As Filed with the Securities and Exchange Commission on June 27, 1997
Registration No. 333-29811
811-08269
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 [X]
Variable Account J
(Exact Name of Registrant)
Liberty Life Assurance Company of Boston
(Name of Depositor)
175 Berkeley Street, Boston, Massachusetts 02117
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: 617-357-9500
Lee W. Rabkin, Esq.
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
(Name and Address of Agent for Service)
Copies to:
James J. Klopper, Esq. Joan E. Boros, Esq.
Keyport Life Insurance Company and Katten Muchin & Zavis
125 High Street, 13th Floor 1025 Thomas Jefferson Street, N.W.
Boston, MA 02110 Washington, DC 20007
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
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)(1) of Rule 485
( ) on [date] pursuant to paragraph (a)(1) of Rule 485
Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2. The
Rule 24f-2 Notice for the Registrant's most recent fiscal year will be filed
on or about February 28, 1998.
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Exhibit List on Page ____
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
Items 24 - 32
The Signatures
Exhibits
<PAGE>
VARIABLE ACCOUNT J
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-4
N-4 Item Caption in Prospectus
1. Cover Page
2. Glossary of Special Terms
3. Summary of Expenses
4. Performance Information
5. Liberty Life 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. Liberty Life Assurance Company of Boston
18. Safekeeping of Assets, Experts
19. Not applicable
20. Principal Underwriter
21. Investment Performance
22. Variable Annuity Benefits
23. Financial Statements
<PAGE>
PART A
<PAGE>
July 11, 1997 Prospectus for
NEW YORK
MANNING & NAPIER VARIABLE ANNUITY
Including Eligible Fund Prospectuses for
MANNING & NAPIER INSURANCE FUND, INC.:
Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Maximum Horizon Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Bond Portfolio
STEINROE VARIABLE INVESTMENT TRUST:
Cash Income Fund
<PAGE>
Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
Issued by:
Liberty Life Assurance Company of Boston
175 Berkeley Street, Boston, MA 02117
Offered by:
Manning & Napier Advisors, Inc.
1100 Chase Square
Rochester, NY 14604-1999
Sales/Service Hotline (800) 466-3863
Liberty Life Service Office
125 High Street, Boston, MA 02110-2712
[ ] Yes. I would like to receive the New York Manning & Napier Variable
Annuity Statement of Additional Information.
[ ] Yes. I would like to receive the Manning & Napier Insurance Fund, Inc.
Statement of Additional Information.
[ ] Yes. I would like to receive the SteinRoe Variable Investment Trust
Statement of Additional Information.
Name
Address
City, State Zip
<PAGE>
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
LIBERTY LIFE SERVICE OFFICE
125 HIGH STREET
BOSTON, MA 02110-9773
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES.
<PAGE>
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Variable Account J
OF
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
This Prospectus offers Group Variable Annuity Contracts (the "Contracts") and
the related Certificates (the "Certificates") that are designed to fund
benefits under certain group arrangements including those that qualify for
special tax treatment under the Internal Revenue Code of 1986 (the "Code").
As required by certain states, the Contracts may be offered as individual
contracts. Unless otherwise noted or the context so requires all references
to the Certificates include the Contracts and the individual Certificates.
The Certificates are offered on a flexible payment basis.
The variable annuity Contract (form number DVA(1)NY) and the Certificates
described in this prospectus provide for accumulation of Certificate Values
on a variable basis and payments of periodic annuity payments on a variable
or a fixed basis. The Certificates are designed for use by individuals for
retirement planning purposes.
This Prospectus generally describes the variable features of the Certificate.
Purchase Payments will be allocated to a segregated investment account of
Liberty Life Assurance Company of Boston ("Liberty Life"), designated
Variable Account J ("Variable Account").
The Variable Account invests in shares of the following Eligible Funds of
Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund") at
their net asset value: Manning & Napier Moderate Growth Portfolio ("MNMGP"),
Manning & Napier Growth Portfolio ("MNGP"), Manning & Napier Maximum Horizon
Portfolio ("MNMHP"), Manning & Napier Small Cap Portfolio ("MNSCP"), Manning
& Napier Equity Portfolio ("MNEP"), and Manning & Napier Bond Portfolio
("MNBP"). The Variable Account also invests in shares of the following
Eligible Fund of SteinRoe Variable Investment Trust ("SteinRoe Trust") at its
net asset value: Cash Income Fund ("CIF").
