
and
o multiplied by the "greatest Anniversary value" immediately before
the withdrawal.
On the second and each subsequent Certificate Anniversary, we compare the
current Certificate Value to the "greatest Anniversary value", adjusted as
described above if you made any purchase payments and/or partial
withdrawals during the Certificate Year ending on that Certificate
Anniversary. If the current Certificate Value exceeds the adjusted
"greatest Anniversary value", the current Certificate Value will become the
new "greatest Anniversary value". Except for the three Annuitant death
instances described in the last three paragraphs of this section, our last
Anniversary calculation will occur:
o If the Income Date is prior to the Annuitant's 81st birthday, on
the Certificate Anniversary before the Income Date, or
o If the Income Date is on or after the Annuitant's 81st birthday, on
the Certificate Anniversary before his or her 81st birthday.
On the last Certificate Anniversary specified in the prior two sentences,
the greater of the current Certificate Value and the adjusted "greatest
Anniversary value" will become the last "greatest Anniversary value".
Before the Income Date, this last "greatest Anniversary value" will not
change unless you make purchase payments and/or partial withdrawals, in
which case the last "greatest Anniversary value" will be adjusted as
described above.
If the Annuitant dies on or after the Certificate Anniversary before his or
her 81st birthday and the Certificate continues to remain In Force with a
new Annuitant, the "greatest Anniversary value" for the new Annuitant will
initially equal the current value for the deceased Annuitant. This
"greatest Anniversary value" for the new Annuitant will not change unless
you make purchase payments and/or partial withdrawals, in which case the
value will be adjusted as described above.
If the Annuitant dies before the Certificate Anniversary before his or her
81st birthday and the Certificate continues to remain In Force with a new
Annuitant who is age 81 or older as of the Certificate Anniversary before
the Annuitant's date of death, the "greatest Anniversary value" for the new
Annuitant will initially equal the current value for the deceased
Annuitant. This "greatest Anniversary value" for the new Annuitant will
not change unless you make purchase payments and/or partial withdrawals, in
which case the value will be adjusted as described above.
If the Annuitant dies before the first Certificate Anniversary and the
Certificate continues to remain In Force with a new Annuitant who was older
than the rider's maximum issue age of 75 on the Certificate Date, coverage
under the guaranteed income benefit rider will immediately end and we will
not deduct any charge for the rider on the first Certificate Anniversary.
Charge for the Rider. The yearly charge for the guaranteed income benefit
rider is .35%. This charge will not change over the life of the rider. On
each Certificate Anniversary on or before the end of the rider's coverage
(see "Revocability and Other Ending of Rider Coverage" below), we multiply
the .35% charge by the guaranteed income benefit base amount on that
Certificate Anniversary (which is the greater of "Purchase Payments with
Interest" and the "greatest Anniversary value"), and we deduct that amount
from the Certificate Value. We will deduct the charge 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 or insufficient
value in the Variable Account, we will deduct the charge amount, or
insufficient portion, from the Fixed Account in the ratio that each
Guarantee Period's value bears to the total Fixed Account Value.
If you surrender your Certificate during a Certificate Year before the
Certificate Anniversary, we will deduct a pro-rata amount of the full
yearly charge from your Certificate Value. We first determine the
applicable full yearly charge. We will use the yearly charge we computed
as of the prior Certificate Anniversary unless you have made any purchase
payments and/or partial withdrawals since then. If so, we will use a
yearly charge that may be higher or lower since we will substitute the
following for both the PPI amount and the "greatest Anniversary value" we
used in the Anniversary calculations: those two amounts after both are
adjusted for each purchase payment and/or withdrawal you made since the
prior Certificate Anniversary. We will then calculate a pro-rata amount of
the applicable yearly charge by multiplying it further by the ratio of the
number of days from the Certificate Anniversary until the day of surrender
to the total number of days (generally 365) in the Certificate Year of
surrender.
No charge amount is due:
o upon surrender of the Certificate if the Death Benefit is being
calculated at that time because the Designated Beneficiary has
elected to surrender the Certificate (see "Standard Death
Benefit"), or
o on the Income Date.
Revocability and Other Ending of Rider Coverage. You may revoke the
guaranteed income benefit rider in writing only on, or within 30 days
after, the seventh Certificate Anniversary. There is no charge to do this
since the final (seventh) year's charge for the rider will already have
been calculated and deducted on the seventh Certificate Anniversary.
Coverage under the guaranteed income benefit rider ends upon the earliest
of:
o the seventh Contract Anniversary if you revoke the rider within 30
days after that Anniversary;
o the total surrender of your Certificate;
o the calculation of the Death Benefit either at the time of total
surrender or a continuation of your Certificate;
o the death of the Annuitant before the first Certificate Anniversary
if the new Annuitant was older than age 75 as of the Certificate
Date;
o the start of annuity payments on the Income Date.
After the rider ends, there will be no further charges for the rider and no
past charges will be refunded. The rider's guaranteed income benefit will
no longer apply.
SUSPENSION OF PAYMENTS
We reserve the right to postpone surrender payments from the Fixed Account
for up to six months. We also reserve the right to suspend or postpone any
type of payment from the Variable Account for any period when:
o the New York Stock Exchange is closed other than customary
weekend or holiday closings;
o trading on the Exchange is restricted;
o 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
o 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 prior two conditions described above
exist.
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 that are affected by the Year 2000 issue could impact
our 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.
We are assessing and addressing the Year 2000 issue by implementing a four-
step plan. The first two steps involve conducting an inventory of all
computer applications which support our business functions and prioritizing
computer applications which are affected by the Year 2000 issue, based upon
the degree of impact each application has on the functioning of our
business units. The first two steps of the plan are substantially complete.
The final two steps of the four-step plan involve repairing and replacing
affected computer programs and testing them for Year 2000 readiness. For
computer applications which are "mission critical" (i.e., their failure
would result in our complete inability to perform critical business
functions), we expect to complete the final two steps of the plan by June
30, 1999. We expect to complete the repair and replacement of non-critical
computer applications by December 31, 1999.
We believe the Year 2000 issue could have a material impact on our
operations if we do not implement the four-step plan in a timely manner.
However, based upon our progress, we believe we will meet our timetable,
and the Year 2000 issue will not pose significant operational problems for
our computer systems.
We do not expect the cost of addressing the Year 2000 issue to be material
to our financial condition or results of operations.
TAX STATUS
Introduction
This discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax adviser. We make no
attempt to consider any applicable state or other tax laws. Moreover, this
discussion is based upon our understanding of current federal income tax
laws as they are currently interpreted. We make no representation regarding
the likelihood of continuation of those current federal income tax laws or
of the current interpretations by the Internal Revenue Service.
The Certificate is for use by individuals in retirement plans which may or
may not be Qualified Plans under the provisions of the Internal Revenue
Code of 1986, as amended (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 you purchase
the Certificate and upon the tax and employment status of the individual
concerned.
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. A trust or
other entity owning a Non-Qualified Certificate, other than as an agent for
an individual, is taxed differently; increases in the value of a
Certificate are taxed yearly whether or not a distribution occurs.
Surrenders, Assignments and Gifts. If you fully surrender your Certificate,
the portion of the payment that exceeds your cost basis in the Certificate
is subject to tax as ordinary income. For Non-Qualified Certificates, the
cost basis is generally the amount of the purchase payments made for the
Certificate. 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 for lump-sum
distributions received before January 1, 2000. A Designated Beneficiary
receiving a lump sum surrender benefit after your death or the death of the
Annuitant is taxed on the portion of the amount that exceeds your cost
basis in the Certificate. If the Designated Beneficiary elects that the
lump sum not be paid in order to receive annuity payments that begin within
one year 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 you. 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.
If you assign or pledge a Non-Qualified Certificate, you will be treated as
if you had received the amount assigned or pledged. You will be subject to
taxation under the rules applicable to partial withdrawals or surrenders.
If you give away your Certificate to anyone other than your spouse, you are
treated for income tax purposes as if you had fully surrendered the
Certificate.
A special computational rule applies if we issue to you, during any
calendar year, two or more Certificates, or one or more Certificates and
one or more of our other annuity contracts. Under this rule, the amount of
any distribution includable in your gross income is determined under
Section 72(e) of the Code. All of the contracts will be treated as one
contract. We believe this means the amount of any distribution under any
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 each contract's cost basis.
Annuity Payments. We determine the non-taxable portion of each variable
annuity payment by dividing the cost basis of your values allocated to
Variable Account Value by the total number of expected payments. We
determine the non-taxable portion of each fixed annuity payment with an
"exclusion ratio" formula which establishes the ratio that the cost basis
of your values allocated to Fixed Account Value 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 our general
account and paid out with interest in 12 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.
Following any change by the payee to variable annuity payments under Option
A, other than a change of the payment day of the month or a change from
regular PIP to "level monthly" PIP (or vice versa) where the remaining
payment length stays the same, the non-taxable portion of each payment will
be recalculated in accordance with IRS standards.
Penalty Tax. Payments received by you, 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 the following
amounts received:
o after the taxpayer attains age 59-1/2;
o in a series of substantially equal payments made for life or life
expectancy;
o after the death of the Certificate Owner (or, where the Certificate
Owner is not a human being, after the death of the Annuitant);
o if the taxpayer becomes totally and permanently disabled; or
o under a Non-Qualified Certificate's annuity payment option that
provides for a series of substantially equal payments; provided
only that one purchase payment is made to the Certificate, that the
Certificate is not issued as a result of a Section 1035 exchange,
and that the first annuity payment begins in the first Certificate
Year.
Income Tax Withholding. We are required to withhold federal income taxes on
taxable amounts paid under Certificates unless the recipient elects not to
have withholding apply. We 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. You may purchase a Non-Qualified Certificate 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 our understanding that in such an event:
o the new Certificate will be subject to the distribution-at-death
rules described in "Death Provisions for Non-Qualified
Certificates";
o 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 10 years prior to the distribution; and
o 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. We base our understanding of the above
principally 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 intend 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 will not be
treated as an annuity contract. As a consequence, income earned on a
Certificate would be taxable to you in the year in which diversification
requirements were not satisfied, including previously non-taxable income
earned in prior years. As a further consequence, we could 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 your
control of the investments of a segregated asset account may cause you,
rather than us, to be treated as the owner of the assets of the account.
The regulations could impose requirements that are not reflected in the
Certificate. We, however, have reserved certain rights to alter the
Certificate and investment alternatives so as to comply with such
regulations. Since no regulations have 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, you are urged to
consult with your tax adviser.
Qualified Plans
The Certificate is 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, we do not attempt 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 with them. 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 December 31, 1988. 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.
If you have requested a distribution from a Certificate, we will notify you
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 unless you direct us in writing 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 to contribute, 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.
Annuity Purchases by Nonresident Aliens
The discussion above provides general information regarding federal income
tax consequences to annuity purchasers who are U.S. citizens or resident
aliens. Purchasers who are not U.S. citizens or resident aliens will
generally be subject to U.S. federal income tax and withholding on annuity
distributions at a 30% rate, unless a lower rate applies in a U.S. treaty
with the purchaser's country. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may
be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax adviser
regarding U.S., state, and foreign taxation with respect to an annuity
purchase.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with our view of present applicable law, we 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. We will vote shares for which we have not received
instructions in the same proportion as we vote shares for which we have
received instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation should change, and as a
result we determine that we are permitted to vote the shares of the
Eligible Funds in our own right, we may elect to do so.
You have the voting interest under a Certificate prior to the Income Date.
The number of shares held in each Sub-account which are attributable to you
is determined by dividing your Variable Account Value in each Sub-account
by the net asset value of the applicable share of the Eligible Fund. The
payee has the voting interest after the Income Date under an annuity
payment option. 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.
We will determine the number of shares in which a person has a voting
interest as of the date established by the respective Eligible Fund for
determining shareholders eligible to vote at the meeting of the Fund. We
will solicit voting instructions in writing prior to such meeting in
accordance with the procedures established by the Eligible Fund.
Each person having a 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.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC"), our subsidiary, serves as the
principal underwriter for the Certificate described in this prospectus.
Salespersons who represent us as variable annuity agents will sell the
Certificates. Such salespersons are also 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, and additional compensation later based on the Certificate Value
attributable to those payments. The percentage may increase to 7.00% during
certain time periods Keyport and KFSC select. In addition, under certain
circumstances, we or certain of our affiliates, under a marketing support
agreement with KFSC, may pay certain sellers for other services not
directly related to the sale of the Certificates, such as special marketing
support allowances.
We may sell Certificates with lower or no dealer compensation to a person
who is an officer, director, or employee of ours or an affiliate of ours or
to any Qualified Plan established for such a person. Such Certificates may
be different from the Certificates sold to others in that they are not
subject to the deduction for the certificate maintenance charge, the asset-
based distribution charge or the surrender charge and they have a mortality
and expense risk charge of 0.35% per year.
We may sell Certificates with lower or no dealer compensation as part of an
exchange program for other fixed ("Old FA") and variable ("Old VA") annuity
contracts we previously issued. A Certificate issued in exchange for an Old
VA will be issued with an exchange endorsement and we will not assess a
surrender charge under the Old VA at the time of the exchange. The exchange
endorsement provides that we will calculate any surrender charge assessed
under the Certificate in relation to the initial purchase payment (i.e.,
the amount exchanged) based on the actual time of each purchase payment
under the Old VA. The endorsement also provides that we will not refund the
amount described in "Right to Revoke" if the Certificate is returned.
Instead, we will return the Old VA to the owner and treat it as if no
exchange had occurred.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Principal Underwriter are a party. We are engaged in various kinds of
routine litigation which, in our judgment, is not of material importance in
relation to our total capital and surplus.
INQUIRIES BY CERTIFICATE OWNERS
You may write us with questions about your Certificate to 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
Yield for Stein Roe Money Market Sub-Account 5
Financial Statements 6
Variable Account A 7
Keyport Life Insurance Company 37
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 are subject to a limited market value adjustment. The
adjustment may result in an increase or decrease in amounts transferred and
amounts paid to you or other payees (including withdrawals, surrenders,
death benefits, and amounts applied to purchase annuity payments). However,
a market value adjustment will not reduce the interest rate applied to
amounts you allocate to a Guarantee Period to less than 3% per year.
Payments made from Fixed Account Values at the end of a Guarantee Period
are not subject to the limited market value adjustment.
Any purchase payments you allocate to the Fixed Account option become part
of our general account. Because of provisions in the securities laws, our
general account including the Fixed Account, are not subject to regulation
under the Securities Act of 1933 or the Investment Company Act of 1940. The
Securities and Exchange Commission has not reviewed the disclosure in the
prospectus relating to the general account and the Fixed Account option.
Allocations to the Fixed Account
We will allocate purchase payments to the Fixed Account according to your
selection in the application. Your selection must specify the percentage of
the purchase payment you want to allocate to each Guarantee Period. The
percentage, if not zero, must be at least 5%. You may change the allocation
percentages without any charges. You must make allocation changes in
writing unless you have, in writing, authorized us to accept telephone
allocation instructions. By authorizing us to accept telephone changes, you
agree to the conditions and procedures we establish from time to time. The
current conditions and procedures are in Appendix B. We will notify you in
advance of any changes.
Each Guarantee Period currently offered is available for initial and
subsequent purchase payments and for transfers of Certificate Value. We
currently offer Guarantee Periods of 1, 3, 5, and 7 years. We may change at
any time the number and/or length of Guarantee Periods we offer. If we no
longer offer a particular Guarantee Period, the existing Fixed Account
Value in that Guarantee Period will remain until the end of the period. At
that time, you must select a different Guarantee Period.
Capital Protection Plus
We offer a capital protection plus program. Under this program, we allocate
part of your purchase payment to the Guarantee Period you select.
Currently, you may only select the 7-year Guarantee Period.
Based on the length of the period and the period's interest rate, we
determine how much of your purchase payment must be allocated to the
Guarantee Period so that, at the end of the Guarantee Period, the allocated
amount plus interest will be equal to your total purchase payment. We will
allocate the rest of your purchase payment to the Sub-account(s) of the
Variable Account based on your allocation instructions.
For example, assume you choose the 7-year Guarantee Period and we receive
your purchase payment of $10,000 when the interest rate for the Guarantee
Period is 6.75% per year. We will allocate $6,331 to that Guarantee Period,
because $6,331 will increase, at the interest rate of 6.75%, to $10,000
after seven years. The remaining $3,669 of the payment will be allocated to
the Sub-account(s) you select.
If you surrender or transfer any part of the Fixed Account Value before the
end of the Guarantee Period, the value at the end of that period will not
equal your original purchase payment amount.
Fixed Account Value
Fixed Account Value is equal to:
o all purchase payments allocated or amounts transferred to the Fixed
Account plus the interest credited on those payments or amounts
transferred; less
o any prior partial withdrawals or transfers from the Fixed Account,
including any applicable charges.
Interest Credits
We credit interest daily. The interest we credit is based on an annual
compound interest rate. It is credited to purchase payments allocated to
the Fixed Account at rates we declare for Guarantee Periods of one or more
years from the month and day of allocation. Any rate we set will be at
least 3% per year.
Our interest crediting method may result in each of your Guarantee Periods
being subject to different rates. For purposes of this section, we treat
Variable Account Value transferred to the Fixed Account and Fixed Account
Value that is renewed or transferred to another Guarantee Period as a
purchase payment allocation.
Application of Market Value Adjustment
No market value adjustment applies to Guarantee Periods of less than three
years.
A market value adjustment applies to any Fixed Account Value surrendered,
withdrawn, transferred, or applied to an Annuity Option from a Guarantee
Period of three years or more, unless:
o the transaction occurs at the end of the Guarantee Period, or
o the Certificate is surrendered for the Death Benefit after the
death of a Covered Person.
We apply the market value adjustment before we deduct any applicable
surrender charges or taxes.
If a market value adjustment applies to a surrender or the application to
an Annuity Option, we will add or deduct any positive or negative market
value adjustment amount, respectively, to your Certificate Value.
If a market value adjustment applies to either a partial withdrawal or a
transfer, we will add or deduct any positive or negative market value
adjustment, respectively, to, the partial withdrawal or transfer amount
after we have deducted the requested withdrawal or transfer amount from the
Fixed Account Value. This means that the net amount may be more or less
than the amount requested.
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. Any negative adjustment may be
limited in amount (see "Market Value Adjustment Factor" below).
Generally, if the treasury rate (see "Treasury Rates" below) for your
Guarantee Period is lower than the treasury rate for a new Guarantee Period
with a length equal to the time remaining in your Guarantee Period, the
market value adjustment will be negative and it will result in a reduction
of the amount surrendered, withdrawn, transferred, or applied to an Annuity
Option.
On the other hand, if the treasury rate for your Guarantee Period is higher
than the treasury rate for a new Guarantee Period with a length equal to
the time remaining in your Guarantee Period, then the market value
adjustment will be positive and it will result in an increase in the amount
surrendered, withdrawn, transferred, or applied to an Annuity Option.
Market Value Adjustment Factor
We compute the market value adjustment for each of your Guarantee Periods
by multiplying the applicable amount surrendered, withdrawn, transferred,
or applied to an Annuity Option, by the market value adjustment factor. The
market value adjustment factor is calculated as the larger of formulas (a)
and (b):
(a) (1+a)/(1+b)(n/12)-1
where:
"a" is the treasury rate for the initial number of years in your Guarantee
Period;
"b" is the treasury rate for a period equal to the time remaining (rounded
up to the next whole number of 12-month periods) to the expiration of your
Guarantee Period; and
"n" is the number of complete Guarantee Period Months remaining before the
expiration of your Guarantee Period.
(b) (1.03)/(1+i)(y+d/#)-1
where:
"i" is the guaranteed interest rate for your Guarantee Period;
"y" is the number of complete 12-month periods that have elapsed in your
Guarantee Period;
"d" is the number of calendar days since the end of the last complete 12-
month period in your Guarantee Period or, if "y" is zero, the number of
calendar days since the start of your Guarantee Period; and
"#" is the number of calendar days in the current 12-month period of your
Guarantee Period, which is generally 365 days.
As stated above, the formula (b) amount will apply only if it is greater
than the formula (a) amount. This will occur only when the formula (a)
amount is negative and the formula (b) amount is a smaller negative number.