The Variable Account may offer other forms of the contracts and certificates
that have features, fees and charges which vary from the Certificates, and
that provide for investment in other Sub-accounts which invest in different
or additional mutual funds. Other contracts and certificates will be
described in separate prospectuses and statements of additional information.
A Statement of Additional Information dated the same as this prospectus has
been filed with the Securities and Exchange Commission and is herein
incorporated by reference. It is available, at no charge, by writing the
Principal Underwriter, Keyport Financial Services Corp. at 125 High Street,
Boston, MA 02110, by calling (800) 437-4466, or by returning the postcard on
the back cover of this prospectus. It may also be obtained by writing Manning
& Napier Insurance Fund, Inc. at P.O. Box 40610, Rochester, New York 14604,
or calling (800) 466-3863. A table of contents for the Statement of
Additional Information is on Page 17.
The Contract and Certificates: are not insured by the FDIC; are not a deposit
or other obligation of, or guaranteed by, the depository institution; and are
subject to investment risks, including the possible loss of principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY
LIBERTY LIFE TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING,
AND IF GIVEN OR MADE, SUCH UNAUTHORIZED INFORMATION OR REPRESENTATIONS SHOULD
NOT BE RELIED UPON.
The date of this prospectus is July 11, 1997
TABLE OF CONTENTS
Page
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 5
Performance Information 5
Liberty Life and the Variable Account 6
Purchase Payments and Applications 6
Investments of the Variable Account 7
Allocations of Purchase Payments 7
Eligible Funds 7
Transfer of Variable Account Value 8
Substitution of Eligible Funds and Other
Variable Account Changes 9
Deductions 9
Deductions for Certificate Maintenance Charge 9
Deductions for Mortality and Expense Risk Charge 10
Deductions for Transfers of Variable Account Value 10
Deductions for Premium Taxes 10
Deductions for Income Taxes 10
Total Variable Account Expenses 10
Other Services 11
The Certificates 10
Variable Account Value 10
Valuation Periods 11
Net Investment Factor 11
Modification of the Certificate 11
Right to Revoke 11
Death Provisions for Non-Qualified Certificates 11
Death Provisions for Qualified Certificates 12
Certificate Ownership 12
Assignment 13
Partial Withdrawals and Surrender 13
Annuity Provisions 13
Annuity Benefits 13
Income Date and Annuity Option 13
Change in Income Date and Annuity Option 13
Annuity Options 13
Variable Annuity Payment Values 14
Proof of Age, Sex, and Survival of Annuitant 14
Suspension of Payments 14
Tax Status 15
Introduction 15
Taxation of Annuities in General 15
Qualified Plans 16
Individual Retirement Annuities 16
Variable Account Voting Privileges 16
Sales of the Certificates 17
Legal Proceedings 17
Inquiries by Certificate Owners 17
Table of Contents_Statement of Additional Information 17
Appendix A_Telephone Instructions 18
GLOSSARY OF SPECIAL TERMS
Accumulation Unit: An accounting unit of measure used to calculate Variable
Account Value.
Annuitant: The Annuitant is the natural person to whom any annuity payments
will be made starting on the Income Date. The Annuitant may not be over age
80 on the Issue Date (age 75 for Qualified Certificates).
Certificate Anniversary: The same month and day as the Certificate Date in
each subsequent year of the Certificate.
Certificate Date: The effective date of the Certificate; it is shown on Page
3 of the Certificate Schedule.
Certificate Owner: The person (or persons in the case of joint ownership) who
possesses all the ownership rights under the Certificate. The primary
Certificate Owner may not be over age 80 on the Issue Date (age 75 for
Qualified Contracts and age 85 for a joint Owner).
Certificate Value: The Variable Account Value.
Certificate Withdrawal Value: The Certificate Value less any premium taxes
and Certificate Maintenance Charge.
Certificate Year: Any period of 12 months commencing with the Certificate
Date and each Certificate Anniversary thereafter shall be a Certificate Year.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint Certificate
Owner. The Designated Beneficiary will be the first person among the
following who is alive on the date of death: primary Certificate Owner; joint
Certificate Owner; primary beneficiary; contingent beneficiary; and if none
of the above is alive, the primary Certificate Owner's estate. If the
primary Certificate Owner and joint Certificate Owner are both alive, they
will be the Designated Beneficiary together.
Eligible Funds: The mutual funds that are eligible investments for the
Variable Account under the Certificates.
In Force: The status of the Certificate before the Income Date so long as it
is not totally surrendered, the Certificate Value under a Certificate does
not go to zero, and there has not been a death of the Annuitant or any
Certificate Owner that will cause the Certificate to end within at most five
years of the date of death.
Income Date: The date on which annuity payments are to begin.
Non-Qualified Certificate: Any Certificate that is not issued under a
Qualified Plan.
Office: Liberty Life's Service Office, which is 125 High Street, Boston,
Massachusetts 02110.
Qualified Certificate: Certificates issued under Qualified Plans.
Qualified Plan: A retirement plan established pursuant to the provisions of
Section 408(b) of the Internal Revenue Code.
Variable Account: A separate investment account of Liberty Life into which
Purchase Payments under the Certificates may be allocated. The Variable
Account is divided into Sub-Accounts ("Sub-Account") that correspond to the
Eligible Funds in which they invest.
Variable Account Value: The value of all Variable Account amounts accumulated
under the Certificate prior to the Income Date.
Written Request: A request written on a form satisfactory to Liberty Life,
signed by the Certificate Owner and a disinterested witness, and filed at
Liberty Life's Office.
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by the
Securities and Exchange Commission to assist the owner of a variable annuity
certificate in understanding the transaction and operating expenses the owner
will directly or indirectly bear under a certificate. The values reflect
expenses of the Variable Account as well as the Eligible Funds under the
Certificates. The expenses shown for the Eligible Funds and the examples
should not be considered a representation of future expenses.
Certificate Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 0%
Maximum Total Certificate Owner Transaction Expenses1
(as a percentage of Purchase Payments): 0%
Certificate Maintenance Charge $35
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: .35%
Total Variable Account Annual Expenses: .35%
Manning & Napier Insurance Fund and SteinRoe Trust Annual Expenses2
(as a percentage of average net assets)
Total
Fund Operating
Management Other Expenses (After
Fees Expenses Any Reimbursement)3
MNMGP 1.00% .20% 1.20%
MNGP 1.00% .20% 1.20%
MNMHP 1.00% .20% 1.20%
MNSCP 1.00% .20% 1.20%
MNEP 1.00% .20% 1.20%
MNBP .50% .35% .85%
CIF .50% .15% .65%
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY MANNING & NAPIER
INSURANCE FUND AND STEINROE TRUST. LIBERTY LIFE HAS NOT INDEPENDENTLY
VERIFIED THE ACCURACY OF THE INFORMATION.
Example _ Assuming surrender or annuitization of the Certificate at the end
of the periods shown4 or that the Certificate stays in force through the
periods shown.
A $1,000 investment in each Sub-Account listed would be subject to the
expenses shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
MNMGP $16 $53 $96 $237
MNGP 16 53 96 237
MNMHP 16 53 96 237
MNSCP 16 53 96 237
MNEP 16 53 96 237
MNBP 13 42 76 189
CIF 11 36 65 161
1Liberty Life reserves the right to impose a transfer fee after prior notice
to Certificate Owners, but currently does not impose any charge. Premium
taxes are not shown. Liberty Life deducts the amount of premium taxes, if
any, when paid unless Liberty Life elects to defer such deduction.
2All Manning & Napier Insurance Fund and SteinRoe Trust expenses are for
1996. The Manning & Napier Insurance Fund expenses reflect the manager's
agreement to reimburse expenses above certain limits (see footnote 3).
3The managers of Manning & Napier Insurance Fund and SteinRoe Trust have
agreed to reimburse all expenses, including management fees, in excess of the
following percentage of the average annual net assets of each Eligible Fund,
so long as such reimbursement would not result in the Eligible Fund's
inability to qualify as a regulated investment company under the Internal
Revenue Code: MNMGP 1.2%, MNGP 1.2%, MNMHP 1.2%, MNSCP 1.2%, MNEP 1.2%, MNBP
.85%, CIF .65%. The Manning & Napier Insurance Fund manager's fee waiver and
assumption of expenses agreement is voluntary and may be terminated at any
time. The SteinRoe Trust manager's fee waiver and assumption of expenses
agreement is effective until April 30, 1998. The SteinRoe Trust's manager was
not required to reimburse expenses as of the date of this Prospectus. The
total percentages shown in the table for MNMHP, MNSCP, MNEP, MNGP, MNMGP, and
MNBP are after expense reimbursement. In the absence of any expense
reimbursement, each Fund's expenses in 1996 would have been 2.5%.