Under these conditions, formula a's full (normal) negative market value
adjustment will be limited to the extent that adjustment would decrease
your Guarantee Period's Fixed Account Value below the following amount:
(i) the amount allocated to your Guarantee Period; less
(ii) any prior systematic or partial withdrawal amounts and amounts
transferred; less
(iii) interest on the above items (i) and (ii) 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 (a) above. Weekly series are published at the beginning of the
following week. The Determination Dates are the last business day before
the 1st and 15th of each calendar month.
To determine the "a" treasury rate, we use the weekly series first
published on or after the most recent Determination Date that occurs on or
before the Start Date for the Guarantee Period. If the Start Date is the
same as the Determination Date or the date of publication, or any date in
between, we instead use the weekly series first published after the prior
Determination Date. To determine the "b" treasury rate, we use 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. If the calculation date is the same as the Determination Date
or the date of publication, or any date in between, we will instead use the
weekly series first published after the prior Determination Date.
If the number of years and or 12-month periods specified in "a" or "b" is
not equal to a maturity in the Treasury Constant Maturity Series, we
determine the treasury rate by straight line interpolation between the
interest rates of the next highest and next lowest maturities.
If the Treasury Constant Maturity Series becomes unavailable, we will adopt
a comparable constant maturity index. If such a comparable index is not
available, we will replicate calculation of the Treasury Constant Maturity
Series Index based on U.S. Treasury Security coupon rates.
End of A Guarantee Period
We will notify you in writing at least 30 days prior to the end of each of
your Guarantee Periods. At the end of your Guarantee Period, we will
automatically transfer your Guarantee Period's Fixed Account Value to the
Stein Roe Money Market Sub-account unless we have received:
o your election of a new Guarantee Period from among those we offer
at that time; or
o your instructions to transfer the ending Fixed Account Value to
one or more Sub-accounts of the Variable Account.
You may not elect a new Guarantee Period that is longer than the number of
years remaining until the Income Date.
Transfers of Fixed Account Value
You may transfer Fixed Account Value from one of your Guarantee Periods 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, your transfer request must specify
from which values you want the transfer made.
The Certificate allows us to limit the number of transfers you may make in
a specified time period. Currently, we generally limit Variable Account and
Fixed Account transfers to unlimited transfers per calendar year with a
$500,000 per transfer dollar limit. See "Transfer of Variable Account
Value" and "Limits on Transfers". These limitations will not apply to any
transfer made at the end of a Guarantee Period. We will notify you prior to
changing the current limitations.
You must request transfers in writing unless you have authorized us in
writing to accept telephone transfer instructions from you or from a person
acting on your behalf as an attorney-in-fact under a power of attorney. By
authorizing us to accept telephone transfer instructions, you agree to the
conditions and procedures we establish from time to time. The current
conditions and procedures are in Appendix B. If you have authorized
telephone transfers, you will be notified in advance of any changes. A
person acting on your behalf as an attorney-in-fact under a power of
attorney may request transfers in writing.
If we receive your transfer requests before 4:00 PM Eastern Time, or any
other time for the close of trading on the New York Stock Exchange, we will
execute them at the close of business that day. Any requests we receive
later, we will execute at the close of the next business day.
If you transfer 100% of a Guarantee Period's value and your current
allocation for purchase payments includes that Guarantee Period, we will
automatically change the allocation formula for future purchase payments
unless you instruct otherwise. For example, if the allocation formula is
50% to the One-Year Guarantee Period and 50% to Sub-account A and you
transfer all Fixed Account Value to Sub-account A, we will change the
allocation formula 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 us to accept
telephone instructions but either Certificate Owner may give us telephone
instructions.
2. All callers must identify themselves. We reserve the right to refuse to
act upon any telephone instructions in cases where the caller has not
sufficiently identified himself/herself to our satisfaction.
3. Neither we nor any person acting on our behalf shall be subject to any
claim, loss, liability, cost or expense if we or such person acted in good
faith upon a telephone instruction, including one that is unauthorized or
fraudulent. However, we will employ reasonable procedures to confirm that a
telephone instruction is genuine and, if we do not, we may be liable for
losses due to an unauthorized or fraudulent instruction. You thus bear the
risk that an unauthorized or fraudulent instruction we execute may cause
your Certificate Value to be lower than it would be had we not executed the
instruction.
4. We record all conversations with disclosure at the time of the call.
5. The application for the Certificate may allow you to create a power of
attorney by authorizing another person to give telephone instructions.
Unless prohibited by state law, we will treat such power as durable in
nature and it shall not be affected by your subsequent incapacity,
disability or incompetency. Either we or the authorized person may cease to
honor the power by sending written notice to you at your last known
address. Neither we nor any person acting on our 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:
o we receive your written revocation,
o we discontinue the privilege, or
o we receive written evidence that you have entered into a market
timing or asset allocation agreement with an investment adviser or
with a broker/dealer.
7. If we receive telephone transfer instructions at 800-367-3653 before
4:00 P.M. Eastern Time or other close of trading on the New York Stock
Exchange, they will be initiated that day based on the unit value prices
calculated at the close of that day. We will initiate instructions we
receive after the close of trading on the NYSE on the following business
day.
8. Once we accept instructions, they may not be canceled.
9. You must make all transfers in accordance with the terms of the
Certificate and current prospectus. If your transfer instructions do not
conform to these terms, we will not execute the transfer and will notify
the caller within 48 hours.
10. If you transfer 100% of any Sub-account's value and the allocation
formula for purchase payments includes that Sub-account, then we will
change the allocation formula for future purchase payments accordingly
unless we receive telephone instructions to the contrary. For example, if
the allocation formula is 50% to Sub-account A and 50% to Sub-account B and
you transfer all of Sub-account A's value to Sub-account B, we will change
the allocation formula to 100% to Sub-account B unless you instruct us
otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1-6 above are applicable.
APPENDIX C
SYSTEMATIC WITHDRAWAL PROGRAM
Payment Type
There are three payment types available under all certificates (#1-3) and
two that are available only under individual retirement annuities if the
owner is under age 58-1/2 at time of the first payment (#4&5). We will not
set up any payment type you select if we determine that the first payment
amount will be less than $100.
1. Percentage Method. We will apply a percentage specified by you,
not to exceed 10%, to the Certificate Value at the time of the
first payment, and pay you the total in equal payments based on the
payment frequency you select. It is possible that the full
percentage amount chosen will not be received in the initial
Certificate Year under the program. A proportionate amount of the
Percentage will be received based on the number of payments that
will be made in the remainder of the Certificate Year in relation
to the number of payments made annually under the selected payment
frequency. For example, if the percentage chosen is 10% and the
Certificate Year begins on January 2 and monthly payments begin on
April 6 when the Certificate Value is $120,000, the monthly amount
payable will be $1,000 (10% of $120,000, divided by 12). Nine
payments (representing 9/12 of the 10% amount) will be made before
the next January 2 anniversary. On the first payment date after the
anniversary, (January 6 in this example), the dollar amount of the
percentage will be recalculated and divided by 12 to determine the
new monthly amount.
2. Earnings Method. The payment amount is calculated at the time of
each withdrawal by subtracting from the current Certificate Value (a)
for the first withdrawal, the Certificate Value from one payment
period prior (e.g., if the frequency is quarterly, the Certificate
Value would be from three months prior) and (b) for each subsequent
withdrawal, the Certificate Value at the time of the prior withdrawal.
No payment will be made if the calculation amount is zero or less and
payments will resume only when the calculation amount is greater than
zero.
3. Net Amount Method. You specify a set dollar amount for each
withdrawal of at least $100. In the event a surrender charge is
applicable to all or part of a withdrawal because your specified
amount exceeds the "free withdrawal amounts", we will increase the
withdrawal amount in order to create a net withdrawal amount equal to
your specified amount.
4. IRA Amortization Method. The systematic withdrawal amount will
remain the same during the entire life expectancy period. We will
calculate the payment amount based on the amortization method
described in IRS Notice 89-25 (Q&A-12), using your Certificate Value
on the date of the first payment, your life expectancy based on your
attained age on the date of the first payment and IRS Table V, and an
interest rate set by us on the date of the first payment that is not
in excess of a reasonable rate.
5. IRA Minimum Distribution Method. The systematic withdrawal amount
will change each year during the life expectancy period. We will
calculate the annual payment amount based on the minimum distribution
method described in IRS Notice 89-25 (Q&A-12), by dividing your
current Certificate Value at the time of each year's calculation by
your then current life expectancy factor (the life expectancy factor
is initially determined by your attained age on the date of the first
payment and IRS Table V and it is then reduced by 1.0 when each
succeeding year's calculation is made). The initial calculation of
the annual payment amount will occur on the date of the first payment
and each succeeding year's calculation will occur one year later. The
annual payment calculated each year will be paid out in equal payments
according to the frequency option chosen.
Payment Frequency and First Payment Date
You may request that withdrawals be made monthly, quarterly, semi-annually
or annually. If, however, your selected payment frequency will create a
withdrawal amount of less than $100, we will reduce the frequency of
payments to an interval that will result in the withdrawal being at least
$100.
Unless you select a later date by written request, the date of the first
withdrawal will be (a) one payment period after the Certificate Date if you
request systematic withdrawals at the time of your initial purchase payment
or (b) one payment period after we receive your written request to begin
systematic withdrawals. If, however, your written request is for an IRA
Method (#4 or #5) and you made a partial withdrawal in the same Certificate
Year, then the first withdrawal shall instead be on the next Certificate
Anniversary.
Federal Income Tax Withholding
The taxable portion of withdrawals you receive from your Certificate is
subject to 10% federal income tax withholding unless you elect not to have
withholding apply. Any withholding will be deducted from the payment amount
calculated under the payment type in effect.
You may elect not to have withholding apply to withdrawal payments by
signing and dating an election of no withholding. You are liable for
payment of federal income tax on the taxable portion of your withdrawal.
You also may be subject to tax penalties if your withholding and estimated
tax payments are not sufficient.
If you want federal income tax withholding to apply, please sign and date
an election of withholding. Your election to withhold or to not withhold
will remain in effect until you revoke it. You may revoke it at any time.
Direct Deposit of Payments
If you request direct deposit of systematic withdrawals to your checking or
savings account, we will use our best effort to ensure that the correct
amount is credited to your account within three business days of the
payment date. If we transfer less than the correct amount, any shortfall
will be corrected in full with the next transfer. If we transfer more than
the correct amount or duplicate a transfer in error, any excess or
duplicate amount, unless repaid to us in one sum, will be deducted from
future transfers until we are repaid in full.
Important Income Tax Information
Payment Types 1-3. Systematic withdrawals will be taxed under the regular
rules applicable to surrenders and not under the special exclusion
ratio/amount rules applicable to annuity payments. All or part of each
withdrawal may thus be taxable. In addition, anyone under the age of 59-1/2
at the time of a withdrawal may also be subject to a 10% federal income tax
penalty on the taxable portion of the withdrawal. Our reporting to the
Internal Revenue Service will be based on our opinion of the taxable amount
and whether the penalty tax applies.
IRA Payment Types 4 and 5. Based on Internal Revenue Service requirements,
we will report systematic withdrawals to them as 100% taxable. It is our
opinion under current federal income tax laws that the withdrawals will not
be subject to an additional 10% federal income penalty tax because they
will be part of a series of substantially equal periodic payments made for
your life expectancy. We will thus report to the Internal Revenue Service
that no penalty tax applies. If, however, you end systematic withdrawals
before the later of your attaining age 59-1/2 or five years after the first
payment, you will then be subject to both retroactive 10% federal penalty
taxes on all systematic withdrawals made before 59-1/2 and federal interest
penalties on those taxes. Unlike you, we may not end your systematic
withdrawals before your retroactive penalty tax period has expired.
Other Systematic Withdrawal Conditions
Under payment types #1-3, if any withdrawal would cause your Certificate
Value to be reduced below the minimum value specified in your Certificate,
that withdrawal will not be made and will contact you about modifying the
withdrawal amount and/or the payment frequency so that withdrawals may
resume. Your systematic withdrawals will continue until we receive your
written revocation, we discontinue the program, or the annuitant or an
owner dies. Once authorization terminates, systematic withdrawals cannot be
resumed again until after the next Certificate Anniversary. At that time a
new systematic withdrawal request form will be required. All additional
withdrawals after termination will be treated as regular withdrawals and
surrender charges may apply.
Under IRA payment types #4 and 5, you may not make a withdrawal outside the
program or surrender the Certificate during the period of systematic
withdrawals. Also, you may not make any additional purchase payments to
the Certificate. Your systematic withdrawals will continue in force until
we receive your written revocation, you die, or we discontinue the program
after the later of your attaining age 59-1/2 or five years after your first
payment. Once your authorization terminates, systematic withdrawals may
not be resumed. All additional withdrawals after termination will be
treated as regular withdrawals and surrender charges may apply.
For other information of a general nature, including circumstances under
which the surrender charge and/or the Fixed Account market value adjustment
may apply to any withdrawals, see "Systematic Withdrawal Program" under
"OTHER SERVICES".
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
KAC.PROS 2236.6/99
Yes. I would like to receive the Keyport Advisor Charter 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.
The Alger American Fund
Alliance Variable Products Series Fund, Inc.
Liberty Variable Investment Trust
SteinRoe Variable Investment Trust
Templeton Variable Products Series Fund
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 02110-2712
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
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 (SAI) is not a prospectus but it
relates to, and should be read in conjunction with, the Keyport Advisor
Charter variable annuity prospectus dated July 1, 1999. The SAI is
incorporated by reference into the prospectus. The prospectus is available,
at no charge, by writing Keyport at 125 High Street, Boston, MA 02110 or by
calling (800) 437-4466.
TABLE OF CONTENTS
Page
Keyport Life Insurance Company.........................................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
Yield for Stein Roe Money Market Sub-Account.........................5
Financial Statements...................................................6
Variable Account A...................................................7
Keyport Life Insurance Company......................................37
The date of this statement of additional information is July 1, 1999.
KACH1999.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, 1998, owned, indirectly, approximately
72% of the combined voting power of the outstanding stock of LFC (with the
balance being publicly held). For additional information about Keyport, see
page 8 of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium
taxes and then dividing the remaining value of that Sub-Account by $1,000
and multiplying the result by the greater of: (a) the applicable factor
from the Certificate's annuity table for the particular payment option; or
(b) the factor currently offered by Keyport at the time annuity payments
begin. This current factor may be based on the sex of the payee unless to
do so would be prohibited by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number of
Annuity Units remains fixed for the annuity payment period. Each Sub-
Account payment after the first one will be determined by multiplying (a)
by (b), where: (a) is the number of Sub-Account Annuity Units; and (b) is
the Sub-Account Annuity Unit value for the Valuation Period that includes
the date of the particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Keyport uses an Annuity Unit value.
Each Sub-Account has its own Annuity Units and value per Unit. The Annuity
Unit value applicable during any Valuation Period is determined at the end
of such period.
When Keyport first purchased Eligible Fund shares on behalf of the Variable
Account, Keyport valued each Annuity Unit for each Sub-Account at a
specified dollar amount. The Unit value for each Sub-Account in any
Valuation Period thereafter is determined by multiplying the value for the
prior period by a net investment factor. This factor may be greater or less
than 1.0; therefore, the Annuity Unit may increase or decrease from
Valuation Period to Valuation Period. For each assumed annual investment
rate (AIR), Keyport calculates a net investment factor for each Sub-Account
by dividing (a) by (b), where:
(a) is equal to the net investment factor as defined in the prospectus
without any deduction for the Distribution Charge defined in
(c)(ii)
of the net investment factor formula; and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed annual investment rate (AIR). The AIR for Annuity Units
based on the Certificate's annuity tables is 6% per year (5% per
year
for Oregon 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, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, and the financial statements of Keyport Life
Insurance Company-Variable Account A at December 31, 1998 and for each of
the two years in the period ended December 31, 1998, 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.
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 also reflect, on an allocated basis, the Certificate's
annual $36 Certificate Maintenance Charge that is collected after the first
Certificate Anniversary. Yields do not reflect Surrender Charges and
premium tax charges. The yield would be lower if these charges were
included. The following is the standardized formula:
Yield equals: (A - B - 1) X 365
C 7
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day period. The
assumed annual Stein Roe Money Market Sub-Account charge is equal to
the $36 Certificate charge multiplied by a fraction equal to the
average number of Certificates with Stein Roe Money Market Sub-Account
value during the 7-day period divided by the average total number of
Certificates during the 7-day period. This annual amount is converted
to a 7-day charge by multiplying it by 7/365. It is then equated to an
Accumulation Unit size basis by multiplying it by a fraction equal to
the average value of one Stein Roe Money Market Sub-Account
Accumulation Unit during the 7-day period divided by the average
Certificate Value in Stein Roe Money Market Sub-Account during the 7-
day period.
C = the Accumulation Unit value at the beginning of the 7-day period.
The yield formula assumes that the weekly net income generated by an
investment in the Stein Roe Money Market Sub-Account will continue over an
entire year.
FINANCIAL STATEMENTS
The financial statements of the Variable Account and Keyport Life Insurance
Company 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
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, 1998,
and the related statement of operations and changes in net assets for each
of the two years in the period then ended. 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, 1998 and the results of its
operations and changes in net assets for each of the two years in the
period then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts /s/Ernst & Young LLP
March 12, 1999
KEYPORT LIFE INSURANCE COMPANY -VARIABLE ACCOUNT A
Statement of Assets and Liabilities
December 31, 1998
Assets
Investments at market value:
AIM Variable Insurance Funds, Inc.
AIM Capital Appreciation - 6B 379 shares (cost $8,974) $ 9,554
AIM Growth Fund - 6E 8,146 shares (cost $186,384) 202,010
AIM International Equity - 6F 16,572 share (cost $310,852) 325,136
Alger American Fund
Alger American Growth Portfolio - 417,273 shares
(cost $18,676,912) 22,207,260
Alger American Small Capitalization Portfolio - 196,871
shares (cost $8,130,968) 8,656,431
Alliance Variable Products Series Fund, Inc.
Alliance Global Bond Portfolio - 927,269 shares
(cost $10,847,338) 11,516,687
Alliance Premier Growth Portfolio - 1,731,558 shares
(cost $44,053,572) 53,730,245
Alliance Growth & Income - 25,632 shares (cost $503,344) 559,796
Alliance Real Estate- 12,184 shares (cost $121,561) 119,161
MFS Variable Insurance Trust
MFS Emerging Growth Series - 894,367 shares
(cost $15,706,134) 19,202,062
MFS Bond Series - 75,777 shares (cost $852,491) 862,341
MFS Research Series - 1,419,949 shares (cost $23,550,261) 27,050,035
Manning & Napier Insurance Fund, Inc.