4The annuity is designed for retirement planning purposes. Surrenders prior
to the Income Date are not consistent with the long-term purposes of the
Certificate and the applicable tax laws.
The example should not be considered a representation of past or future
expenses and charges of the Sub-Accounts. Actual expenses may be greater or
less than those shown. Similarly, the assumed 5% annual rate of return is
not an estimate or a guarantee of future investment performance. See
"Deductions" in this Prospectus, "Management" in the prospectus for Manning &
Napier Insurance Fund, and "How the Funds are Managed" in the prospectus for
SteinRoe Trust.
SYNOPSIS
The following Synopsis should be read in conjunction with the detailed
information in this Prospectus and the Statement of Additional Information.
Please refer to the Glossary of Special Terms for the meaning of certain
defined terms. Variations from the information appearing in this Prospectus
due to individual state requirements are described in supplements which are
attached to this Prospectus, or in endorsements to the Certificates, as
appropriate.
The Certificate allows Certificate Owners to allocate Purchase Payments to
the Variable Account. The Variable Account is a separate investment account
maintained by Liberty Life. Certificate Owners may allocate payments to, and
receive annuity payments from the Variable Account. If the Certificate Owner
allocates payments to the Variable Account, the accumulation values and
annuity payments will fluctuate according to the investment experience of the
Sub-Accounts chosen.
The Certificate permits Purchase Payments to be made on a flexible Purchase
Payment basis. The minimum initial payment is $5,000. The minimum amount
for each subsequent payment is $1,000 or such lesser amount as Liberty Life
may permit from time to time. (See "Purchase Payments and Applications" on
Page 6.)
There are no deductions made from Purchase Payments for sales charges at the
time of purchase or upon surrender.
Liberty Life deducts a Mortality and Expense Risk Charge, which is equal on
an annual basis to .35% of the average daily net asset values in the Variable
Account attributable to the Contracts. (See "Deductions for Mortality and
Expense Risk Charge" on Page 10.)
Liberty Life deducts an annual Contract Maintenance Charge (currently $35.00)
from the Variable Account Value for administrative expenses. Prior to the
Income Date, Liberty Life reserves the right to change this charge for future
years. (See "Deductions for Certificate Maintenance Charge" on Page 9.)
Liberty Life reserves the right to deduct a charge of $25 for each transfer
in excess of 12 per Certificate Year but currently does not do so. (See
"Transfer of Variable Account Value" on Page 10.).
Premium taxes will be charged against the Certificate Value. Currently such
premium taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes" on
Page 15.)
There are no federal income taxes on increases in the value of a Certificate
until a distribution occurs, in the form of a lump sum payment, annuity
payments, or the making of a gift or assignment of the Certificate. A
federal penalty tax (currently 10%) may also apply. (See "Tax Status" on
Page 15.)
The Certificate allows the Certificate Owner to revoke the Certificate
generally within 10 days of delivery (see "Right to Revoke" on Page 11).
Liberty Life will refund the Certificate Value as of the date the returned
Certificate is received by Liberty Life, plus any sales charges previously
deducted. The Certificate Owner thus will bear the investment risk during
the revocation period.
The full financial statements for Liberty Life 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.
This performance information is not intended to indicate either past
performance under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods
of time. Total return performance information is based on the overall
percentage change in value of a hypothetical investment in the specific Sub-
Account over a given period of time.
Average annual total return information shows the average percentage change
in the value of an investment in the Sub-Account from the beginning date of
the measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less
all charges and deductions applied against the Sub-Account and a Certificate.
Average total return does not take into account any premium taxes and would
be lower if these taxes were included.
In order to calculate average annual total return, Liberty Life divides the
change in value of a Sub-Account under a Certificate surrendered on a
particular date by a hypothetical $1,000 investment in the Sub-Account made
by the Certificate Owner at the beginning of the period illustrated. The
resulting total rate for the period is then annualized to obtain the average
annual percentage change during the period. Annualization assumes that the
application of a single rate of return each year during the period will
produce the ending value, taking into account the effect of compounding.