Manning & Napier Small Cap Portfolio - 311 shares
(cost $2,986) 2,602
Manning & Napier Growth Portfolio - 38,370 shares
(cost $484,706) 456,597
Manning & Napier Equity Portfolio - 257 shares
(cost $2,687) 3,139
SteinRoe Variable Investment Trust
SteinRoe Money Market Fund - 30,900,827 shares
(cost $30,900,827) 30,900,827
SteinRoe Special Venture Fund - 458,531 shares
(cost $7,115,633) 6,245,190
SteinRoe Balanced Fund - 3,016,489 shares
(cost $47,584,545) 51,702,622
SteinRoe Mortgage Securities Fund - 2,386,633 shares
(cost $25,382,097) 25,751,769
SteinRoe Growth Stock Fund - 714,362 shares
(cost $25,625,516) 31,096,195
Liberty Variable Investment Trust
Colonial Growth and Income Fund - 3,024,919 shares
(cost $47,587,882) 49,578,423
SteinRoe Global Utilities Fund - 1,173,402 shares
(cost $14,746,249) 16,146,012
Colonial International Fund for Growth - 16,949,331
shares (cost $33,598,287) 33,898,662
Colonial Strategic Income Fund - 4,422,610 shares
(cost $50,766,366) 49,002,513
Colonial U.S. Stock Fund - 3,037,545 shares
(cost $52,955,373) 57,075,468
Colonial High Yield Securities Fund -101,476 shares
(cost $979,969) 944,743
Colonial Small Cap Value Fund - 5,363 shares
(cost $42,018) 46,067
Newport Tiger Fund - 2,731,285 shares (cost $5,050,529) 4,288,118
Liberty All-Star Equity Fund - 3,482,795 shares
(cost $14,157,767) 41,445,264
Total assets 543,024,929
Liabilities
Due to Keyport Life Insurance Company (Note 2) (26,722)
Net assets $542,998,207
Net assets
Variable annuity contracts (Note 5) $450,011,371
Annuity reserves (Note 2) 70,314,564
Retained by Keyport Life Insurance Company (Note 2) 22,672,272
Net assets $542,998,207
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
AIM Capital AIM
Appreciation - 6B* Growth - 6E *
1998 1998
Income
Dividends $ 256 $ 8,896
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 105 2,217
Net investment income
(expense) 151 6,679
Realized gain (loss) 1 186
Unrealized appreciation
(depreciation) during
the period 580 15,627
Net increase (decrease)
in net assets from
operations 732 22,492
Purchase payments from
contract owners 8,742 166,041
Transfers between accounts 80 13,477
Contract terminations
and annuity payouts - -
Other transfers to
Keyport Life Insurance
Company - -
Net increase (decrease)
in net assets from
contract transactions 8,822 179,518
Net assets at
beginning of period - -
Net assets at end
of period $ 9,554 $ 202,010
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
AIM International Alger American
Equity - 6F * Growth Portfolio
1998 1998 1997
Income
Dividends $ 1,557 $ 922,815 $ 7,036
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 3,569 283,553 15,446
Net investment income
(expense) (2,012) 639,262 (8,410)
Realized gain (loss) (10) 7,907 4,303
Unrealized appreciation
(depreciation) during
the period 14,284 3,388,828 142,736
Net increase (decrease)
in net assets from
operations 12,262 4,035,997 138,629
Purchase payments from
contract owners 309,855 10,554,510 2,181,692
Transfers between accounts 3,019 8,177,650 506,725
Contract terminations and
annuity payouts - (2,990,747) (346,642)
Other transfers to
Keyport Life Insurance
Company - - (138,831)
Net increase (deacrease)
in net assets
from contract
transactions 312,874 15,741,413 2,202,944
Net assets at beginning
of period - 2,429,850 88,277
Net assets at end of
period $ 325,136 $22,207,260 $ 2,429,850
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Alger American Small Alliance Global
Capitalization Portfolio Bond Portfolio
1998 1997 1998 1997
Income
Dividends $ 512,814 $ 19,970 $ 85,813 $ 46,153
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 98,963 6,420 138,776 13,195
Net investment income
(expense) 413,851 13,550 (52,963) 32,958
Realized gain (loss) (7,450) 884 2,468 (569)
Unrealized appreciation
(depreciation) during
the period 444,946 80,144 668,715 567
Net increase (decrease) in
net assets from
operations 851,347 94,578 618,220 32,956
Purchase payments from
contract owners 4,038,589 1,243,346 5,658,084 2,259,490
Transfers between
accounts 3,133,840 472,305 5,089,523 122,656
Contract terminations
and annuity payouts (1,107,934) (37,571) (1,935,854) (245,542)
Other transfers to
Keyport Life Insurance
Company - (100,030) - (119,789)
Net increase (decrease)
in net assets
from contract
transactions 6,064,495 1,578,050 8,811,753 2,016,815
Net assets at beginning
of period 1,740,589 67,961 2,086,714 36,943
Net assets at end of
period $ 8,656,431 $1,740,589 $11,516,687 $2,086,714
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Alliance Premier Alliance Growth
Growth Portfolio & Income *
1998 1997 1998
Income
Dividends $ 14,979 $ 1,673 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 676,381 23,650 6,145
Net investment income
(expense) (661,402) (21,977) (6,145)
Realized gain (loss) 318 1,545 169
Unrealized appreciation
(depreciation) during
the period 9,334,300 342,779 56,451
Net increase (decrease)
in net assets from
operations 8,673,216 322,347 50,475
Purchase payments from
contract owners 29,356,134 3,624,819 519,916
Transfers between
accounts 20,346,792 608,727 9,887
Contract terminations and
annuity payouts (8,848,981) (163,817) (20,482)
Other transfers to
Keyport Life Insurance
Company - (240,813) -
Net increase (decrease)
in net assets
from contract
transactions 40,853,945 3,828,916 509,321
Net assets at beginning
of period 4,203,084 51,821 -
Net assets at end of
period $ 53,730,245 $ 4,203,084 $ 559,796
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Alliance MFS Emerging
Real Estate * Growth Series
1998 1998 1997
Income
Dividends $ - $ 43,497 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 1,308 241,758 16,111
Net investment income
(expense) (1,308) (198,261) (16,111)
Realized gain (loss) (11) (5,826) 3,701
Unrealized appreciation
(depreciation) during
during the period (2,401) 3,304,524 192,521
Net increase (decrease)
in net assets from
operations (3,720) 3,100,437 180,111
Purchase payments from
contract owners 119,542 11,148,879 2,160,760
Transfers between
accounts 3,366 5,908,917 208,009
Contract terminations and
annuity payouts (27) (3,356,215) (66,034)
Other transfers to
Keyport Life Insurance
Company - - (137,696)
Net increase (decrease)
in net assets
from contract
transactions 122,881 13,701,581 2,165,039
Net assets at beginning
of period - 2,400,044 54,894
Net assets at end of
period $ 119,161 $19,202,062 $ 2,400,044
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
MFS Bond Series * MFS Research Series
1998 1998 1997
Income
Dividends $ - $ 209,197 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 9,466 324,618 37,551
Net investment income
(expense) (9,466) (115,421) (37,551)
Realized gain (loss) 69 4,725 9,594
Unrealized appreciation
(depreciation) during
during the period 9,849 3,157,773 343,416
Net increase (decrease)
in net assets from
operations 452 3,047,077 315,459
Purchase payments from
contract owners 805,355 12,688,545 5,140,002
Transfers between
accounts 56,588 9,878,627 522,262
Contract terminations and
annuity payouts (54) (4,099,205) (237,046)
Other transfers to
Keyport Life Insurance
Company - - (317,380)
Net increase (decrease)
in net assets
from contract
transactions 861,889 18,467,967 5,107,838
Net assets at beginning
of period - 5,534,991 111,694
Net assets at end of
period $ 862,341 $27,050,035 $ 5,534,991
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Manning & Napier Manning & Napier
Small Cap Portfolio Growth Portfolio
1998 1997 1998
Income
Dividends $ 517 $ - $ 17,491
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 29 22 5,012
Net investment income
(expense) 488 (22) 12,479
Realized gain (loss) 3 - (7)
Unrealized appreciation
(depreciation) during
during the period (856) 348 (28,108)
Net increase (decrease)
in net assets from
operations (365) 326 (15,636)
Purchase payments from
contract owners - - 466,902
Transfers between
accounts (2,320) 2,635 5,331
Contract terminations and
annuity payouts - - -
Other transfers to
Keyport Life Insurance
Company - (309) -
Net increase (decrease)
in net assets
from contract
transactions (2,320) 2,326 472,233
Net assets at beginning
of period 5,287 2,635 -
Net assets at end of
period $ 2,602 $ 5,287 $ 456,597
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Manning & Napier SteinRoe Money
Equity Portfolio Market Fund
1998 1997 1998 1997
Income
Dividends $ 200 $ 11 $ 103,247 $ 88,861
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 34 21 1,055,552 22,431
Net investment income
(expense) 166 (10) (952,305) 66,430
Realized gain (loss) 6 - - -
Unrealized appreciation
(depreciation) during
during the period (96) 533 - -
Net increase (decrease)
in net assets from
operations 76 523 (952,305) 66,430
Purchase payments from
contract owners - - 26,805,829 4,086,249
Transfers between
accounts (2,226) 2,537 9,997,765 (248,406)
Contract terminations and
annuity payouts - - (8,183,303) (507,784)
Other transfers to
Keyport Life Insurance
Company - (309) - (185,241)
Net increase (decrease)
in net assets
from contract
transactions (2,226) 2,228 28,620,291 3,144,818
Net assets at beginning
of period 5,289 2,538 3,232,841 21,593
Net assets at end of
period $ 3,139 $ 5,289 $30,900,827 $ 3,232,841
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
SteinRoe Special SteinRoe
Venture Fund Balanced Fund
1998 1997 1998 1997
Income
Dividends $ - $ 272,821 $ - $ 562,770
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 62,279 19,873 431,783 70,541
Net investment income
(expense) (62,279) 252,948 (431,783) 492,229
Realized gain (loss) 145,327 2,563 408,403 38,346
Unrealized appreciation
(depreciation) during
during the period (699,035) (171,408) 3,944,917 173,160
Net increase (decrease)
in net assets from
operations (615,987) 84,103 3,921,537 703,735
Purchase payments from
contract owners 3,375,836 2,598,769 22,947,236 9,462,383
Transfers between
accounts 1,244,874 311,872 17,871,316 191,572
Contract terminations and
annuity payouts (445,514) (213,965) (2,320,956) (672,546)
Other transfers to
Keyport Life Insurance
Company - (153,750) - (531,642)
Net increase (decrease)
in net assets
from contract
transactions 4,175,196 2,542,926 38,497,596 8,449,767
Net assets at beginning
of period 2,685,981 58,952 9,283,489 129,987
Net assets at end of
period $6,245,190 $2,685,981 $51,702,622 $9,283,489
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
SteinRoe Mortgage SteinRoe Growth
Securities Fund Stock Fund
1998 1997 1998 1997
Income
Dividends $ - $ - $ - $ 55,649
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 250,260 39,014 268,921 18,450
Net investment income
(expense) (250,260) (39,014) (268,921) 37,199
Realized gain (loss) (21,858) 5,479 1,110,012 7,640
Unrealized appreciation
(depreciation) during
during the period 146,629 232,370 5,175,373 295,306
Net increase (decrease)
in net assets from
operations (125,489) 198,835 6,016,464 340,145
Purchase payments from
contract owners 11,312,207 4,838,331 16,066,184 1,911,470
Transfers between
Accounts 10,917,911 880,659 7,673,007 354,426
Contract terminations and
annuity payouts (1,600,632) (484,716) (1,063,029) (88,499)
Other transfers to
Keyport Life Insurance
Company - (300,709) - (137,696)
Net increase (decrease)
in net assets
from contract
transactions 20,629,486 4,933,565 22,676,162 2,039,701
Net assets at beginning
of period 5,247,772 115,372 2,403,569 23,723
Net assets at end of
period $25,751,769 $5,247,772 $31,096,195 $2,403,569
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Colonial Growth SteinRoe Global
and Income Fund Utilities Fund
1998 1997 1998 1997
Income
Dividends $ 1,866,557 $ 1,106,861 $ 253,744 $ 180,945
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 489,409 85,976 158,679 16,814
Net investment income
(expense) 1,377,148 1,020,885 95,065 164,131
Realized gain (loss) 56,210 1,229 17,820 14,318
Unrealized appreciation
(depreciation) during
during the period 1,591,420 415,501 1,289,332 111,657
Net increase (decrease)
in net assets from
operations 3,024,778 1,437,615 1,402,217 290,106
Purchase payments from
contract owners 21,519,326 10,591,566 7,058,523 2,094,656
Transfers between
accounts 16,633,854 521,716 6,141,991 305,113
Contract terminations and
annuity payouts (2,946,314) (814,237) (821,372) (217,417)
Other transfers to
Keyport Life Insurance
Company (18,401) (650,196) (2,232) (135,226)
Net increase (decrease)
in net assets
from contract
transactions 35,188,465 9,648,849 12,376,910 2,047,126
Net assets at beginning
of period 11,346,779 260,315 2,364,653 27,421
Net assets at end of
period $49,560,022 $11,346,779 $16,143,780 $2,364,653
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Colonial International Colonial Strategic
Fund for Growth Income Fund
1998 1997 1998 1997
Income
Dividends $ 127,229 $ 403,055 $ 2,985,885 $ 422,411
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 326,216 73,074 483,306 65,183
Net investment income
(expense) (198,987) 329,981 2,502,579 357,228
Realized gain (loss) 1,670 (1,137) (1,086) 1,156
Unrealized appreciation
(depreciation) during
during the period 1,116,168 (807,565) (1,746,749) 2,913
Net increase (decrease)
in net assets from
operations 918,851 (478,721) 754,744 361,297
Purchase payments from
contract owners 14,230,002 9,865,737 22,100,729 9,201,396
Transfers between
accounts 10,942,976 1,900,319 20,425,398 697,296
Contract terminations and
annuity payouts (2,278,286) (758,352) (3,326,987) (908,548)
Other transfers to
Keyport Life Insurance
Company (639) (577,952) - (518,675)
Net increase (decrease)
in net assets
from contract
transactions 22,894,053 10,429,752 39,199,140 8,471,469
Net assets at beginning
of period 10,085,119 134,088 9,048,629 215,863
Net assets at end of
period $33,898,023 $10,085,119 $49,002,513 $ 9,048,629
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Colonial U.S. Colonial High Yield
Stock Fund Securities Fund *
1998 1997 1998
Income
Dividends $ 2,277,895 $ 930,220 $ 43,741
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 556,819 77,827 10,850
Net investment income
(expense) 1,721,076 852,393 32,891
Realized gain (loss) 102,275 12,679 158
Unrealized appreciation
(depreciation) during
during the period 3,613,148 514,911 (35,226)
Net increase (decrease)
in net assets from
operations 5,436,499 1,379,983 (2,177)
Purchase payments from
contract owners 27,320,953 8,438,980 1,001,169
Transfers between
accounts 16,723,140 1,833,702 (17,492)
Contract terminations and
annuity payouts (2,966,899) (621,133) (36,757)
Other transfers to
Keyport Life Insurance
Company (4,860) (605,245) (47)
Net increase
in net assets
from contract
transactions 41,072,334 9,046,304 946,873
Net assets at beginning
of period 10,561,775 135,488 -
Net assets at end of
period $ 57,070,608 $ 10,561,775 $ 944,696
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Colonial Small Cap
Value Fund * Newport Tiger Fund
1998 1998 1997
Income
Dividends $ 438 $ 80,691 $ 14,295
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 506 48,602 18,422
Net investment income
(expense) (68) 32,089 (4,127)
Realized gain (loss) 121 12,183 (22,847)
Unrealized appreciation
(depreciation) during
during the period 4,049 (310,542) (450,812)
Net increase (decrease)
in net assets from
operations 4,102 (266,270) (477,786)
Purchase payments from
contract owners 38,722 1,541,776 2,256,281
Transfers between
accounts 3,243 1,412,702 372,400
Contract terminations and
annuity payouts - (474,114) (54,826)
Other transfers to
Keyport Life Insurance
Company (12) - (118,554)
Net increase (decrease)
in net assets
from contract
transactions 41,953 2,480,364 2,455,301
Net assets at beginning
of period - 2,074,024 96,509
Net assets at end of
Period $ 46,055 $ 4,288,118 $ 2,074,024
* Commenced operations May 19, 1998
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Liberty All-Star Equity Fund
1998 1997
Income
Dividends $ 173,281 $ 21,113
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 235,064 913
Net investment income
(expense) (61,783) 20,200
Realized gain (loss) 152,083 -
Unrealized appreciation
(depreciation) during
during the period 5,074,612 145,370
Net increase (decrease)
in net assets from
operations 5,164,912 165,570
Purchase payments from
contract owners 11,242,834 722,965
Transfers between
accounts 7,882,616 21,357,812
Contract terminations and
annuity payouts (3,871,455) (15,331)
Other transfers to
Keyport Life Insurance
Company (531) (1,204,659)
Net increase (decrease)
in net assets from
contract transactions 15,253,464 20,860,787
Net assets at beginning
of period 21,026,357 -
Net assets at end of
Period $ 41,444,733 $ 21,026,357
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Statement of Operations and Changes in Net Assets
For the Years Ended December 31, 1998 and 1997
Total Total
1998 1997
Income
Dividends $ 9,730,740 $ 4,133,844
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 6,170,180 620,934
Net investment income
(expense) 3,560,560 3,512,910
Realized gain (loss) 1,985,866 78,884
Unrealized appreciation
(depreciation) during
during the period 39,528,512 1,564,447
Net increase (decrease)
in net assets from
operations 45,074,938 5,156,241
Purchase payments from
contract owners 262,402,420 82,678,892
Transfers between
accounts 180,475,852 30,924,337
Contract terminations and
annuity payouts (52,695,117) (6,454,006)
Other transfers to
Keyport Life Insurance
Company (26,722) (6,174,702)
Net increase (decrease)
in net assets from contract
transactions 390,156,433 100,974,521
Net assets at beginning
of period 107,766,836 1,636,074
Net assets at end of
period $ 542,998,207 $ 107,766,836
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements
December 31, 1998
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 three contracts: Keyport
Advisor Variable Annuity, Keyport Advisor Vista Variable Annuity and
Manning & Napier Variable Annuity, distinguished principally by the level
of expenses, surrender charges, and eligible fund options. The three
contracts and their respective eligible fund options are as follows:
Keyport Advisor Variable Annuity Keyport Advisor Vista Variable Annuity
Alger American Fund: AIM:
Alger American Growth Portfolio AIM Capital Appreciation Fund
Alger American Small AIM Growth Fund
Capitalization Portfolio AIM International Equity Fund
MFS Variable Insurance Trust: MFS Variable Insurance Trust:
MFS Emerging Growth Series MFS Emerging Growth Series
MFS Research Series MFS Research Series
MFS Bond Series
SteinRoe Variable Investment SteinRoe Variable Investment
Trust (SRVIT): Trust (SRVIT):
SteinRoe Money Market Fund SteinRoe Money Market Fund
SteinRoe Special Venture Fund SteinRoe Special Venture Fund
SteinRoe Balanced Fund SteinRoe Balanced Fund
SteinRoe Mortgaged Securities SteinRoe Growth Stock Fund
Fund
SteinRoe Growth Stock Fund
Liberty Variable Investment Liberty Variable Investment
Trust (LVIT): Trust (LVIT):
Colonial Growth and Income Fund Colonial Growth and Income Fund
SteinRoe Global Utilities Fund SteinRoe Global Utilities Fund
Colonial International Fund Colonial Strategic Income Fund
for Growth
Colonial Strategic Income Fund Colonial U.S. Stock Fund
Colonial U.S. Stock Fund Liberty All-Star Equity Fund
Newport Tiger Fund Colonial Small Cap Value Fund
Liberty All-Star Equity Fund Colonial High Yield Securities Fund
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
1. Organization (continued)
Alliance Variable Products Alliance Variable Products
Series Fund, Inc: Series Fund, Inc:
Alliance Global Bond Portfolio Alliance Global Bond Portfolio
Alliance Premier Growth Portfolio Alliance Premier Growth Portfolio
Alliance Growth and Income
Portfolio
Alliance Real Estate Portfolio
Manning & Napier Variable Annuity
Manning & Napier Insurance Fund, SteinRoe Variable Investment
Inc: Trust (SRVIT):
Manning & Napier Small Cap SteinRoe Money Market Fund
Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Moderate Growth
Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Maximum Horizon
Portfolio
Manning & Napier Bond Portfolio
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.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
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. Certain prior year
amounts have been reclassified to conform to the current year's
presentation.
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 1998 but not transferred to
the Company until January 1999.
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.
Keyport Advisor Vista Variable Annuity
There are no deductions made from purchase payments for sales charges at
the time of purchase. There are also no contingent deferred sales charges
or distribution charges. Daily deductions are made from each sub-account
for administrative charges incurred by the Company at an effective annual
rate of 0.15% of contract value. A daily deduction is also made from each
sub-account for assumption of mortality and expense risk at an effective
annual rate of 1.25% of contract value.
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, 1998 and 1997 and
the accumulation units and dollar value outstanding at December 31, 1998
are as follows:
1997 1998
UNIT UNIT
VALUE VALUE UNITS DOLLARS
AIM Capital Appreciation-6B
Keyport Advisor $ - $11.091130 861.4364 $ 9,554
AIM Growth-6E
Keyport Advisor - 11.815758 17,096.6941 202,010
AIM International Equity-6F
Keyport Advisor - 9.997160 32,522.8614 325,136
Alger American Growth Portfolio
Keyport Advisor 12.277190 17.928398 1,103,432.8049 19,782,782
Employee 12.187513 17.983223 1,914.4441 34,428
Alger American Small Capitalization
Portfolio
Keyport Advisor 11.133567 12.685024 650,319.3977 8,249,317
Employee 11.771178 13.551674 432.3430 5,859
Alliance Global Bond Portfolio
Keyport Advisor 9.811315 11.041874 915,526.8212 10,109,132
Employee - 11.181656 383.4832 4,288
Alliance Premier Growth Portfolio
Keyport Advisor 13.462574 19.645990 2,327,577.4645 45,727,564
Employee 12.945664 19.088868 2,958.3078 56,471
Alliance Growth and Income
Keyport Advisor - 10.894009 51,385.6475 559,796
Alliance Real Estate
Keyport Advisor - 9.019247 13,211.8612 119,161
MFS Emerging Growth Series
Keyport Advisor 11.680929 15.454973 1,086,256.0143 16,788,057
Employee 12.487521 16.694809 619.5099 10,343
MFS Bond Series
Keyport Advisor - 10.239799 84,214.6343 862,341
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
5. Unit Values (continued)
1997 1998
UNIT UNIT
VALUE VALUE UNITS DOLLARS
MFS Research Series
Keyport Advisor $11.834080 $14.399988 1,664,674.5376 $ 23,971,293
Employee 11.567760 14.223009 3,123.5295 44,426
Manning & Napier Small Cap Portfolio
Keyport Advisor 12.088643 10.699340 243.1847 2,602
Manning & Napier Growth Portfolio
Keyport Advisor - 12.379316 36,883.8781 456,597
Manning & Napier Equity Portfolio
Keyport Advisor 12.774188 13.198760 37.8007 3,139
SteinRoe Money Market Fund
Keyport Advisor 13.780309 14.283805 1,742,448.8501 24,888,800
Employee 12.034296 12.604414 6,213.5562 78,318
SteinRoe Special Venture Fund
Keyport Advisor 31.085014 25.351276 223,806.7602 5,673,787
Employee 18.887039 15.564461 391.6231 6,095
SteinRoe Balanced Fund
Keyport Advisor 24.497018 27.188237 1,446,829.6572 39,336,748
Employee 16.476867 18.478127 807.1616 14,915
SteinRoe Mortgage Securities Fund
Keyport Advisor 17.874172 18.825527 1,211,091.8612 22,799,443
Employee 12.883061 13.710621 1,058.3586 14,511
SteinRoe Growth Stock Fund
Keyport Advisor 35.538075 44.828835 546,511.6514 24,499,481
Employee 22.305278 28.430479 3,262.4030 92,752
Colonial Growth and Income Fund
Keyport Advisor 19.353674 21.211314 2,102,020.4011 44,586,615
Employee 20.146127 22.310588 1,194.7965 26,657
SteinRoe Global Utilities Fund
Keyport Advisor 15.358133 17.923199 806,561.9426 14,456,170
Employee - 18.759647 164.3084 3,082
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
5. Unit Values (continued)
1997 1998
UNIT UNIT
VALUE VALUE UNITS DOLLARS
Colonial International Fund for Growth
Keyport Advisor $ 9.659572 $10.761067 2,761,741.6836 $ 29,719,287
Employee 10.293313 11.586890 2,057.0416 23,835
Colonial Strategic Income Fund
Keyport Advisor 13.615795 14.237231 3,092,643.1072 44,030,674
Employee 14.021213 14.814437 636.8757 9,435
Colonial U.S. Stock Fund
Keyport Advisor 20.780533 24.622292 2,060,242.3319 50,727,888
Employee 21.635681 25.903402 1,321.7928 34,239
Colonial High Yield Securities
Keyport Advisor - 9.631230 102,633.1246 988,483
Colonial Small Cap Value Fund
Keyport Advisor - 8.575210 5,370.6959 46,055
Newport Tiger Fund
Keyport Advisor 8.525525 7.866774 521,030.1518 4,098,826
Employee 8.765513 8.172929 4,469.8347 36,532
Liberty All-Star Equity Fund
Keyport Advisor 10.063176 11.777423 1,394,638.6613 16,425,249
Employee 10.075780 11.915401 5,807.4774 69,198
26,038,832.7658 $450,011,371
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 1998 are shown below:
Purchases Sales
AIM Capital Appreciation - 6B $ 8,997 $ 24
AIM Growth - 6E 192,343 6,147
AIM International Equity - 6F 312,571 1,709
Alger American Growth Portfolio 17,182,815 941,072
Alger American Small Capitalization
Portfolio 6,829,586 451,269
Alliance Global Bond Portfolio 9,182,811 543,827
Alliance Premier Growth Portfolio 42,254,206 2,302,476
Alliance Growth and Income 528,772 25,596
Alliance Real Estate 121,919 347
MFS Emerging Growth Series 14,777,330 1,411,705
MFS Bond Series 863,244 10,821
MFS Research Series 19,677,337 1,642,172
Manning & Napier Small Cap Portfolio 3,009 18
Manning & Napier Growth Portfolio 485,786 1,073
Manning & Napier Equity Portfolio 2,711 23
SteinRoe Money Market Fund 41,383,620 10,152,019
SteinRoe Special Venture Fund 11,879,516 5,284,823
SteinRoe Balanced Fund 66,781,830 17,269,655
SteinRoe Mortgage Securities Fund 29,604,372 4,154,248
SteinRoe Growth Stock Fund 41,670,295 17,341,072
Colonial Growth and Income Fund 50,228,069 2,430,114
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
6. Purchases and Sales of Securities (continued)
Purchases Sales
SteinRoe Global Utilities Fund $ 15,439,356 $ 817,592
Colonial International Fund for Growth 30,809,137 598,224
Colonial Strategic Income Fund 51,823,162 1,328,497
Colonial U.S. Stock Fund 56,526,340 2,993,719
Colonial High Yield Securities 1,013,502 33,691
Colonial Small Cap Value Fund 47,532 5,635
Newport Tiger Fund 6,191,798 474,299
Liberty All-Star Equity Fund 15,682,517 1,542,053
$ 531,504,483 $ 71,763,920
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. Many of these systems
are not presently Year 2000 compliant. These systems use programs that were
designed and developed without considering the impact of the upcoming
change in the century. Any of the Company's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company's business, financial condition and
results of operations could be materially and adversely affected by the
failure of the Company's systems and applications (and those operated by
third parties interfacing with the Company's systems and applications) to
properly operate or manage these dates.
In addressing the Year 2000 issue, the Company has completed an inventory
of its computer programs and assessed its Year 2000 readiness. The
Company's computer programs include internally developed programs, third-
party purchased programs and third-party custom developed programs. For
programs which were identified as not being Year 2000 ready, the Company
has implemented a remedial plan which includes repairing or replacing the
programs and appropriate testing for Year 2000. The remediation plan is
substantially complete and is currently in the final testing phase. The
Company also identified its non-information technology systems with respect
to Year 2000 issues. The Company initiated remediation efforts in this
area and expects to complete this phase during 1999.
KEYPORT LIFE INSURANCE COMPANY - VARIABLE ACCOUNT A
Notes to Financial Statements (continued)
8. Year 2000 (Unaudited) (continued)
In addition, the Company has initiated communication with significant
financial institutions, distributors, suppliers and others with which it
does business to determine the extent to which the Company's systems are
vulnerable by the failure of others to remediate their own Year 2000
issues. The Company has received feedback from such parties and is in the
process of independently confirming information received from other parties
with respect to their year 2000 issues. The Company is developing, and will
continue to develop, contingency plans for dealing with any adverse effects
that become likely in the event the Company's remediation plans are not
successful or third parties fail to remediate their own Year 2000 issues.
The Company expects contingency planning to be substantially complete by
June 1999. If necessary 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
issues could have a material impact on the financial condition and results
of operations of the Company. However, 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.
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, 1998 and 1997, and the related consolidated
statements of income, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Keyport Life Insurance Company at December 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
January 28, 1999
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
ASSETS 1998 1997
Cash and investments:
Fixed maturities available for sale
sale (amortized cost: 1998 -
$11,174,697; 1997 - $10,981,618) $11,277,204 $11,246,539
Equity securities (cost: 1998 -
$21,836; 1997 - $21,950) 24,649 40,856
Mortgage loans 55,117 60,662
Policy loans 578,770 554,681
Other invested assets 662,513 440,773
Cash and cash equivalents 719,625 1,162,347
Total cash and investments 13,317,878 13,505,858
Accrued investment income 160,950 165,035
Deferred policy acquisition costs 340,957 232,039
Value of insurance in force 66,636 53,298
Income taxes recoverable 31,909 22,537
Intangible assets 18,082 18,058
Receivable for investments sold 37,936 1,398
Other assets 35,345 14,777
Separate account assets 1,765,538 1,329,189
Total assets $15,775,231 $15,342,189
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities $12,504,081 $12,086,076
Deferred income taxes 143,596 133,003
Payable for investments purchased
and loaned 240,440 722,116
Other liabilities 28,312 34,015
Separate account liabilities 1,723,205 1,263,958
Total liabilities 14,639,634 14,239,168
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
Retained earnings 600,396 511,796
Accumulated other comprehensive income 26,253 82,277
Total stockholder's equity 1,135,597 1,103,021
Total liabilities and
stockholder's equity $15,775,231 $15,342,189
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
(in thousands)
Year ended December 31,
1998 1997 1996
Revenues:
Net investment income $ 815,226 $ 847,048 $ 790,365
Interest credited to
policyholders (562,238) (594,084) (572,719)
Investment spread 252,988 252,964 217,646
Net realized investment
gains 785 24,723 5,509
Fee income:
Surrender charges 17,487 15,968 14,934
Separate account fees 20,589 17,124 15,987
Management fees 4,760 3,261 2,613
Total fee income 42,836 36,353 33,534
Expenses:
Policy benefits (2,880) (3,924) (3,477)
Operating expenses (53,544) (49,941) (43,815)
Amortization of deferred
policy acquisition costs (69,172) (75,906) (60,225)
Amortization of value of
insurance in force (8,238) (10,490) (10,196)
Amortization of intangible
Assets (1,256) (1,128) (1,130)
Total expenses (135,090) (141,389) (118,843)
Income before income taxes 161,519 172,651 137,846
Income taxes (52,919) (59,090) (47,222)
Net income $ 108,600 $ 113,561 $ 90,624
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
Balance,
January 1, 1996 $3,015 $505,933 $307,611 $ 85,772 $ 902,331
Comprehensive income
Net income 90,624 - 90,624
Other comprehensive
income, net of tax
Net unrealized
investment losses - (12,173) (12,173)
Comprehensive income 78,451
Balance,
December 31, 1996 3,015 505,933 398,235 73,599 980,782
Comprehensive income
Net income 113,561 - 113,561
Other comprehensive
income, net of tax
Net unrealized
investment gains 8,678 8,678
Comprehensive income 122,239
Balance,
December 31, 1997 3,015 505,933 511,796 82,277 1,103,021
Comprehensive income
Net income 108,600 - 108,600
Other comprehensive
income, net of tax
Net unrealized
investment losses - (56,024) (56,024)
Comprehensive income 52,576
Dividends paid (20,000) - (20,000)
Balance,
December 31, 1998 $3,015 $505,933 $600,396 $ 26,253 $1,135,597
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31
1998 1997 1996
Cash flows from operating
activities:
Net income $ 108,600 $ 113,561 $ 90,624
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Interest credited to
policyholders 562,238 594,084 572,719
Net realized investment
gains (785) (24,723) (5,509)
Amortization of value of
insurance in force and
intangible assets 9,494 11,618 11,326
Net amortization on
investments 75,418 29,862 (29,088)
Change in deferred policy
acquisition costs (33,687) (10,252) (24,403)
Change in current and
deferred income taxes 1,112 71,919 7,263
Net change in other assets
and liabilities (53,786) 7,959 (41,012)
Net cash provided by
operating activities 668,604 794,028 581,920
Cash flows from investing
activities:
Investments purchased -
available for sale (6,789,048) (4,548,374) (4,365,399)
Investments sold -
available for sale 5,405,955 2,563,465 1,714,023
Investments matured -
available for sale 1,273,478 1,531,693 1,387,664
Increase in policy loans (24,089) (21,888) (34,467)
Decrease in mortgage loans 5,545 6,343 7,500
Other invested assets sold
(purchased), net 21,395 (48,921) (130,087)
Purchases of property and
Equipment, net (4,953) (6,213) (1,622)
Value of business acquired,
net of cash (3,999) - (30,865)
Net cash used in
investing activities (115,716) (523,895) (1,453,253)
Cash flows from financing
activities:
Withdrawals from policyholder
accounts (1,690,035) (1,320,837) (1,154,087)
Deposits to policyholder
accounts 1,224,991 950,472 2,134,504
Dividends paid (20,000) - -
Securities lending (510,566) 495,194 (119,083)
Net cash (used in) provided
by financing activities (995,610) 124,829 861,334
Change in cash and
cash equivalents (442,722) 394,962 (9,999)
Cash and cash equivalents
at beginning of year 1,162,347 767,385 777,384
Cash and cash equivalents at
end of year $ 719,625 $ 1,162,347 $ 767,385
See accompanying notes.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1998
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 savings market. These annuity products are sold through a wide
ranging network of banks, agents, and security dealers throughout the
United States.
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"), Keyport Benefit Life Insurance Company
("Keyport Benefit"), Liberty Advisory Services Corp., 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 accumulated other
comprehensive income. 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,
net of adjustments for amortization of deferred policy acquisition costs
and value of insurance in force.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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 $126.8 million and $117.3 million at December 31, 1998
and 1997, respectively.
Derivatives
The Company uses interest rate swap and cap agreements to manage its
interest rate risk and call options and futures 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, net
of tax, included in accumulated other comprehensive income.
Premiums paid on call options are amortized into 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. Futures contracts are carried at fair value and
require daily cash settlement. Changes in the fair value of futures that
qualify as hedges are deferred and recognized as an adjustment to the
hedged asset or liability. Futures that do not qualify as hedges are
carried at fair value; changes in value are immediately recognized in
income.
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.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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
accumulated other comprehensive income. Deferred policy acquisition costs
were decreased by $56.0 million and $126.9 million at December 31, 1998 and
1997, respectively, relating to this adjustment.
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 10 years for
annuities and 25 years for life insurance. Interest is accrued on the
unamortized balance at the contract rate of 5.25%, 5.34% and 5.30% for the
years ended December 31, 1998, 1997 and 1996, 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 accumulated other
comprehensive income. Value of insurance in force was decreased by $10.3
million and $31.8 million at December 31, 1998 and 1997, respectively,
relating to this adjustment.
Estimated net amortization expense of the value of insurance in force as of
December 31, 1998 is as follows (in thousands): 1999 - $11,013; 2000 -
$10,043; 2001 - $8,823; 2002 - $7,803; 2003 - $6,975 and thereafter -
$32,252.
Intangible Assets
Intangible assets consist of goodwill arising from business combinations
accounted for as a purchase. Amortization is provided on a straight-line
basis ranging from ten to twenty-five years.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
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, 1998 and 1997, the Company also classified $42.3 million
and $65.2 million, respectively, of fixed maturities and investments in
certain mutual funds sponsored by affiliates of the Company as separate
account assets.
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 Statement of Financial Accounting Standards ("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. Keyport Benefit may also join
with Keyport in a consolidated income tax 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 Changes
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of SFAS 130 had no impact on the Company's net income or
stockholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in stockholder's equity, to be included in accumulated
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131").
SFAS 131 establishes standards for the reporting of financial information
from operating segments in annual and interim financial statements. SFAS
131 requires that financial information be reported on the basis that it is
reported internally for evaluating segment performance and deciding how to
allocate resources to segments. The adoption of SFAS 131 did not have any
effect on the Company's financial statements as management of the Company
considers its operations to be one segment.
Recent Accounting Pronouncement
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") was issued. SFAS 133 standardizes the
accounting for derivative instruments and the derivative portion of certain
other contracts that have similar characteristics by requiring that an
entity recognize those instruments at fair value. This statement also
requires a new method of accounting for hedging transactions, prescribes
the type of items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting. This statement
is effective for fiscal years beginning after June 15, 1999. Earlier
adoption is permitted. Upon adoption, the Company will be required to
record a cumulative effect adjustment to reflect this accounting change.
The Company has not completed its analysis and evaluation of the
requirements and the impact of this statement.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
2. Acquisitions
On January 2, 1998, the Company acquired the common stock of American
Benefit Life Insurance Company, renamed Keyport Benefit Life Insurance
Company on March 31, 1998, a New York insurance company, for $7.4 million.
The acquisition was accounted for as a purchase and, accordingly, operating
results are included in the consolidated financial statements from the date
of acquisition. In connection with the acquisition, the Company acquired
assets with a fair value of $9.4 million and assumed liabilities of $3.2
million. Subsequent to the acquisition, the Company made a capital
contribution to Keyport Benefit in the amount of $7.5 million.
In August 1996, the Company 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, 1998 and 1997, 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, 1998 Cost Gains Losses Fair Value
U.S. Treasury
securities $ 90,818 $ 3,039 $ (192) $ 93,665
Mortgage backed
securities of U.S.
government
corporations and
agencies 940,075 28,404 (2,894) 965,585
Debt securities
issued by foreign
governments 251,088 9,422 (16,224) 244,286
Corporate securities 5,396,278 185,132 (156,327) 5,425,083
Other mortgage
backed securities 2,286,585 65,158 (19,546) 2,332,197
Asset backed securities 1,941,966 25,955 (16,521) 1,951,400
Senior secured loans 267,887 1,079 (3,978) 264,988
Total fixed
maturities $11,174,697 $ 318,189 $ (215,682) $11,277,204
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
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
At December 31, 1998 and 1997, gross unrealized gains on equity securities,
interest rate cap agreements and investments in separate accounts
aggregated $7.8 million and $27.4 million, and gross unrealized losses
aggregated $3.6 million and $6.9 million, respectively.
Net unrealized investment gains (losses) on securities included in other
comprehensive income in 1998, 1997 and 1996 include: gross unrealized gains
(losses) on securities of $(182.2) million, $73.7 million and $(64.4)
million, respectively; reclassification adjustments for realized investment
(gains) losses in net income of $3.5 million, $(31.2) million and $(7.2)
million, respectively; and adjustments to deferred policy acquisition costs
and value of insurance in force of $92.5 million, $(29.1) million and $54.2
million, respectively. The above amounts are shown before income tax
expense (benefit) of $(30.2) million, $4.7 million and $(5.2) million,
respectively.
Deferred tax liabilities for the Company's net unrealized investment gains
and losses, net of adjustment to deferred policy acquisition costs and
value of insurance in force, were $14.1 million and $44.3 million at
December 31, 1998 and 1997, 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, 1998.
At December 31, 1998, the Company did not have a material concentration of
financial instruments in a single investee, industry or geographic
location.
At December 31, 1998, $1.1 billion of fixed maturities were below
investment grade.
Contractual Maturities
The amortized cost and fair value of fixed maturities by contractual
maturity as of December 31, 1998 are as follows (in thousands):
Amortized Fair
December 31, 1998 Cost Value
Due in one year or less $ 334,901 $ 335,179
Due after one year through five years 2,998,421 3,005,087
Due after five years through ten years 1,638,535 1,656,238
Due after ten years 1,034,214 1,031,518
6,006,071 6,028,022
Mortgage and asset backed securities 5,168,626 5,249,182
$11,174,697 $11,277,204
Actual maturities may differ because borrowers may have the right to call
or prepay obligations.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Net Investment Income
Net investment income is summarized as follows (in thousands):
Year Ended December 31, 1998 1997 1996
Fixed maturities $ 810,521 $ 811,688 $ 737,372
Mortgage loans and other
invested assets 18,238 27,833 11,422
Policy loans 33,251 32,224 30,188
Equity securities 4,369 5,443 4,494
Cash and cash equivalents 38,269 34,449 36,138
Gross investment income 904,648 911,637 819,614
Investment expenses (17,342) (15,311) (12,708)
Amortization of options and
interest rate caps (72,080) (49,278) (16,541)
Net investment income $ 815,226 $ 847,048 $ 790,365
As of December 31, 1998, the carrying value of fixed maturity investments
that was non-income producing was $30.0 million.