The Sub-Accounts may present additional total return information computed on
a different basis.
The Sub-Accounts may present total return information calculated by dividing
the change in a Sub-Account's Accumulation Unit value over a specified time
period by the Accumulation Unit value of that Sub-Account at the beginning of
the period. This computation results in a 12-month change rate or, for
longer periods, a total rate for the period which Liberty Life annualizes in
order to obtain the average annual percentage change in the Accumulation Unit
value for that period. The change percentages do not take into account the
Certificate Maintenance Charge and premium tax charges. The percentages
would be lower if these charges were included.
The CIF Sub-Account is a money market Sub-Account that also may advertise
yield and effective yield information. The yield of the Sub-Account refers
to the income generated by an investment in the Sub-Account over a
specifically identified 7-day period. This income is annualized by assuming
that the amount of income generated by the investment during that week is
generated each week over a 52-week period and is shown as a percentage. The
yield reflects the deduction of all charges assessed against the Sub-Account
and a Certificate but does not take into account premium tax charges. The
yield would be lower if these charges were included.
The effective yield of the CIF Sub-Account is calculated in a similar manner
but, when annualizing such yield, income earned by the Sub-Account is assumed
to be reinvested. This compounding effect causes effective yield to be
higher than yield.
LIBERTY LIFE AND THE VARIABLE ACCOUNT
Liberty Life Assurance Company of Boston was incorporated on September 17,
1963 as a stock life insurance company. Its executive and administrative
offices are at 175 Berkeley Street, Boston, Massachusetts 02117.
Liberty Life writes individual life insurance on both a participating and a
non-participating basis and group life and health insurance and individual
and group annuity contracts on a non-participating basis. The variable
annuity contracts described in this Prospectus are issued on a non-
participating basis. Liberty Life is licensed to do business in all states
and in the District of Columbia. However, the Contracts described in this
Prospectus are currently offered only in New York. Liberty Life has been
rated "A" by A.M. Best and Company, independent analysts of the insurance
industry. The Best's A rating is in the second highest rating category, which
also includes a lower rating of A-. Best's Ratings merely reflect Best's
opinion as to the relative financial strength of Liberty Life and Liberty
Life's ability to meet its contractual obligations to its policyholders. Even
though assets in the Variable Account are held separately from Liberty Life's
other assets, ratings of Liberty Life may still be relevant to Certificate
Owners since not all of Liberty Life's contractual obligations relate to
payments based on those segregated assets (e.g., see "Death Provisions" on
pages 16-17 for Liberty Life's obligation after certain deaths to increase
the Certificate Value if it is less than the guaranteed minimum death benefit
amount).
Liberty Life is a wholly-owned subsidiary of Liberty Mutual Insurance Company
and Liberty Mutual Fire Insurance Company. Liberty Mutual Insurance Company
is a multi-line insurance and financial services institution.
The Variable Account was established by Liberty Life pursuant to the
provisions of Massachusetts Law on June 2, 1997. The Variable Account meets
the definition of "separate account" under the federal securities laws. The
Variable Account was registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. Such
registration does not involve supervision of the management of the Variable
Account or Liberty Life by the Securities and Exchange Commission.
Obligations under the Certificatess are the obligations of Liberty Life.
Although the assets of the Variable Account are the property of Liberty Life,
these assets are held separately from the other assets of Liberty Life and
are not chargeable with liabilities arising out of any other business Liberty
Life 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 Liberty Life
may conduct. Thus, Liberty Life does not guarantee the investment performance
of the Variable Account. The Variable Account Value and the amount of
variable annuity payments will vary with the investment performance of the
investments in the Variable Account.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $5,000. Additional Purchase Payments can be made
at the Certificate Owner's option. Each subsequent Purchase Payment must be
at least $1,000 or such lesser amount as Liberty Life may permit from time to
time. Liberty Life may reject any Purchase Payment.