Net Realized Investment Gains (Losses)
Net realized investment gains (losses) are summarized as follows (in
thousands):
Year Ended December 31, 1998 1997 1996
Fixed maturities available for sale:
Gross gains $ 72,119 $ 42,464 $ 24,304
Gross losses (59,730) (19,146) (17,814)
Other than temporary declines in value (28,322) - -
Equity securities 14,754 (51) 1,492
Investments in separate accounts 93 7,912 (576)
Interest rate caps (2,397) - -
Other - - (208)
Gross realized investment (losses) gains (3,483) 31,179 7,198
Amortization adjustments of deferred
policy acquisition costs and value
of insurance inforce 4,268 (6,456) (1,689)
Net realized investment gains $ 785 $ 24,723 $ 5,509
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Proceeds from sales of fixed maturities available for sale were $5.4
billion, $2.6 billion and $1.7 billion, for the years ended December 31,
1998, 1997 and 1996, respectively.
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 1998 1997 1998 1998 1997 1997
Interest
rate swaps $2,369,000 $2,575,000 $(71,163) $(71,163) $(42,123) $(42,123)
Interest
rate cap
agreements 250,000 250,000 - - 102 102
S&P 500
Index call
Options - - 535,628 607,022 323,343 345,294
S&P 500 Index
Futures - - (604) (604) 752 752
The interest rate swap agreements expire in 1999 through 2005. The interest
rate cap agreements expire in 1999 through 2000. The call options' and
futures' maturities range from 1999 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 and futures contracts are used
for purposes of hedging the Company's equity-indexed products. At December
31, 1998 and 1997, the Company had approximately $156.4 million and $155.0
million, respectively, of unamortized premium in call option contracts.
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 and futures contracts
are based on quoted market prices.
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. Futures
contracts trade on organized exchanges and, therefore, have minimal credit
risk.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
Income tax expense (benefit) is summarized as follows (in thousands):
Year Ended December 31,
1998 1997 1996
Current $ 12,150 $ (48,477) $ 52,369
Deferred 40,769 107,567 (5,147)
$ 52,919 $ 59,090 $ 47,222
A reconciliation of income tax expense with the expected federal income tax
expense computed at the applicable federal income tax rate of 35% is as
follows (in thousands):
Year Ended December 31,
1998 1997 1996
Expected income tax expense $ 56,532 $ 60,427 $ 48,246
Increase (decrease) in income
taxes resulting from:
Nontaxable investment income (2,152) (1,416) (1,216)
Amortization of goodwill 440 396 396
Other, net (1,901) (317) (204)
Income tax expense $ 52,919 $ 59,090 $ 47,222
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,
1998 1997
Deferred tax assets:
Policy liabilities $ 107,433 $ 124,250
Guaranty fund expense 2,115 2,795
Net operating loss carryforwards 1,780 2,111
Deferred fees 4,379 -
Other 1,318 1,205
Total deferred tax assets 117,025 130,361
Deferred tax liabilities:
Deferred policy acquisition costs (92,533) (56,331)
Value of insurance in force and
intangible assets (23,322) (18,022)
Excess of book over tax basis of
Investments (135,364) (178,697)
Separate account asset (478) (645)
Deferred loss on interest rate swaps (805) (1,792)
Other (8,119) (7,877)
Total deferred tax liabilities (260,621) (263,364)
Net deferred tax liability $ (143,596) $ (133,003)
As of December 31, 1998, the Company had approximately $5.1 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 paid were $21.5 million in 1998 and $46.9 million in 1996,
while income taxes refunded were $8.0 million in 1997.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
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. 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.
Plan assets consist principally of investments in certain mutual funds
sponsored by an affiliated company.
The following table sets forth the Plans' funded status (in thousands).
December 31,
1998 1997
Change in benefit obligation
Benefit obligation at beginning of year $ 12,594 $ 10,559
Service cost 921 804
Interest cost 960 829
Actuarial loss 1,101 606
Benefits paid (294) (204)
Benefit obligation at end of year 15,282 12,594
Change in plan assets
Fair value of plan assets at beginning of year 7,801 6,399
Actual return on plan assets 593 901
Employer contribution 290 705
Benefits paid (294) (204)
Fair value of plan assets as end of year 8,390 7,801
Projected benefit obligation in excess of the
Plans' assets 6,892 4,793
Unrecognized net actuarial loss (2,814) (1,727)
Prior service cost not yet recognized in net
periodic pension cost (138) (160)
Accrued pension cost $ 3,940 $ 2,906
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
6. Retirement Plans (continued)
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,
1998 1997 1996
Pension cost includes the
following components:
Service cost benefits earned
during the period $ 921 $ 804 $ 717
Interest cost on projected
benefit obligation 960 829 725
Expected return on Plan assets (610) (525) (468)
Net amortization and deferred
amounts 53 23 93
Total net periodic pension cost $ 1,324 $ 1,131 $ 1,067
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:
Discount rate 6.75% 7.25% 7.50%
Rate of increase in compensation level 4.75% 5.00% 5.25%
Expected long-term rate of return on assets 9.00% 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, 1998, 1997 and 1996,
expenses related to these defined contribution plans totaled (in thousands)
$853, $702 and $590, respectively.
7. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated 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 estimated fair value of financial instruments:
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
7. Fair Value of Financial Instruments (continued)
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.
The fair values and carrying values of the Company's financial instruments
are as follows (in thousands):
December 31, December 31,
1998 1997
Carrying Fair Carrying Fair
Value Value Value Value
Assets:
Fixed maturity
securities $11,277,204 $11,277,204 $11,246,539 $11,246,539
Equity securities 24,649 24,649 40,856 40,856
Mortgage loans 55,117 56,640 60,662 63,007
Policy loans 578,770 578,770 554,681 554,681
Other invested
Assets 662,513 730,394 440,773 462,724
Cash and cash
Equivalents 719,625 719,625 1,162,347 1,162,347
Liabilities:
Policy liabilities 12,504,081 11,647,558 12,086,076 11,366,534
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
8. Quarterly Financial Data (unaudited)
The following is a tabulation of the unaudited quarterly results of
operations (in thousands):
1998 Quarters
March 31 June 30 September 30 December 31
Investment income $ 206,075 $ 200,955 $ 201,158 $ 207,038
Interest credited to
policyholders (142,136) (140,198) (143,271) (136,633)
Investment spread 63,939 60,757 57,887 70,405
Net realized investment
gains (losses) 818 (2,483) 4,112 (1,662)
Fee income 9,877 12,400 10,505 10,054
Pretax income 37,870 36,627 44,344 42,678
Net income 26,049 24,092 29,779 28,680
1997 Quarters
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
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,
1998 1997 1996
Statutory surplus $ 790,935 $ 702,610 $ 567,735
Statutory net income 95,422 107,130 40,237
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
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, 1998, 1997
and 1996. 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 $7.1 million for the year ended December 31, 1998 and $7.8 million for
the years ended December 31, 1997 and 1996. In addition, certain
affiliated companies distribute the Company's products and were paid $8.6
million, $7.2 million and $6.4 million by the Company for the years ended
December 31, 1998, 1997, and 1996, respectively.
Keyport had 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 had
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, 1998 and 1997, the amounts outstanding were $39.5 million. In
January 1999, Liberty Mutual retired the mortgage notes with a payment of
$39.7 million for all outstanding principal and interest.
Dividend payments to Liberty Financial from the Company are governed by
insurance laws that 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, 1998, the maximum amount of dividends
(based on statutory surplus and statutory net gains from operations) which
may be paid by Keyport was approximately $59.1 million without such
approval.
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 $4,721,
$3,408 and $3,213 for the years ended December 31, 1998, 1997 and 1996,
respectively. For each of the next five years, and in the aggregate, as of
December 31, 1998, the following are the minimum future rental payments
under noncancelable operating leases having remaining terms in excess of
one year (in thousands):
Year Payments
1999 $ 5,354
2000 5,311
2001 4,487
2002 4,342
2003 4,351
Thereafter 16,752
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies (continued)
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 1998, 1997 and 1996, the Company was assessed $3.2 million, $5.9
million, and $10.0 million, respectively. During 1998, 1997 and 1996, the
Company recorded $1.2 million, $1.0 million, and $1.0 million,
respectively, of provisions for state guaranty fund association expense. At
December 31, 1998 and 1997, the reserve for such assessments was $6.0
million and $8.0 million, respectively.
12. Year 2000 (Unaudited)
The Company relies significantly on computer systems and applications in
its operations. Many of these systems are not presently Year 2000
compliant. These systems use programs that were designed and developed
without considering the impact of the upcoming change in the century. Any
of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The
Company's business, financial condition and results of operations could be
materially and adversely affected by the failure of the Company's systems
and applications (and those operated by third parties interfacing with the
Company's systems and applications) to properly operate or manage these
dates.
In addressing the Year 2000 issue, the Company has completed an inventory
of its computer programs and assessed its Year 2000 readiness. The
Company's computer programs include internally developed programs, third-
party purchased programs and third-party custom developed programs. For
programs which were identified as not being Year 2000 ready, the Company
has implemented a remedial plan which includes repairing or replacing the
programs and appropriate testing for Year 2000. The remediation plan is
substantially complete and is currently in the final testing phase. The
Company also identified its non-information technology systems with respect
to Year 2000 issues. The Company initiated remediation efforts in this area
and expects to complete this phase during 1999.
In addition, the Company has initiated communication with significant
financial institutions, distributors, suppliers and others with which it
does business to determine the extent to which the Company's systems are
vulnerable by the failure of others to remediate their own Year 2000
issues. The Company has received feedback from such parties and is in the
process of independently confirming information received from other parties
with respect to their year 2000 issues.
KEYPORT LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements (continued)
12. Year 2000 (Unaudited) (continued)
The Company is developing, and will continue to develop, contingency plans
for dealing with any adverse effects that become likely in the event the
Company's remediation plans are not successful or third parties fail to
remediate their own Year 2000 issues. The Company expects contingency
planning to be substantially complete by June 1999. If necessary
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 issues could have a material
impact on the financial condition and results of operations of the Company.
However, 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.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Variable Account A:
Statement of Assets and Liabilities - December 31, 1998
Statement of Operations and Changes in Net Assets for the years
ended December 31, 1998 and 1997
Notes to Financial Statements
Keyport Life Insurance Company:
Consolidated Balance Sheet - December 31, 1998 and 1997
Consolidated Income Statement for the years ended December 31,
1998, 1997 and 1996
Consolidated Statement of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing Variable
Account A
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and Dealer
* (4a) Form of Group Variable Annuity Contract of Keyport Life
Insurance Company
* (4b) Form of Variable Annuity Certificate of Keyport Life
Insurance Company
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
*** (4f) Specimen Group Variable Annuity Contract of Keyport Life
Insurance Company
*** (4g) Specimen Variable Annuity Certificate of Keyport Life
Insurance Company
**** (4h) Form of Individual Variable Annuity Contract of Keyport
Life Insurance Company
**** (4i) Specimen Individual Variable Annuity Contract of Keyport
Life Insurance Company
**** (4j) Specimen Group Exchange Program Endorsement
**** (4k) Specimen Individual Exchange Program Endorsement
(4l) Specimen Optional Enhanced Death Benefit Rider
(4m) Specimen Optional Minimum Income Benefit Rider
* (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 Alliance Variable Products
Series Fund, Inc., Alliance Fund Distributors, Inc., Alliance
Capital Management L.P., and Keyport Life Insurance Company
++++ (8c) 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.
(8d) Participation Agreement Among Templeton Variable Products
Series Fund, Franklin Templeton Distributors, Inc. and
Keyport Life Insurance Company
++ (8e) 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
++++ (8f) 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) Consent 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 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. 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. 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. 10 to the
Registration Statement (File No. 333-1043) filed on or about
April 24, 1998.
++++ Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement (File No. 333-1043) filed on or about
May 8, 1998.
# Incorporated by reference to Post-Effective Amendment No. 19 to the
Registration Statement (File No. 333-1043) filed on or about
April 28, 1999.
## To be filed by amendment.
Item 25. Directors and Officers of the Depositor.
Name and Principal Positions and Offices
Business Address* with Depositor
Kenneth R. Leibler, President Director and Chairman of the Board
Liberty Financial Companies Inc.
Federal Reserve Plaza, 24th Floor
600 Atlantic Avenue
Boston, MA 02110
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
Philip K. Polkinghorn Director and President
Paul H. LeFevre, Jr. Chief Operating Officer
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
Ellen L. Wike Vice President
Daniel T. H. Yin Vice President
Nancy C. Atherton Assistant Vice President
John G. Bonvouloir Assistant Vice President &
Assistant Treasurer
Reese R. Boyd, III Assistant Vice President
Judith A. Brookins Assistant Vice President
Paul R. Coady Assistant Vice President
Stephen Cross Assistant Vice President and
Assistant Controller
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
Teresa M. Shumila Assistant Vice President
Daniel T. Smyth Assistant Vice President
Donald A. Truman Assistant Vice President and
Assistant Secretary
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
Jacob M. Herschler Director
Paul T. Holman Director and Assistant Clerk
James J. Klopper Director, President and Clerk
Daniel C. Bryant Vice President
Rogelio P. Japlit Treasurer
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 has caused this Registration Statement to be signed on
its behalf, in the City of Boston and Commonwealth of Massachusetts, on
this 16th day of June, l999.
Variable Account A
(Registrant)
BY: Keyport Life Insurance Company
(Depositor)
BY: /s/ Philip K. Polkinghorn
Philip K. Polkinghorn
President
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/ Philip K. Polkinghorn 6/16/99
Kenneth R. Leibler Philip K. Polkinghorn Date
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/ Philip K. Polkinghorn
Philip K. Polkinghorn
Director
*BY: /s/ James J. Klopper June 16, 1999
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
incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement (File Nos. 333-1043; 811-7543) filed on or about
April 24, 1998.
EXHIBIT INDEX
Item Page
(4l) Specimen Optional Enhanced Death Benefit Rider
(4m) Specimen Optional Minimum Income Benefit Rider
(8b) Participation Agreement Among Alliance Variable Products
Series Fund, Inc., Alliance Fund Distributors, Inc.,
Alliance Capital Management L.P., and Keyport Life
Insurance Company
(8d) Participation Agreement Among Templeton Variable Products
Series Fund, Franklin Templeton Distributors, Inc. and
Keyport Life Insurance Company
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
EXHIBIT 4(l)
ENHANCED DEATH
BENEFIT RIDER
Based on Your request, We have issued this optional Enhanced
Death Benefit Rider as part of the Certificate to which it is
attached on the Certificate Date. While it is In Force, this
rider supplements the Death Benefits section of the Certificate
to provide an Enhanced Death Benefit.
The Enhanced Death Benefit
The standard Death Benefit provided in the Certificate Schedule
is based upon the maximum of: (1) Purchase Payments less
withdrawals, and (2) the Certificate's highest "Anniversary
Value" prior to the date of death and prior to age 81 of the
decedent. The Enhanced Death Benefit includes an additional
value, "Purchase Payments with Interest" (PPI), which may provide
for a higher death benefit under certain circumstances. Purchase
Payments with Interest shall be defined as Purchase Payments,
increased at the annual interest rate identified in the
Certificate Schedule, and adjusted for withdrawals as defined
below. Thus the Enhanced Death Benefit will be the maximum of:
(1) Purchase Payments less withdrawals, (2) the Certificate's
highest "Anniversary Value" prior to the date of death and prior
to age 81 of the decedent, and (3) Purchase Payments with
Interest, prior to age 81 or the date of death of the decedent,
as defined below.
Calculation of Purchase Payments with Interest
For purposes of determining the Enhanced Death Benefit amount, We
will calculate the PPI value as follows:
If You make no Purchase Payments after the initial Purchase
Payment, and no partial withdrawals, PPI shall equal the initial
Purchase Payment, increased at the annual interest rate
identified in the Certificate Schedule, to the Certificate
Anniversary prior to the date of death or preceding age 81 of the
decedent, whichever shall occur first.
If You make subsequent Purchase Payments or any partial
withdrawals, PPI shall be calculated on each Certificate
Anniversary prior to the date of death and preceding age 81 of
the decedent as follows:
(1) On the first Certificate Anniversary:
(a) Increase the initial Purchase Payment at the annual interest
rate identified in the Certificate Schedule, from the
Certificate Date until the Anniversary Date. But if there
have been subsequent Purchase Payment(s) or partial
withdrawal(s) before the first Certificate Anniversary,
then:
(b) Add the subsequent Purchase Payment(s), credited at the
annual interest rate identified in the Certificate Schedule
from the date of the payment to the current Certificate
Anniversary; and
(c) At the time of any partial withdrawals, (i) decrease the PPI
value by the following amount calculated at the time of the
partial withdrawal: the partial withdrawal amount (including
any associated surrender charge incurred) divided by the
Certificate Value immediately preceding the withdrawal,
multiplied by the PPI value immediately preceding the
withdrawal, and (ii) increase the new PPI value at the
annual interest rate identified in the Certificate Schedule
from the date of the withdrawal to the current Certificate
Anniversary.
(2) On each subsequent Certificate Anniversary prior to the date
of death and prior to age 81 of the decedent, increase the
prior Certificate Anniversary's PPI value at the annual
interest rate identified in the Certificate Schedule until
the current Certificate Anniversary, but if there is a
purchase payment or partial withdrawal made before the
current Certificate Anniversary but after the preceding
Certificate Anniversary, then the adjustments described in
(1)(b) or (c) above shall apply.
(3) On each subsequent Certificate Anniversary prior to the date
of death and on or after age 81 of the decedent, the
preceding Certificate Anniversary's PPI value will continue
to apply (i.e., there are no further guaranteed minimum
increases), but if a Purchase Payment or partial withdrawal
is made before the current Certificate Anniversary, the
preceding Certificate Anniversary's PPI value shall be
increased by the amount of any Purchase Payment and
decreased at the time of any partial withdrawal by the
amount determined under (1)(c)(i) above.
The Purchase Payments with Interest value is calculated only for
purposes of determining the value of the Enhanced Death Benefit.
The Purchase Payments with Interest calculation is not a part of,
and is not credited to, the Certificate Value or Certificate
Withdrawal Value.
Election of Optional Enhanced Death Benefit Rider
The Enhanced Death Benefit may be elected by the Certificate
Owner (together with any Joint Certificate Owners, if applicable)
only on the Certificate Date. You may not elect the optional
Enhanced Death Benefit after We have issued the Certificate.
Also, You may not elect the optional Enhanced Death Benefit if
the age of all Covered Person(s) on the Certificate Date is over
75.
Revocability
You may revoke the Enhanced Death Benefit rider only on the
seventh Certificate Anniversary. If You revoke the Enhanced
Death Benefit rider, then We will not use the PPI value in
calculating the Death Benefit. If you revoke the Enhanced Death
Benefit, We will not refund any charges deducted for this rider.
Charge
The charge for this optional rider is shown in the Certificate
Schedule. We will multiply the percentage charge shown in the
Certificate Schedule for this optional rider by the highest PPI
value or highest "Anniversary Value" for any Covered Person under
the Certificate, and deduct the result from the Certificate Value
annually beginning with the first Certificate Anniversary. In
cases of full surrender between Certificate Anniversary dates,
the charge for this optional rider will be calculated on a pro
rata basis. In the case of a full surrender of the Certificate
for an available Death or Income Benefit, We will waive the
Enhanced Death Benefit charge accrued between date of surrender
and the previous Certificate Anniversary. Please refer to Your
prospectus for more information on calculation of the Charge for
this rider.
Signed for the Company: ______________________
Secretary
EXHIBIT 4(m)
GUARANTEED INCOME
BENEFIT RIDER
Based on Your request, We have issued this optional Guaranteed Income
Benefit Rider as part of the Certificate to which it is attached on the
Certificate Date. While this rider is In Force, it supplements the
Certificate to provide a Guaranteed Income Benefit option.
Definition of New Terms in this Endorsement
Annuitant: For purposes of this rider, the Annuitant is the individual
designated on the Specification Pages. The Annuitant is the individual who
will receive periodic Guaranteed Income Benefit payments, if You exercise
the Guaranteed Income Benefit option.