When the application for a Certificate is in good order and it calls for
amounts to be allocated to the Variable Account, Liberty Life will apply the
initial Purchase Payment to the Variable Account and credit the Certificate
with Accumulation Units within two business days of receipt. If the
application for a Certificate is not in good order, Liberty Life will attempt
to get it in good order within five business days. If it is not complete at
the end of this period, Liberty Life will inform the applicant of the reason
for the delay and that the Purchase Payment will be returned immediately
unless the applicant specifically consents to Liberty Life's keeping the
Purchase Payment until the application is complete. Once the application is
complete, the Purchase Payment will be applied within two business days of
its completion. Liberty Life has reserved the right to reject any
application.
Liberty Life confirms, in writing, to the Certificate Owner the allocation of
all Purchase Payments and the re-allocation of values after any requested
transfer. Liberty Life must be notified immediately by the Certificate Owner
of any processing error.
Liberty Life will permit others to act on behalf of an applicant in certain
instances, including the following two examples. First, Liberty Life will
accept an application for a Certificate that contains a signature signed
under a power of attorney if a copy of that power of attorney is submitted
with the application. Second, if a Certificate is replacing an existing life
insurance or annuity policy that was issued either by Liberty Life or an
affiliated company, Liberty Life will issue a Certificate without having
previously received a signed application from the applicant. Certain dealers
or other authorized persons such as employers and Qualified Plan fiduciaries
will inform Liberty Life of an applicant's answers to the questions in the
application by telephone or by order ticket and cause the initial Purchase
Payment to be paid to Liberty Life. If the information is in good order,
Liberty Life will issue the Certificate with a copy of an application
completed with that information. The Certificate will be delivered to the
Certificate Owner with a letter from Liberty Life that will give the
Certificate Owner an opportunity to respond to Liberty Life if any of the
application information is incorrect. Alternatively, Liberty Life's letter
may request the Certificate Owner to confirm the correctness of the
information by signing either a copy of the application or a Certificate
delivery receipt that ratifies the application in all respects (in either
case, a copy of the signed document would be returned to Liberty Life for its
permanent records). All purchases are confirmed, in writing, to the
applicant by Liberty Life. Liberty Life's liability under a Certificate
extends only to amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
Purchase Payments applied to the Variable Account will be invested in one or
more of the Eligible Fund Sub-Accounts designated as permissible investments
in accordance with the selection made by the Certificate Owner in the
application. Any selection must specify the percentage of the Purchase
Payment that is allocated to each Sub-Account. The percentage for each Sub-
Account, if not zero, must be at least 10% and must be a whole number. A
Certificate Owner may change the allocation percentages without fee, penalty
or other charge. Allocation changes must be made by Written Request unless
the Certificate Owner has by Written Request authorized Liberty Life to
accept telephone allocation instructions from the Certificate Owner or from a
person acting for the Certificate Owner as an attorney-in-fact under a power
of attorney. By authorizing Liberty Life to accept telephone changes, a
Certificate Owner agrees to accept and be bound by the conditions and
procedures established by Liberty Life from time to time. The current
conditions and procedures are in Appendix A and Certificate Owners
authorizing telephone allocation instructions will be notified, in advance,
of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. Eligible Funds and Sub-Accounts may be added
or withdrawn as permitted by applicable law. The Sub-Accounts in the
Variable Account and the corresponding Eligible Funds currently are as
follows:
Eligible Funds of Manning & Napier Insurance Fund Sub-Accounts
Manning & Napier Moderate Growth Portfolio ("MNMGP") MNMGP Sub-Account
Manning & Napier Growth Portfolio ("MNGP") MNGP Sub-Account
Manning & Napier Maximum Horizon Portfolio ("MNMHP") MNMHP Sub-Account
Manning & Napier Small Cap Portfolio ("MNSCP") MNSCP Sub-Account
Manning & Napier Equity Portfolio ("MNEP") MNEP Sub-Account
Manning & Napier Bond Portfolio ("MNBP") MNBP Sub-Account
Eligible Fund of SteinRoe Trust Sub-Account
Cash Income Fund ("CIF") CIF Sub-Account
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable
Account are the separate funds of Manning & Napier Insurance Fund, the
separate funds of SteinRoe Trust, and any other mutual funds with which
Liberty Life and the Variable Account may enter into a participation
agreement for the purpose of making such mutual funds available as Eligible
Funds under certain Certificates.
Manning & Napier Insurance Fund is an open-end management investment company
that offers separate series (Portfolios). Manning & Napier Advisors, Inc.
("Manning & Napier Advisors"), 1100 Chase Square, Rochester, New York 14604,
acts as Manning & Napier Insurance Fund's investment adviser. Mr. William
Manning controls the Advisor by virtue of his ownership of the securities of
the Advisor. Manning & Napier Advisors also is generally responsible for
supervision of the overall business affairs of Manning & Napier Insurance
Fund, including supervision of service providers to the Fund and direction of
Manning & Napier Advisors' directors, officers or employees who may be
elected as officers of Manning & Napier Insurance Fund to serve as such.
Stein Roe & Farnham Incorporated ("Stein Roe"), One South Wacker Drive,
Chicago, Illinois 60606, is the investment adviser for the Eligible Fund of
SteinRoe Trust. In 1986, Stein Roe was organized and succeeded to the
business of Stein Roe & Farnham, a partnership. Stein Roe is an affiliate of
Liberty Life. Stein Roe and its predecessor have provided investment
advisory and administrative services since 1932.
The investment objectives of the Eligible Funds are briefly described below.
More detailed information, including investor considerations related to the
risks of investing in a particular Eligible Fund, may be found in the current
prospectus for that Fund. An investor should read that prospectus carefully
before selecting a Sub-Account that invests in an Eligible Fund. The
prospectus is available, at no charge, from a salesperson or by writing the
Principal Underwriter, Keyport Financial Services Corp. at 125 High Street,
Boston, MA 02110 or by calling (800) 437-4466.
Eligible Funds of Manning & Napier Insurance
Fund and Variable Account Sub-Accounts Investment Objective
Manning & Napier Moderate Growth Portfolio
(MNMGP Sub-Account) Seeks with equal emphasis
long-term growth and
preservation of capital.
Manning & Napier Growth Portfolio
(MNGP Sub-Account) Seeks long-term growth of
capital. The secondary
objective is the
preservation of capital.
Manning & Napier Maximum Horizon Portfolio
(MNMHP Sub-Account) Seeks to achieve the high
level of long-term
capital growth typically
associated with the stock
market.
Manning & Napier Small Cap Portfolio
(MNSCP Sub-Account) Seeks to achieve long-term
growth of capital by
investing principally in
the equity securities of
small issuers.
Manning & Napier Equity Portfolio
(MNEP Sub-Account) Seeks long-term growth of
capital.
Manning & Napier Bond Portfolio
(MNBP Sub-Account) Seeks to maximize total
return in the form of
both income and capital
appreciation by investing
in fixed income
securities without regard
to maturity.
Eligible Fund of SteinRoe Trust and
Variable Account Sub-Account Investment Objective
Cash Income Fund (CIF Sub-Account) Seeks to provide high
current income from
short-term money market
instruments while
emphasizing preservation
of capital and
maintaining excellent
liquidity.
There is no assurance that the Eligible Funds will achieve their stated
objectives. The Manning & Napier Insurance Fund and SteinRoe Trust are
funding vehicles for variable annuity contracts and variable life insurance
policies offered by separate accounts of Liberty Life and of insurance
companies affiliated and unaffiliated with Liberty Life. The risks involved
in this "mixed and shared funding" are disclosed in the Manning & Napier
Insurance Fund and in the SteinRoe Trust prospectuses under the captions
"Sales And Redemptions" and "The Trust", respectively.
Transfer of Variable Account Value
Certificate Owners may transfer Variable Account Value from one Sub-Account
to another Sub-Account.
The Certificate allows Liberty Life to charge a transfer fee and to limit the
number of transfers that can be made in a specified time period. Certificate
Owners should be aware that transfer limitations may prevent a Certificate
Owner from making a transfer on the date he or she wants to, with the result
that the Certificate Owner's future Certificate Value may be lower than it
would have been had the transfer been made on the desired date. Currently,
Liberty Life has no limit on the number or frequency of transfers and it is
not charging a transfer fee, but reserves the right to charge $25 for each
transfer in excess of 12 per Certificate Year. However, for transfers under
different Certificates that are being requested under powers of attorney with
a common attorney-in-fact or that are, in Liberty Life's determination, based
on the recommendation of a common investment adviser or broker/dealer, there
is a transfer limitation of one transfer every 30 days.
Currently, Liberty Life is limiting each transfer to a maximum of $500,000.