Guaranteed Income Benefit Base: The amount We will apply to Our Guaranteed
Payout Factors to determine the amount of Your Guaranteed Income Benefit
payments.
Guaranteed Payout Factors: Determine the amount of Your periodic Guaranteed
Income Benefit payments, based on the total Guaranteed Income Benefit Base
applied to the Annuity Option You select. Our Guaranteed Payout Factors
are presented in this rider and in the Certificate in Tables that show, for
each $1,000 of Guaranteed Income Benefit Base applied, the amount of the
monthly Guaranteed Income Benefit payments under the Annuity Option
selected, depending upon the age of the Annuitant on the date the
Guaranteed Income Benefit option is exercised.
The Guaranteed Income Benefit
This optional Guaranteed Income Benefit rider provides for a guaranteed
minimum lifetime fixed income benefit. Your right to apply the Adjusted
Certificate Value to other annuity options available under the Certificate
on Your Income Date using current payout factors will still apply. This
optional rider provides You with an additional annuitization option. On
Your Income Date, if You exercise the Guaranteed Income Benefit option, We
will apply Your Guaranteed Income Benefit Base to Our Guaranteed Payout
Factors, described below in this rider, to determine the amount of Your
Guaranteed Income Benefit payments.
The Guaranteed Income Benefit Base
The Guaranteed Income Benefit Base shall consist of the greater of: (1) the
Certificate's highest "Anniversary Value", as described in the Death
Benefits section of the Certificate, prior to age 81 of the Annuitant, and
(2) "Purchase Payments with Interest" (PPI), where Purchase Payments with
Interest shall be Purchase Payments, increased at the annual interest rate
identified in the Certificate Schedule, credited annually on each
Certificate Anniversary prior to age 81 of the Annuitant, and adjusted for
withdrawals as further described below.
Calculation of Purchase Payments with Interest
For purposes of determining the Guaranteed Income Benefit amount, We will
calculate the PPI value as follows:
If You make no Purchase Payments after the initial Purchase Payment, and no
partial withdrawals, PPI shall equal the initial Purchase Payment,
increased at the annual interest rate identified in the Certificate
Schedule, to the Certificate Anniversary prior to age 81 of the Annuitant.
If You make subsequent Purchase Payments or any partial withdrawals, PPI
shall be calculated on each Certificate Anniversary prior to age 81 of the
Annuitant as follows:
(1) On the first Certificate Anniversary:
(a) Increase the initial Purchase Payment at the annual interest rate
identified in the Certificate Schedule, from the Certificate Date
until the Anniversary Date. But if there have been subsequent
Purchase Payment(s) or partial withdrawal(s) before the first
Certificate Anniversary, then:
(b) Add the subsequent Purchase Payment(s), credited at the annual
interest rate identified in the Certificate Schedule from the date of
the payment to the current Certificate Anniversary; and
(c) At the time of any partial withdrawals, (i) decrease the PPI
value by the following amount calculated at the time of the partial
withdrawal: the partial withdrawal amount (including any associated
surrender charge incurred) divided by the Certificate Value
immediately preceding the withdrawal, multiplied by the PPI value
immediately preceding the withdrawal, and (ii) increase the new PPI
value at the annual interest rate identified in the Certificate
Schedule from the date of the withdrawal to the current Certificate
Anniversary.
(2) On each subsequent Certificate Anniversary prior to age 81 of the
Annuitant, increase the prior Certificate Anniversary's PPI value at
the annual interest rate identified in the Certificate Schedule until
the current Certificate Anniversary, but if there is a purchase
payment or partial withdrawal made before the current Certificate
Anniversary but after the preceding Certificate Anniversary, then the
adjustments described in (1)(b) or (c) above shall apply.
(3) On each subsequent Certificate Anniversary on or after age 81 of the
Annuitant, the preceding Certificate Anniversary's PPI value will
continue to apply (i.e., there are no further guaranteed minimum
increases), but if a Purchase Payment or partial withdrawal is made
before the current Certificate Anniversary, the preceding Certificate
Anniversary's PPI value shall be increased by the amount of any
Purchase Payment and decreased at the time of any partial withdrawal
by the amount determined under (1)(c)(i) above.
The Purchase Payments with Interest value is calculated only for purposes
of determining the value of the Guaranteed Income Benefit rider. The
Purchase Payments with Interest calculation is not a part of, and is not
credited to, the Certificate Value or Certificate Withdrawal Value.
Annuity Options
The following Annuity Options or any other Annuity Options acceptable to Us
may be selected in conjunction with the Guaranteed Income Benefit:
LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity Payments during
the lifetime of the payee and in any event for 10 years certain. If
the payee dies during the guaranteed payment period and the
Beneficiary does not desire payments to continue for the remainder of
the guarantee period, he/she may elect to have the present value of
the guaranteed payments remaining commuted and paid in a lump sum.
(See Table 5 in the Certificate.)
LIFE ANNUITY: Annuity Payments during the lifetime of the payee. (See
Table 7 below.)
You may select either Annuity Option. If You do not select an Annuity
Option, We will apply Life Annuity with Period Certain of 10 Years. Under
the Guaranteed Income Benefit, You may only select a Fixed Annuity. You
may not select a Variable Annuity. If You purchase Your contract through a
qualified, tax-deferred retirement savings plan, You may not be able to
choose Option B, but may be able to choose other, shorter period certain
with life contingent annuity options.
Election of Optional Guaranteed Income Benefit
The Guaranteed Income Benefit may be elected by the Certificate Owner (and
any Joint Certificate Owners, if applicable) only on the Certificate Date.
You may not elect the Guaranteed Income Benefit after We have issued the
Certificate. Also, You may not elect the optional Guaranteed Income Benefit
if the age of the Annuitant on the Certificate Date is over 75.
Revocability
You may revoke the Guaranteed Income Benefit only on the seventh
Certificate Anniversary. If You revoke the Guaranteed Income Benefit, then
We will not use the Guaranteed Income Benefit option in calculating the
amount available for annuitization on the Income Date. If you revoke the
Guaranteed Income Benefit, We will not refund any charges collected under
this Rider.
Waiting Period and Exercise Restrictions
Annuity Payments under the Guaranteed Income Benefit may not begin until
the Guaranteed Income Benefit Waiting Period shown on the Certificate
Schedule has run. For example, if the Certificate Schedule shows a ten-
year waiting period for the Guaranteed Income Benefit, You may exercise the
Guaranteed Income Benefit no earlier than the tenth Certificate
Anniversary. You must exercise the Guaranteed Income Benefit option, if at
all, within 30 days of a Certificate Anniversary. You may only exercise
the Guaranteed Income Benefit during the 30-day period following each
Certificate Anniversary after the Guaranteed Income Benefit Waiting Period
shown on the Certificate Schedule has expired.
Change of Annuitant or Contingent Annuitant
You have the right under the terms of the Certificate to change by Written
Request the Contingent Annuitant, and in certain cases, subject to Our
underwriting rules then in effect, the Annuitant. If the existing
Annuitant under a Certificate has not reached age 81, and You appoint a new
Annuitant, or the Contingent Annuitant becomes the Annuitant as a result of
the death of the existing Annuitant, then the age of the new Annuitant will
become the measuring age for determining when the Annuitant has reached age
81. If, however, the existing Annuitant has reached age 81, the
Certificate's Guaranteed Income Benefit Base prior to age 81 of the
Annuitant will have been determined by Us and fixed. Once determined, a
Certificate's Guaranteed Income Benefit Base is fixed for the life of the
Certificate and We will not readjust it, except for withdrawals or
additional Purchase Payments, even if You name a new Annuitant or
Contingent Annuitant who is less than age 81.
Charge
The charge for this optional rider is shown in the Certificate Schedule.
We will multiply the percentage charge shown in the Certificate Schedule
for this optional rider by the current Guaranteed Income Benefit Base, and
deduct the result from Certificate Value annually beginning with the first
Certificate Anniversary. In cases of full surrender between Certificate
Anniversary dates, the charge applied for this optional rider will be
calculated on a pro rata basis. In the case of a full surrender of the
Certificate for an available Death or Income Benefit, We will waive the
Guaranteed Income Benefit charge accrued between date of surrender and the
prior Certificate Anniversary. Please refer to Your prospectus for more
information on calculation of the Charge for this rider.
Signed for the Company:__________________
Secretary
TABLE 7: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH
$1,000 APPLIED
Age1 Payment Age1 Payment Age1 Payment Age1 Payment Age1 Payment
30 $3.05 43 $3.47 56 $4.29 69 $ 6.09 82 $10.79
31 3.07 44 3.52 57 4.38 70 6.31 83 11.39
32 3.10 45 3.56 58 4.47 71 6.55 84 12.03
33 3.12 46 3.61 59 4.57 72 7.80 85 12.72
34 3.15 47 3.67 60 4.68 73 7.07 86 13.45
35 3.18 48 3.72 61 4.80 74 7.37 87 14.24
36 3.21 49 3.78 62 4.93 75 7.69 88 15.08
37 3.24 50 3.84 63 5.06 76 8.04 89 15.98
38 3.28 51 3.90 64 5.21 77 8.41 90 16.92
39 3.31 52 3.97 65 5.36 78 8.82 91 17.93
40 3.35 53 4.04 66 5.52 79 9.25 92 18.99
41 3.39 54 4.12 67 5.70 80 9.73 93 20.11
42 3.43 55 4.20 68 5.89 81 10.24 94 21.31
95 22.59
_______________________________
1 The annuitant's attained age (age at last birthday) on the Income Date
less the specified number of years in the Certificate's setback table for
the calendar year in which the Income Date occurs.
EXHIBIT 8(b)
PARTICIPATION AGREEMENT
AMONG ALLIANCE FUND DISTRIBUTORS, INC. ON BEHALF OF ITSELF
and
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.,
and
KEYPORT LIFE INSURANCE COMPANY
THIS AGREEMENT made as of May 10, 1999, among Alliance Variable
Products Series Fund, Inc. (the "Trust"), a corporation organized
under Maryland law, Alliance Fund Distributors, Inc., a Delaware
corporation, the Trust's principal underwriter ("Underwriter"), and
Keyport Life Insurance Company, a life insurance company organized as
a corporation under Rhode Island law (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company
set forth in Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has an effective registration statement relating to the offer and
sale of the various series of its shares under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares
be used as an investment vehicle for separate accounts established for
variable life insurance policies and variable annuity contracts to be
offered by life insurance companies which have entered into fund
participation agreements with the Trust (the "Participating Insurance
Companies");
WHEREAS, the beneficial interest in the Trust is divided into
several series of shares, each series representing an interest in a
particular managed portfolio of securities and other assets, and
certain of those series, named in Schedule B, (the "Portfolios") are
to be made available for purchase by the Company for the Accounts; and
WHEREAS, the Trust has been granted or currently intends to apply
for an order from the SEC granting Participating Insurance Companies
and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15)
and 6e-3 (T) (b) (15) thereunder, to the extent necessary to permit
shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies and certain qualified pension
and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account
as a unit investment trust under the 1940 Act unless an exemption from
registration under the 1940 Act is available and the Trust has been so
advised; and has registered or will register certain variable annuity
contracts and variable life insurance policies under which the
portfolios are to be made available as investment vehicles (the
"Contracts") under the 1933 Act unless such interests under the
Contracts in the Accounts are exempt from registration under the 1933
Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of
Directors of the Company, on the date shown for such account on
Schedule A hereto, to set aside and invest assets attributable to one
or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission 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.
("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an
"Adviser") is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act") and any
applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios
on behalf of each Account to fund certain of the aforesaid Contracts
and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the
parties agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the
Trust's designee for receipt of purchase orders and requests for
redemption relating to each Portfolio from each Account, provided that
the Company notifies the Trust of such purchase orders and requests
for redemption by 9:00 a.m. Eastern time on the next following
Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available
to the Accounts for purchase at the net asset value per share next
computed after receipt of a purchase order by the Trust (or its
designee), as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio purchase
procedures on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC, and the Trust shall use its best
efforts to calculate such net asset value on each day on which the New
York Stock Exchange ("NYSE") is open for trading. The Company will
transmit orders from time to time to the Trust for the purchase of
shares of the Portfolios. The Trustees of the Trust (the "Trustees")
may refuse to sell shares of any Portfolio to any person, or suspend
or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees acting in good faith and in
light of their fiduciary duties under federal and any applicable state
laws, such action is deemed in the best interests of the shareholders
of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares
of a Portfolio on behalf of an Account no later than the close of
business on the next Business Day after the Trust receives the
purchase order. Payment shall be made in federal funds transmitted by
wire to the Trust or its designated custodian. Upon receipt by the
Trust of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of
the Trust for this purpose. "Business Day" shall mean any day on which
the NYSE is open for trading and on which the Trust calculates its
net asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares
of any Portfolio, when requested by the Company on behalf of an
Account, at the net asset value next computed after receipt by the
Trust (or its designee) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of
the Trust describing Portfolio redemption procedures. The Trust shall
make payment for such shares in the manner established from time to
time by the Trust. Redemption with respect to a Portfolio will
normally be paid to the Company for an Account in federal funds
transmitted by wire to the Company before the close of business on the
next Business Day after the receipt of the request for redemption.
Such payment may be delayed if, for example, the Portfolio's cash
position so requires or if extraordinary market conditions exist, but
in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios
by the Company under Section 1.3 and payments for the redemption of
shares of the Trust's Portfolios under Section 1.4 may be netted
against one another on any Business Day for the purpose of determining
the amount of any wire transfer on that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be
by book entry only. Stock certificates will not be issued to the
Company or the Account. Portfolio Shares purchased from the Trust will
be recorded in the appropriate title for each Account or the
appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date,
notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the Trust. The
Company hereby elects to receive all such income dividends and capital
gain distributions as are payable on a Portfolio's shares in
additional shares of the Portfolio. The Trust shall notify the Company
of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each
Portfolio on each Business Day, as defined in Section 1.3. The Trust
shall make the net asset value per share for each Portfolio available
to the Company or its designated agent on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
and shall use reasonable efforts to make such net asset value per
share available by 7:00 p.m. Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only
to Participating Insurance Companies and their separate accounts and
to certain qualified pension and retirement plans to the extent
permitted by the Shared Funding Exemptive Order. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10 The Company agrees that all net amounts available under the
Contracts shall be invested in the Trust, in such other Funds advised
by an Adviser or its affiliates as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account,
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
the Portfolios; or (b) the Company gives the Trust and the Underwriter
45 days written notice of its intention to make such other investment
company available as a funding vehicle for the Contracts; or (c) such
other investment company is available as a funding vehicle for the
Contracts at the date of this Agreement and the Company so informs the
Trust and the Underwriter prior to their signing this Agreement; or
(d) the Trust or Underwriter consents to the use of such other
investment company.
1.11 The Trust agrees that all Participating Insurance Companies
shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in
Section 2.10 and Article IV of this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any
affiliate of any other party), and shall not be liable in the event
that an error results from any incorrect information or confirmations
supplied by any other party. If an error is made in reliance upon
incorrect information or confirmations, any amount required to make a
Contract owner's account whole shall be borne by the party who
provided the incorrect information or confirmation.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
2.1 The Trust shall prepare and be responsible for filing with
the SEC and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of
additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares of the Portfolios,
preparation and filing of the documents listed in this Section 2.1 and
all taxes to which an issuer is subject on the issuance and transfer
of its shares.
2.2 At the option of the Company, the Trust or the Underwriter
shall either (a) provide the Company with as many copies of portions
of the Trust's current prospectus, annual report, semi-annual report
and other shareholder communications, including any amendments or
supplements to any of the foregoing, pertaining specifically to the
Portfolios as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy of such documents in a form suitable
for printing and from which information relating to series of the
Trust other than the Portfolios has been deleted to the extent
practicable. The Trust or the Underwriter shall provide the Company
with a copy of its current statement of additional information,
including any amendments or supplements, in a form suitable for
duplication by the Company. Expenses of furnishing such documents for
marketing purposes shall be borne by the Company and expenses of
furnishing such documents for current contract owners invested in the
Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with
copies of any Trust-sponsored proxy materials in such quantity as the
Company shall reasonably require for distribution to Contract owners.
The Company shall bear the costs of distributing proxy materials (or
similar materials such as voting solicitation instructions),
prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such
materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i)
solicit voting instructions from Contract owners; (ii) vote the Trust
shares in accordance with the instructions received from Contract
owners; and (iii) vote Trust shares for which no instructions have
been received in the same proportion as Trust shares of such Portfolio
for which instructions have been received; so long as and to the
extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law.
2.5 The Company shall furnish, or cause to be furnished to the
Trust or its designee, at least one complete copy of each registration
statement, prospectus, statement of additional information, retirement
plan disclosure information or other disclosure documents or similar
information, as applicable (collectively "disclosure documents"), as
well as any report, solicitation for voting instructions, sales
literature and other promotional materials, and all amendments to any
of the above that relate to the Contracts or the Accounts prior to its
first use. The Company shall furnish, or shall cause to be furnished,
to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at
least 15 Business Days prior to its use. No such material shall be
used if the Trust or its designee reasonably objects to such use
within five Business Days after receipt of such material. For purposes
of this paragraph, "sales literature or other promotional material"
includes, but is not limited to, portions of the following that use
any Trademark related to the Trust or Underwriter or refer to the
Trust or affiliates of the Trust: 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 electronic
communication 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 or any other advertisement, sales literature or published
article or electronic communication), educational or training
materials or other communications distributed or made generally
available to some or all agents or employees, and disclosure
documents, shareholder reports and proxy materials.
2.6 The Company and its agents shall not give any information or
make any representations or statements on behalf of the Trust or
concerning the Trust, the Underwriter or an Adviser in connection with
the sale of the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), annual
and semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material
approved by the Trust or its designee, except as required by legal
process or regulatory authorities or with the written permission of
the Trust or its designee.
2.7 The Trust shall use its best efforts to provide the Company,
on a timely basis, with such information about the Trust, the
Portfolios and each Adviser, in such form as the Company may
reasonably require, as the Company shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.
2.8 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from disclosure
documents for the Contracts (as such disclosure documents may be
amended or supplemented from time to time), or in materials approved
by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or
regulatory authorities or with the written permission of the Company.
2.9 So long as, and to the extent that, the SEC interprets the
1940 Act to require pass-through voting privileges for Contract
owners, the Company will provide pass-through voting privileges to
Contract owners whose Contract values are invested, through the
registered Accounts, in shares of one or more Portfolios of the Trust.
The Trust shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and the Company shall
be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to
each registered Account, the Company will vote shares of each
Portfolio of the Trust held by a registered Account and for which no
timely voting instructions from Contract owners are received in the
same proportion as those shares held by that registered Account for
which voting instructions are received. The Company and its agents
will in no way recommend or oppose or interfere with the solicitation
of proxies for Portfolio shares held to fund the Contracts without the
prior written consent of the Trust, which consent may be withheld in
the Trust's sole discretion.
2.10 The Trust and Underwriter shall pay no fee or other
compensation to the Company under this Agreement except as provided on
Schedule C. Nevertheless, the Trust or the Underwriter or an affiliate
may make payments (other than pursuant to a Rule 12b-1 Plan) to the
Company or its affiliates or to the Contracts' underwriter in amounts
agreed to by the Underwriter in writing and such payments may be made
out of fees otherwise payable to the Underwriter or its affiliates,
profits of the Underwriter or its affiliates, or other resources
available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of its
state of incorporation and that it has legally and validly
established each Account as a segregated asset account under such law
as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to
each Account, (1) the Company has registered or, prior to any issuance
or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated asset account for the Contracts, or (2) if the
Account is exempt from registration as an investment company under
Section 3(c) of the 1940 Act, the Company will make every effort to
maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to
each Contract, (1) the Contract will be registered under the 1933 Act,
or (2) if the Contract is exempt from registration under Section
3(a)(2) of the 1933 Act or under Section 4(2) and Regulation D of the
1933 Act, the Company will make every effort to maintain such
exemption and will notify the Trust and the Adviser immediately upon
having a reasonable basis for believing that such exemption no longer
applies or might not apply in the future. The Company further
represents and warrants that the Contracts will be sold by broker-
dealers, or their registered representatives, who are registered with
the SEC under the 1934 Act and who are members in good standing of the
NASD; the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws; and the
sale of the Contracts shall comply in all material respects with state
insurance suitability requirements.
For any unregistered Accounts which are exempt from
registration under the 1940 Act in reliance upon Sections 3(c)(1)
or 3(c)(7) thereof, the Company represents and warrants that:
(a) each Account and sub-account thereof has a principal
underwriter which is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended;
(b) Trust shares are and will continue to be the only
investment securities held by the corresponding Account
sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf
of the corresponding sub-account, will:
(1) seek instructions from all Contract owners with
regard to the voting of all proxies with respect
to Trust shares and vote such proxies only in
accordance with such instructions or vote such
shares held by it in the same proportion as the
vote of all other holders of such shares; and
(2) refrain from substituting shares of another
security for such shares unless the SEC has
approved such substitution in the manner provided
in Section 26 of the 1940 Act.
3.4 The Trust represents and warrants that it is duly organized
and validly existing under the laws of the State of Maryland and that
it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares
offered and sold pursuant to this Agreement will be registered under
the 1933 Act and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and
qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of
each Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended
(the"Code"), and the rules and regulations thereunder, including
without limitation Treasury Regulation 1.817-5, and will notify the
Company immediately upon having a reasonable basis for believing any
Portfolio has ceased to comply or might not so comply and will in that
event immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance within the grace period afforded
by Regulation 1.817-5.
3.7 The Trust represents and warrants that it is currently
qualified as a "regulated investment company" under Subchapter M of
the Code, that it will make every effort to maintain such
qualification and will notify the Company immediately upon having a
reasonable basis for believing it has ceased to so qualify or might
not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire
to make any payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act, the Trustees, including a majority who are
not "interested persons" of the Trust under the 1940 Act
("disinterested Trustees"), will formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors,
officers, employees and others dealing with the money or securities,
or both, of a Portfolio shall at all times be covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust in an
amount not less that the minimum coverage required by Rule 17g-1 or
other regulations under the 1940 Act. Such bond shall include coverage
for larceny and embezzlement and be issued by a reputable bonding
company.
3.10 The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of
the Trust are and shall 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 $5 million. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Trust and the Underwriter
in the event that such coverage no longer applies.
3.11 The Underwriter represents that each Adviser is duly
organized and validly existing under applicable corporate law and that
it is registered and will during the term of this Agreement remain
registered as an investment adviser under the Advisers Act.
3.12 The Trust currently intends for one or more classes of
shares (each, a "Class") to make payments to finance its distribution
expenses, including service fees, pursuant to a Plan adopted under
Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent
that any Class of the Trust finances its distribution expenses
pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to
comply with any then current SEC and SEC staff interpretations
concerning Rule 12b-1 or any successor provisions.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies.
In such event, the Trustees will monitor the Trust for the existence
of any material irreconcilable conflict between the interests of the
contract owners of all Participating Insurance Companies. An
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d)
the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of
contract owners. The Trust shall promptly inform the Company of any
determination by the Trustees that an irreconcilable material conflict
exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or
existing conflicts of which it is aware to the Trustees. The Company
will assist the Trustees in carrying out their responsibilities by
providing the Trustees with all information reasonably necessary for
the Trustees to consider any issues raised including, but not limited
to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the
Trustees may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a
majority of the disinterested Trustees, that a material irreconcilable
conflict exists that affects the interests of Contract owners, the
Company shall, in cooperation with other Participating Insurance
Companies whose contract owners are also affected, at its own expense
and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question of whether or not such
withdrawal should be implemented to a vote of all affected Contract
owners and, as appropriate, withdrawal of the assets of any
appropriate group (i.e. , annuity contract owners, life insurance
policy owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such
withdrawal, or offering to the affected Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or would
preclude a majority vote, the Company may be required, at the Trust's
election, to withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account; provided,
however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after
the Trust gives written notice that this provision is being
implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the
Company conflicts with a majority of other state regulators, then the
Company will withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account within six
(6) months after the Trustees inform the Company in writing that it
has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Trust be required to establish a
new funding medium for the Contracts. In the event that the Trustees
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees
such reports, materials or data as the Trustees may reasonably request
so that the Trustees may fully carry out the duties imposed upon them
by the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-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) on terms and conditions materially different from
those contained in the Shared Funding Exemptive Order, then the Trust
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Article V) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company, which
consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law
or otherwise, insofar as such Losses are related to the sale or
acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in a disclosure document for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or
Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the
purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the Company by
or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement
or alleged untrue statement of a material fact contained in
Trust Documents as defined in Section 5.2(a)(i) or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on
behalf of the Company; or
(iv) arise out of or result from any failure by the
Company to provide the services or furnish the materials
required under the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Trust or
Underwriter, whichever is applicable. The Company shall also not
be liable under this indemnification provision with respect to
any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which
it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After
notice from the Company to such party of the Company'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 Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company
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.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless
the Company, the underwriter of the Contracts and each of its
directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter,
which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may
become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of
the Trust's Shares or the Contracts 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, prospectus or sales
literature of the Trust (or any amendment or supplement to
any of the foregoing) (collectively, the "Trust Documents")
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 of such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Trust by or on
behalf of the Company for use in the Registration Statement
or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the disclosure documents or sales literature
for the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Trust, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust
shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
disclosure document or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Trust; or
(iv) 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, whether
unintentional or in good faith or otherwise, to comply with
the qualification representation specified in Section 3.7 of
this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to each Company or
the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Underwriter in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have 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 Underwriter of any such claim shall not
relieve the Underwriter 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 Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume
the defense thereof, the Indemnified Party shall bear the
expenses of any additional counsel retained by it, and the
Underwriter will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance
or sale of the Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person,
if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 5.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and 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
Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor
any Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against any
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the
Underwriter or each Account, whichever is applicable.
(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
claims 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 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 Trust 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.
(d) The Company and the Underwriter agree promptly to notify
the Trust of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either the Account,
or the sale or acquisition of share of the Trust.
ARTICLE VI.
Termination
6.1 This Agreement may be terminated by any party in its
entirety or with respect to one, some or all Portfolios or any
reason by sixty (60) days advance written notice delivered to the
other parties, and shall terminate immediately in the event of
its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either
the Trust or the Underwriter following consultation with the
Trustees upon written notice to the Company if :
(a) the Company notifies the Trust or the Underwriter
that the exemption from registration under Section 3(c) of
the 1940 Act no longer applies, or might not apply in the
future, to the unregistered Accounts, or that the exemption
from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might
not apply in the future, to interests under the unregistered
Contracts; or
(b) either one or both of the Trust or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(c) the Company gives the Trust and the Underwriter
the written notice specified in Section 1.10 hereof and at
the same time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however, that any termination under
this Section 6.2(c) shall be effective forty-five (45) days
after the notice specified in Section 1.10 was given; or
6.3 If this Agreement is terminated for any reason, except
under Article IV (Potential Conflicts) above, the Trust shall, at
the option of the Company, continue to make available additional
shares of any Portfolio and redeem shares of any Portfolio
pursuant to all of the terms and conditions of this Agreement for
all Contracts in effect on the effective date of termination of
this Agreement. If this Agreement is terminated pursuant to
Article IV, the provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and
Warranties) and V (Indemnification) shall survive the termination
of this Agreement. All other applicable provisions of this
Agreement shall survive the termination of this Agreement, as
long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the
Underwriter shall have no further obligation to sell Trust shares
with respect to Contracts issued after termination.
6.5 The Company shall not redeem Trust shares attributable
to the Contracts (as opposed to Trust shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract owner initiated or approved transactions, (ii)
as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or
(iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. Upon request, the Company will promptly
furnish to the Trust and the Underwriter the opinion of counsel
for the Company (which counsel shall be reasonably satisfactory
to the Trust and the Underwriter) 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 Contracts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the
Trust or the Underwriter 90 days notice of its intention to do
so.
ARTICLE VII.
Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Trust or the Underwriter:
Alliance Variable Products Series Fund, Inc. or
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attention: Edmund Bergen
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110-2712
Attention: Jim Klopper
ARTICLE VIII.
Miscellaneous
8.1 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and
the same instrument.
8.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Rhode Island. It shall also be subject to the provisions of the
federal securities laws and the rules and regulations thereunder and
to any orders of the SEC granting exemptive relief therefrom and the
conditions of such orders. Copies of any such orders shall be promptly
forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and that no Trustee, officer,
agent or holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and
addresses of the Contract owners and all information reasonably
identified as confidential in writing by any other party hereto, and,
except as permitted by this Agreement or as required by legal process
or regulatory authorities, shall not disclose, disseminate, or utilize
such names and addresses and other confidential information until such
time as they may come into the public domain, without the express
written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has
been advised is proprietary, except such information that such party
is required to disclose by any appropriate governmental authority
(including, without limitation, the SEC, the NASD, and state
securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties
hereto are entitled to under state and federal laws.
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in
Section 1.10.
8.10 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written
approval of the other party.
8.11 No provisions of this Agreement may be amended or modified
in any manner except by a written agreement properly authorized and
executed by both parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and
year first above written.
The Company:
Keyport Life Insurance Company
By its authorized officer
By:/s/James J. Klopper
Name: James J. Klopper
Title: Vice President & Secretary
The Underwriter:
Alliance Fund Distributors, Inc.
By its authorized officer
By:/s/Richard A. Winge
Name: Richard A. Winge
Title: Managing Director
SCHEDULE A
Separate Accounts of
Keyport Life Insurance Company
1. Variable Account A
Date Established: January 30, 1996
SEC Registration Numbers: 333-75729
333-75747
SCHEDULE B
Trust Portfolios and Classes Available
Alliance Variable Products Series Adviser
Global Bond Alliance Capital Management L.P.
Premier Growth Portfolio Alliance Capital Management L.P.
Growth & Income Portfolio Alliance Capital Management L.P.
Technology Portfolio Alliance Capital Management L.P.
SCHEDULE C
RULE 12B-1 PLANS
Compensation Schedule
Each Portfolio named below shall pay the following amounts
pursuant to the terms and conditions referenced below under its
Class B Rule 12b-1 Distribution Plan, stated as a percentage per
year of Class B's average daily net assets represented by shares
of Class B.
Portfolio Name Maximum Annual Payment Rate
Global Bond 0,25%
Premier Growth 0.25%
Growth & Income 0.25%
Technology 0.25%
Agreement Provisions
If the Company, on behalf of any Account, purchases Trust
Portfolio shares ("Eligible Shares") which are subject to a Rule
12b-1 Plan adopted under the 1940 Act (the "Plan"), the Company
may participate in the Plan.
To the extent the Company or its affiliates, agents or
designees (collectively "you") you provide administrative and
other services which assist in the promotion and distribution of
Eligible Shares or Variable Contracts offering Eligible Shares,
the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing
personal services to owners of Contracts which may invest in
Eligible Shares ("Contract Owners"), answering routine inquiries
regarding a Portfolio, coordinating responses to Contract Owner
inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or
Contract may require, maintaining customer accounts and records,
or providing other services eligible for service fees as defined
under NASD rules. Your acceptance of such compensation is your
acknowledgment that eligible services have been rendered. All
Rule 12b-1 fees, shall be based on the value of Eligible Shares
owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the
Compensation Schedule stated above. The aggregate annual fees
paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an
increase is approved by shareholders as provided in the Plan.
These maximums shall be a specified percent of the value of a
Portfolio's net assets attributable to Eligible Shares owned by
the Company on behalf of its Accounts (determined in the same
manner as the Portfolio uses to compute its net assets as set
forth in its effective Prospectus).
You shall furnish us with such information as shall
reasonably be requested by the Trust's Boards of Trustees
("Trustees") with respect to the Rule 12b-1 fees paid to you
pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any agreement relating to such
Plans must be approved annually by a vote of the Trustees,
including the Trustees who are not interested persons of the
Trust and who have no financial interest in the Plans or any
related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the
Disinterested Trustees, or by a vote of a majority of the
outstanding shares as provided in the Plan, on sixty (60) days'
written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting
Agreement between the Underwriter and the Trust, and/or the
management or administration agreement between Alliance Capital
Management L.P. or its/their affiliates and the Trust.
Continuation of the Plans is also conditioned on Disinterested
Trustees being ultimately responsible for selecting and
nominating any new Disinterested Trustees. Under Rule 12b-1, the
Trustees have a duty to request and evaluate, and persons who are
party to any agreement related to a Plan have a duty to furnish,
such information as may reasonably be necessary to an informed
determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is
permitted to implement or continue Plans or the provisions of any
agreement relating to such Plans from year-to-year only if, based
on certain legal considerations, the Trustees are able to
conclude that the Plans will benefit each affected Trust
Portfolio and class. Absent such yearly determination, the Plans
must be terminated as set forth above. In the event of the
termination of the Plans for any reason, the provisions of this
Schedule C relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the assets of the Trust and no
person shall seek satisfaction thereof from shareholders of the
Trust. You agree to waive payment of any amounts payable to you
by Underwriter under a Plan until such time as the Underwriter
has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of
the Participation Agreement, including this Schedule C, in the
event of any inconsistency.
You agree to provide complete disclosure as required by all
applicable statutes, rules and regulations of all rule 12b-1 fees
received from us in the prospectus of the contracts.
DRAFT
EXHIBIT 8(d)
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
KEYPORT LIFE INSURANCE COMPANY
THIS AGREEMENT made as of ____________May 1, 1999, among
Templeton Variable Products Series Fund (the "Trust"), an open-end
management investment company organized as a business trust under
Massachusetts law, Franklin Templeton Distributors, Inc., a California
corporation, the Trust's principal underwriter ("Underwriter"), and
Keyport Life Insurance Company, a life insurance company organized as
a corporation under MassachusettsRhode Island law (the "Company"), on
its own behalf and on behalf of each segregated asset account of the
Company set forth in Schedule A, as may be amended from time to time
(the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has an effective registration statement relating to the offer and
sale of the various series of its shares under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares
be used as an investment vehicle for separate accounts established for
variable life insurance policies and variable annuity contracts to be
offered by life insurance companies which have entered into fund
participation agreements with the Trust (the "Participating Insurance
Companies");
WHEREAS, the beneficial interest in the Trust is divided into
several series of shares, each series representing an interest in a
particular managed portfolio of securities and other assets, and
certain of those series, named in Schedule B, (the "Portfolios") are
to be made available for purchase by the Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated
November 16, 1993 (File No. 812-8546), granting Participating
Insurance Companies and their separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act,
and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held
by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain
qualified pension and retirement plans (the "Shared Funding Exemptive
Order");
WHEREAS, the Company has registered or will register each Account
as a unit investment trust under the 1940 Act unless an exemption from
registration under the 1940 Act is available and the Trust has been so
advised; and has registered or will register certain variable annuity
contracts and variable life insurance policies, listed on Schedule C
attached hereto, under which the portfolios are to be made available
as investment vehicles (the "Contracts") under the 1933 Act unless
such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of
Directors of the Company, on the date shown for such account on
Schedule A hereto, to set aside and invest assets attributable to one
or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission 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.
("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an
"Adviser") is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act") and any
applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios
on behalf of each Account to fund certain of the aforesaid Contracts
and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the
parties agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1 For purposes of this Article I, the Company shall be the
Trust's agentdesignee for receipt of purchase orders and requests for
redemption relating to each Portfolio from each Account, provided that
the Company notifies the Trust of such purchase orders and requests
for redemption by 9:00 a.m. Eastern time on the next following
Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available
to the Accounts for purchase at the net asset value per share next
computed after receipt of a purchase order by the Trust (or its
agentdesignee), as established in accordance with the provisions of
the then current prospectus of the Trust describing Portfolio purchase
procedures on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC, and the Trust shall use its best
efforts to calculate such net asset value on each day on which the New
York Stock Exchange ("NYSE") is open for trading. The Company will
transmit orders from time to time to the Trust for the purchase of
shares of the Portfolios. The Trustees of the Trust (the "Trustees")
may refuse to sell shares of any Portfolio to any person, or suspend
or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees acting in good faith and in
light of their fiduciary duties under federal and any applicable state
laws, such action is deemed in the best interests of the shareholders
of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares
of a Portfolio on behalf of an Account no later than the close of
business on the next Business Day after the Trust receives the
purchase order. Payment shall be made in federal funds transmitted by
wire to the Trust or its designated custodian. Upon receipt by the
Trust of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of
the Trust for this purpose. "Business Day" shall mean any day on which
the NYSE is open for trading and on which the Trust calculates its
net asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares
of any Portfolio, when requested by the Company on behalf of an
Account, at the net asset value next computed after receipt by the
Trust (or its agentdesignee) of the request for redemption, as
established in accordance with the provisions of the then current
prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established
from time to time by the Trust. Redemption with respect to a
Portfolio will normally be paid to the Company for an Account in
federal funds transmitted by wire to the Company before the close of
business on the next Business Day after the receipt of the request for
redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market
conditions exist, but in no event shall payment be delayed for a
greater period than is permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios
by the Company under Section 1.3 and payments for the redemption of
shares of the Trust's Portfolios under Section 1.4 may be netted
against one another on any Business Day for the purpose of determining
the amount of any wire transfer on that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be
by book entry only. Stock certificates will not be issued to the
Company or the Account. Portfolio Shares purchased from the Trust will
be recorded in the appropriate title for each Account or the
appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date,
notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the Trust. The
Company hereby elects to receive all such income dividends and capital
gain distributions as are payable on a Portfolio's shares in
additional shares of the Portfolio. The Trust shall notify the Company
of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each
Portfolio on each Business Day, as defined in Section 1.3. The Trust
shall make the net asset value per share for each Portfolio available
to the Company or its designated agent on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
(normally by 6:30 p.m. Eastern time) and shall use reasonable efforts
to make such net asset value per share available by 7:00 p.m. Eastern
time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only
to Participating Insurance Companies and their separate accounts and
to certain qualified pension and retirement plans to the extent
permitted by the Shared Funding Exemptive Order. No shares of any
Portfolio will be sold directly to the general public. The Company
agrees that it will use Trust shares only for the purposes of funding
the Contracts through the Accounts listed in Schedule A, as amended
from time to time.
1.10 The Company agrees that all net amounts available under the
Contracts shall be invested in the Trust, in such other Funds advised
by an Adviser or its affiliates as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account,
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
the Portfolios; or (b) the Company gives the Trust and the Underwriter
45 days written notice of its intention to make such other investment
company available as a funding vehicle for the Contracts; or (c) such
other investment company is available as a funding vehicle for the
Contracts at the date of this Agreement and the Company so informs the
Trust and the Underwriter prior to their signing this Agreement (a
list of such investment companies appearing on Schedule D to this
Agreement); or (d) the Trust or Underwriter consents to the use of
such other investment company.
1.11 The Trust agrees that all Participating Insurance Companies
shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in
Section 2.10 and Article IV of this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any
affiliate of any other party), and shall not be liable in the event
that an error results from any incorrect information or confirmations
supplied by any other party. If an error is made in reliance upon
incorrect information or confirmations, any amount required to make a
Contract owner's account whole shall be borne by the party who
provided the incorrect information or confirmation.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
2.1 The Trust shall prepare and be responsible for filing with
the SEC and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of
additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares of the Portfolios,
preparation and filing of the documents listed in this Section 2.1 and
all taxes to which an issuer is subject on the issuance and transfer
of its shares.
2.2 At the option of the Company, the Trust or the Underwriter
shall either (a) provide the Company with as many copies of portions
of the Trust's current prospectus, annual report, semi-annual report
and other shareholder communications, including any amendments or
supplements to any of the foregoing, pertaining specifically to the
Portfolios as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy of such documents in a form suitable
for printing and from which information relating to series of the
Trust other than the Portfolios has been deleted to the extent
practicable. The Trust or the Underwriter shall provide the Company
with a copy of its current statement of additional information,
including any amendments or supplements, in a form suitable for
duplication by the Company. Expenses of furnishing such documents for
marketing purposes shall be borne by the Company and expenses of
furnishing such documents for current contract owners invested in the
Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with
copies of any Trust-sponsored proxy materials in such quantity as the
Company shall reasonably require for distribution to Contract owners.
The Company shall bear the costs of distributing proxy materials (or
similar materials such as voting solicitation instructions),
prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such
materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i)
solicit voting instructions from Contract owners; (ii) vote the Trust
shares in accordance with the instructions received from Contract
owners; and (iii) vote Trust shares for which no instructions have
been received in the same proportion as Trust shares of such Portfolio
for which instructions have been received; so long as and to the
extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use
any designation comprised in whole or part of the names or marks
"Franklin" or "Templeton" or any other Trademark relating to the Trust
or Underwriter without prior written consent, and upon termination of
this Agreement for any reason, the Company shall cease all use of any
such name or mark as soon as reasonably practicable.
2.6 The Company shall furnish, or cause to be furnished to the
Trust or its designee, at least one complete copy of each registration
statement, prospectus, statement of additional information, retirement
plan disclosure information or other disclosure documents or similar
information, as applicable (collectively "disclosure documents"), as
well as any report, solicitation for voting instructions, sales
literature and other promotional materials, and all amendments to any
of the above that relate to the Contracts or the Accounts prior to its
first use. The Company shall furnish, or shall cause to be furnished,
to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at
least 15 Business Days prior to its use. No such material shall be
used if the Trust or its designee reasonably objects to such use
within five Business Days after receipt of such material. For purposes
of this paragraph, "sales literature or other promotional material"
includes, but is not limited to, portions of the following that use
any Trademark related to the Trust or Underwriter or refer to the
Trust or affiliates of the Trust: 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 electronic
communication 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 or any other advertisement, sales literature or published
article or electronic communication), educational or training
materials or other communications distributed or made generally
available to some or all agents or employees, and disclosure
documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or
make any representations or statements on behalf of the Trust or
concerning the Trust, the Underwriter or an Adviser in connection with
the sale of the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), annual
and semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material
approved by the Trust or its designee, except as required by legal
process or regulatory authorities or with the written permission of
the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company,
on a timely basis, with such information about the Trust, the
Portfolios and each Adviser, in such form as the Company may
reasonably require, as the Company shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from disclosure
documents for the Contracts (as such disclosure documents may be
amended or supplemented from time to time), or in materials approved
by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or
regulatory authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the
1940 Act to require pass-through voting privileges for Contract
owners, the Company will provide pass-through voting privileges to
Contract owners whose Contract values are invested, through the
registered Accounts, in shares of one or more Portfolios of the Trust.
The Trust shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and the Company shall
be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to
each registered Account, the Company will vote shares of each
Portfolio of the Trust held by a registered Account and for which no
timely voting instructions from Contract owners are received in the
same proportion as those shares held by that registered Account for
which voting instructions are received. The Company and its agents
will in no way recommend or oppose or interfere with the solicitation
of proxies for Portfolio shares held to fund the Contracts without the
prior written consent of the Trust, which consent may be withheld in
the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other
compensation to the Company under this Agreement except as provided on
Schedule E, if attached. Nevertheless, the Trust or the Underwriter
or an affiliate may make payments (other than pursuant to a Rule 12b-1
Plan) to the Company or its affiliates or to the Contracts'
underwriter in amounts agreed to by the Underwriter in writing and
such payments may be made out of fees otherwise payable to the
Underwriter or its affiliates, profits of the Underwriter or its
affiliates, or other resources available to the Underwriter or its
affiliates.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of its
state of incorporation and that it has legally and validly
established each Account as a segregated asset account under such law
as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to
each Account, (1) the Company has registered or, prior to any issuance
or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated asset account for the Contracts, or (2) if the
Account is exempt from registration as an investment company under
Section 3(c) of the 1940 Act, the Company will make every effort to
maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to
each Contract, (1) the Contract will be registered under the 1933 Act,
or (2) if the Contract is exempt from registration under Section
3(a)(2) of the 1933 Act or under Section 4(2) and Regulation D of the
1933 Act, the Company will make every effort to maintain such
exemption and will notify the Trust and the Adviser immediately upon
having a reasonable basis for believing that such exemption no longer
applies or might not apply in the future. The Company further
represents and warrants that the Contracts will be sold by broker-
dealers, or their registered representatives, who are registered with
the SEC under the 1934 Act and who are members in good standing of the
NASD; the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws; and the
sale of the Contracts shall comply in all material respects with state
insurance suitability requirements.
For any unregistered Accounts which are exempt from
registration under the `40 Act in reliance upon Sections 3(c)(1)
or 3(c)(7) thereof, the Company represents and warrants that:
(a) each Account and sub-account thereof has a principal
underwriter which is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended;
(b) Trust shares are and will continue to be the only
investment securities held by the corresponding Account
sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf
of the corresponding sub-account, will:
(1) seek instructions from all Contract owners with
regard to the voting of all proxies with respect
to Trust shares and vote such proxies only in
accordance with such instructions or vote such
shares held by it in the same proportion as the
vote of all other holders of such shares; and
(2) refrain from substituting shares of another
security for such shares unless the SEC has
approved such substitution in the manner provided
in Section 26 of the `40 Act.
3.4 The Trust represents and warrants that it is duly organized
and validly existing under the laws of the State of Massachusetts and
that it does and will comply in all material respects with the 1940
Act and the rules and regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares
offered and sold pursuant to this Agreement will be registered under
the 1933 Act and the Trust shall be registered under the 1940 Act
prior to and at the time of any issuance or sale of such shares. The
Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and
qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of
each Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code"), and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will in that event
immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by
Regulation 1.817-5.
3.7 The Trust represents and warrants that it is currently
qualified as a "regulated investment company" under Subchapter M of
the Code, that it will make every effort to maintain such
qualification and will notify the Company immediately upon having a
reasonable basis for believing it has ceased to so qualify or might
not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire
to make any payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act, the Trustees, including a majority who are
not "interested persons" of the Trust under the 1940 Act (
"disinterested Trustees" ), will formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors,
officers, employees and others dealing with the money or securities,
or both, of a Portfolio shall at all times be covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust in an
amount not less that the minimum coverage required by Rule 17g-1 or
other regulations under the 1940 Act. Such bond shall include coverage
for larceny and embezzlement and be issued by a reputable bonding
company.
3.10 The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of
the Trust are and shall 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 $5 million. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Trust and the Underwriter
in the event that such coverage no longer applies.
3.11 The Underwriter represents that each Adviser is duly
organized and validly existing under applicable corporate law and that
it is registered and will during the term of this Agreement remain
registered as an investment adviser under the Advisers Act.
3.12 The Trust currently intends for one or more classes of
shares (each, a "Class") to make payments to finance its distribution
expenses, including service fees, pursuant to a Plan adopted under
Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent
that any Class of the Trust finances its distribution expenses
pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to
comply with any then current SEC and SEC staff interpretations
concerning Rule 12b-1 or any successor provisions.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies.
In such event, the Trustees will monitor the Trust for the existence
of any material irreconcilable conflict between the interests of the
contract owners of all Participating Insurance Companies. An
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d)
the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of
contract owners. The Trust shall promptly inform the Company of any
determination by the Trustees that an irreconcilable material conflict
exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or
existing conflicts of which it is aware to the Trustees. The Company
will assist the Trustees in carrying out their responsibilities under
the Shared Funding Exemptive Order by providing the Trustees with all
information reasonably necessary for the Trustees to consider any
issues raised including, but not limited to, information as to a
decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may
be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a
majority of the disinterested Trustees, that a material irreconcilable
conflict exists that affects the interests of Contract owners, the
Company shall, in cooperation with other Participating Insurance
Companies whose contract owners are also affected, at its own expense
and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question of whether or not such
withdrawal should be implemented to a vote of all affected Contract
owners and, as appropriate, withdrawal of the assets of any
appropriate group (i.e. , annuity contract owners, life insurance
policy owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such
withdrawal, or offering to the affected Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or would
preclude a majority vote, the Company may be required, at the Trust's
election, to withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account; provided,
however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after
the Trust gives written notice that this provision is being
implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the
Company conflicts with a majority of other state regulators, then the
Company will withdraw the affected Account's investment in the Trust
and terminate this Agreement with respect to such Account within six
(6) months after the Trustees inform the Company in writing that it
has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Trust be required to establish a
new funding medium for the Contracts. In the event that the Trustees
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within
six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees
such reports, materials or data as the Trustees may reasonably request
so that the Trustees may fully carry out the duties imposed upon them
by the Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-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) on terms and conditions materially different from
those contained in the Shared Funding Exemptive Order, then the Trust
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may be necessary to comply with Rules 6e-2 and 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless
the Underwriter, the Trust and each of its Trustees,
officers, employees and agents and each person, if any, who
controls the Trust within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and
individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be
unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or
acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material
fact contained in a disclosure document for the
Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on
behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement
or omission was made in reliance upon and was
accurately derived from written information furnished
to the Company by or on behalf of the Trust for use in
Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or
representations contained in and accurately derived
from Trust Documents as defined in Section 5.2 (a)(i))
or wrongful conduct of the Company or persons under its
control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(iii) arise out of or result from any untrue
statement or alleged untrue statement of a material
fact contained in Trust Documents as defined in Section
5.2(a)(i) or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading if such statement or omission was made in
reliance upon and accurately derived from written
information furnished to the Trust by or on behalf of
the Company; or
(iv) arise out of or result from any failure by
the Company to provide the services or furnish the
materials required under the terms of this Agreement;
or
(v) arise out of or result from any material
breach of any representation and/or warranty made by
the Company in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Company.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses to
which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under
this Agreement or to the Trust or Underwriter, whichever is
applicable. The Company shall also not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of
this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall
be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Company
to such party of the Company'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 Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of
investigation.
(c) The Indemnified Parties will promptly notify the
Company 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.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless
the Company, the underwriter of the Contracts and each of its
directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter,
which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may
become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of
the Trust's Shares or the Contracts 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, prospectus or sales
literature of the Trust (or any amendment or supplement to
any of the foregoing) (collectively, the "Trust Documents")
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 of such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Trust by or on
behalf of the Company for use in the Registration Statement
or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the disclosure documents or sales literature
for the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Trust, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust
shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
disclosure document or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Trust; or
(iv) 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, whether
unintentional or in good faith or otherwise, to comply with
the qualification representation specified in Section 3.7 of
this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to each Company or
the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Underwriter in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have 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 Underwriter of any such claim shall not
relieve the Underwriter 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 Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume
the defense thereof, the Indemnified Party shall bear the
expenses of any additional counsel retained by it, and the
Underwriter will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance
or sale of the Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person,
if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 5.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and 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
Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor
any Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation
hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against any
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the
Underwriter or each Account, whichever is applicable.
(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
claims 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 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 Trust 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.
(d) The Company and the Underwriter agree promptly to notify
the Trust of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either the Account,
or the sale or acquisition of share of the Trust.
ARTICLE VI.
Termination
6.1 This Agreement may be terminated by any party in its
entirety or with respect to one, some or all Portfolios or any
reason by sixty (60) days advance written notice delivered to the
other parties, and shall terminate immediately in the event of
its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either
the Trust or the Underwriter following consultation with the
Trustees upon written notice to the Company if :
(a) the Company notifies the Trust or the Underwriter
that the exemption from registration under Section 3(c) of
the 1940 Act no longer applies, or might not apply in the
future, to the unregistered Accounts, or that the exemption
from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might
not apply in the future, to interests under the unregistered
Contracts; or
(b) either one or both of the Trust or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(c) the Company gives the Trust and the Underwriter
the written notice specified in Section 1.10 hereof and at
the same time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however, that any termination under
this Section 6.2(c) shall be effective forty-five (45) days
after the notice specified in Section 1.10 was given; or
6.3 If this Agreement is terminated for any reason, except
under Article IV (Potential Conflicts) above, the Trust shall, at
the option of the Company, continue to make available additional
shares of any Portfolio and redeem shares of any Portfolio
pursuant to all of the terms and conditions of this Agreement for
all Contracts in effect on the effective date of termination of
this Agreement. If this Agreement is terminated pursuant to
Article IV, the provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and
Warranties) and V (Indemnification) shall survive the termination
of this Agreement. All other applicable provisions of this
Agreement shall survive the termination of this Agreement, as
long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the
Underwriter shall have no further obligation to sell Trust shares
with respect to Contracts issued after termination.
6.5 The Company shall not redeem Trust shares attributable
to the Contracts (as opposed to Trust shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract owner initiated or approved transactions, (ii)
as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or
(iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. Upon request, the Company will promptly
furnish to the Trust and the Underwriter the opinion of counsel
for the Company (which counsel shall be reasonably satisfactory
to the Trust and the Underwriter) 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 Contracts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the
Trust or the Underwriter 90 days notice of its intention to do
so.
ARTICLE VII.
Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Senior Corporate
Counsel
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110-2712
Attention: Jim Klopper
ARTICLE VIII.
Miscellaneous
8.1 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and
the same instrument.
8.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
Florida. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any
orders of the SEC granting exemptive relief therefrom and the
conditions of such orders. Copies of any such orders shall be promptly
forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied
solely out of the assets of the Trust and that no Trustee, officer,
agent or holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and
addresses of the Contract owners and all information reasonably
identified as confidential in writing by any other party hereto, and,
except as permitted by this Agreement or as required by legal process
or regulatory authorities, shall not disclose, disseminate, or utilize
such names and addresses and other confidential information until such
time as they may come into the public domain, without the express
written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has
been advised is proprietary, except such information that such party
is required to disclose by any appropriate governmental authority
(including, without limitation, the SEC, the NASD, and state
securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties
hereto are entitled to under state and federal laws.
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in
Section 1.10.
8.10 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written
approval of the other party.
8.11 No provisions of this Agreement may be amended or modified
in any manner except by a written agreement properly authorized and
executed by both parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and
year first above written.
The Company:
Keyport Life Insurance Company
By its authorized officer
By:/s/Bernard R. Beckerlegge
Name: Bernard R. Beckerlegge
Title: SVP & GC
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By:/s/Karen L. Skidmore
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant
Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By:/s/Deborah R. Gatzek
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant
Secretary
SCHEDULE A
Separate Accounts of
Keyport Life Insurance Company
1. Keyport Advisor Variable Account A
Date Established: January 30, 1996
SEC Registration Number: 333-1043
SCHEDULE B
Trust Portfolios and Classes Available
Templeton Variable Products Series Adviser
Templeton Developing Markets Fund Templeton Asset Management Ltd.
-Class 2
SCHEDULE C
Variable Annuity Contracts
Issued by Keyport Life Insurance Company
Contract 1 Contract 2 Contract 3
Contract/Product Name Keyport Advisor Optima
Keyport Advisor Charter
Registered (Y/N) Yes
SEC Registration Number 333-
Representative Form
Numbers DVA(1)/CERT
DVA(1)
Separate Account Name Variable Account A
SEC Registration Number 333-1043
Templeton Variable
Products Series
Portfolios and Classes
(Adviser) Templeton Developing
Markets Fund - Class 2
(Templeton Asset
Management Ltd.)
SCHEDULE D
Other Portfolios Available under the Contracts
Col. Sm Cap Value
Col. High Yield
Col. Strategic Inc.
Col. US Stock
Col. International Horizons
Col. Global Equity
SR Growth Stock
SR MMF
SR Global Utilities
SR Balanced
Liberty All-Star
Newport Tiger
SR Mortgage Securities
Progress High Alpha Concentration
Crabbe Huson Real Estate
Alger Small Cap
Alger Growth
Alliance Premier Growth
Alliance Global Bond
Alliance Technology Fund
AIM V.I. Value
AIM V.I. Cap App. (Constellation)
SCHEDULE E
RULE 12B-1 PLANS
Compensation Schedule
Each Portfolio named below shall pay the following amounts
pursuant to the terms and conditions referenced below under its
Class 2 Rule 12b-1 Distribution Plan, stated as a percentage per
year of Class 2's average daily net assets represented by shares
of Class 2.
Portfolio Name Maximum Annual Payment Rate
TEMPLETON DEVELOPING MARKETS FUND 0.25%
Agreement Provisions
If the Company, on behalf of any Account, purchases Trust
Portfolio shares ("Eligible Shares") which are subject to a Rule
12b-1 Plan adopted under the 1940 Act (the "Plan"), the Company
may participate in the Plan.
To the extent the Company or its affiliates, agents or
designees (collectively "you") you provide administrative and
other services which assist in the promotion and distribution of
Eligible Shares or Variable Contracts offering Eligible Shares,
the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing
personal services to owners of Contracts which may invest in
Eligible Shares ("Contract Owners"), answering routine inquiries
regarding a Portfolio, coordinating responses to Contract Owner
inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or
Contract may require, maintaining customer accounts and records,
or providing other services eligible for service fees as defined
under NASD rules. Your acceptance of such compensation is your
acknowledgment that eligible services have been rendered. All
Rule 12b-1 fees, shall be based on the value of Eligible Shares
owned by the Company on behalf of its Accounts, and shall be
calculated on the basis and at the rates set forth in the
Compensation Schedule stated above. The aggregate annual fees
paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an
increase is approved by shareholders as provided in the Plan.
These maximums shall be a specified percent of the value of a
Portfolio's net assets attributable to Eligible Shares owned by
the Company on behalf of its Accounts (determined in the same
manner as the Portfolio uses to compute its net assets as set
forth in its effective Prospectus).
You shall furnish us with such information as shall
reasonably be requested by the Trust's Boards of Trustees
("Trustees") with respect to the Rule 12b-1 fees paid to you
pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the
amounts expended under the Plans and the purposes for which such
expenditures were made.
The Plans and provisions of any agreement relating to such
Plans must be approved annually by a vote of the Trustees,
including the Trustees who are not interested persons of the
Trust and who have no financial interest in the Plans or any
related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the
Disinterested Trustees, or by a vote of a majority of the
outstanding shares as provided in the Plan, on sixty (60) days'
written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting
Agreement between the Underwriter and the Trust, and/or the
management or administration agreement between Franklin Advisers,
Inc. or Templeton Investment Counsel, Inc. or their affiliates
and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting
and nominating any new Disinterested Trustees. Under Rule 12b-1,
the Trustees have a duty to request and evaluate, and persons who
are party to any agreement related to a Plan have a duty to
furnish, such information as may reasonably be necessary to an
informed determination of whether the Plan or any agreement
should be implemented or continued. Under Rule 12b-1, the Trust
is permitted to implement or continue Plans or the provisions of
any agreement relating to such Plans from year-to-year only if,
based on certain legal considerations, the Trustees are able to
conclude that the Plans will benefit each affected Trust
Portfolio and class. Absent such yearly determination, the Plans
must be terminated as set forth above. In the event of the
termination of the Plans for any reason, the provisions of this
Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the assets of the Trust and no
person shall seek satisfaction thereof from shareholders of the
Trust. You agree to waive payment of any amounts payable to you
by Underwriter under a Plan until such time as the Underwriter
has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of
the Participation Agreement, including this Schedule E, in the
event of any inconsistency.
You agree to provide complete disclosure as required by all
applicable statutes, rules and regulations of all rule 12b-1 fees
received from us in the prospectus of the contracts.
EXHIBIT 9
June 16, 1999
Philip K. Polkinghorn, President
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
RE: OPINION OF COUNSEL - VARIABLE ACCOUNT A
Dear Mr. Polkinghorn:
You have requested my opinion concerning the legality of the variable
annuity contracts being registered with the Securities and Exchange
Commission by this Registration Statement.
I have made such examination of the law and have examined such records and
documents as in my judgment was necessary or appropriate to enable me to
render the opinion expressed below.
I am of the opinion that the contracts will be legally issued and will
represent binding obligations of the depositor (Keyport Life Insurance
Company).
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
Sincerely,
/s/Bernard R. Beckerlegge
Bernard R. Beckerlegge
General Counsel
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
January 28, 1999, with respect to the consolidated financial statements of
Keyport Life Insurance Company, and March 12, 1999, with respect to the
financial statements of Keyport Life Insurance Company-Variable Account A,
included in this Pre-Effective Amendment No. 1 to the Registration Statement
(Form N-4, Nos. 333-75729 and 811-7543).
/s/ERNST & YOUNG LLP
Boston, Massachusetts
June 16, 1999