All transfers requested for a Certificate on the same day will be treated as
a single transfer and the total combined transfer amount will be subject to
the $500,000 limitation. If the $500,000 limitation is exceeded, no amount
of the transfer will be executed by Liberty Life.
In applying the $500,000 limitation, Liberty Life may treat as one transfer
all transfers requested by a Certificate Owner for multiple Certificates he
or she owns. If the $500,000 limitation is exceeded for multiple transfers
requested on the same day that are treated as a single transfer, no amount of
the transfer will be executed by Liberty Life.
In applying the $500,000 limitation to transfers requested by a common
attorney-in-fact or investment adviser, Liberty Life will treat as one
transfer all transfers requested under different Certificates that are being
requested under powers of attorney with a common attorney-in-fact or that
are, in Liberty Life's determination, based on the recommendation of a common
investment adviser or broker/dealer. If the $500,000 limitation is exceeded
for multiple transfers requested on the same day that are treated as a single
transfer, no amount of the transfer will be executed by Liberty Life. If a
transfer is executed under one Certificate and, within the next 30 days, a
transfer request for another Certificate is determined by Liberty Life to be
related to the executed transfer under this paragraph's rules, the transfer
request will not be executed by Liberty Life. In order for it to be executed,
it would need to be requested again after the 30 day period has expired and
it, along with any other transfer requests that are collectively treated as a
single transfer, would need to total less than $500,000.
Liberty Life's interest in applying these limitations is to protect the
interests of both Certificate Owners who are not engaging in significant
transfer activity and Certificate Owners who are engaging in such activity.
Liberty Life has determined that the actions of Certificate Owners engaging
in significant transfer activity among Sub-Accounts may cause an adverse
effect on the performance of the Eligible Fund for the Sub-Account involved.
The movement of Sub-Account values from one Sub-Account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because it must maintain a liquid position in order to handle
redemptions. Such movement may also cause a substantial increase in Fund
transaction costs which must be indirectly borne by Certificate Owners.
Certificate Owners will be notified, in advance, of the imposition of any
transfer fee or of a change in the limitation on the number of transfers. The
fee will not exceed the lesser of $25 and the cost of effecting a transfer.
Transfers must be made by Written Request unless the Certificate Owner has by
Written Request authorized Liberty Life to accept telephone transfer requests
from the Certificate Owner or from a person acting for the Certificate Owner
as an attorney-in-fact under a power of attorney. By authorizing Liberty
Life to accept telephone transfer instructions, a Certificate Owner agrees to
accept and be bound by the conditions and procedures established by Liberty
Life from time to time. The current conditions and procedures are in
Appendix A and Certificate Owners authorizing telephone transfers will be
notified, in advance, of any changes. Written transfer requests may be made
by a person acting for the Certificate Owner as an attorney-in-fact under a
power of attorney.
Transfer requests received by Liberty Life before the close of trading on the
New York Stock Exchange (currently 4:00 PM Eastern Time) will be initiated at
the close of business that day. Any requests received later will be
initiated at the close of the next business day. Each request from a
Certificate Owner to transfer value will be executed by both redeeming and
acquiring Accumulation Units on the day Liberty Life initiates the transfer.
If 100% of any Sub-Account's value is transferred and the allocation formula
for Purchase Payments includes that Sub-Account, then the allocation formula
for future Purchase Payments will automatically change unless the Certificate
Owner instructs otherwise. For example, if the allocation formula is 50% to
Sub-Account A and 50% to Sub-Account B and all of Sub-Account A's value is
transferred to Sub-Account B, the allocation formula will change to 100% to
Sub-Account B unless the Certificate Owner instructs otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If the shares of any of the Eligible Funds should no longer be available for
investment by the Variable Account or if in the judgment of Liberty Life's
management further investment in such fund shares should become inappropriate
in view of the purpose of the Certificate, Liberty Life may add or substitute
shares of another Eligible Fund or of another mutual fund for Eligible Fund
shares already purchased under the Certificate. No substitution of Fund
shares in any Sub-Account may take place without prior approval of the
Securities and Exchange Commission and notice to Certificate Owners, to the
extent required by the Investment Company Act of 1940.
Liberty Life has also reserved the right, subject to compliance with the law
as currently applicable or subsequently changed: (a) to operate the Variable
Account in any form permitted under the Investment Company Act of 1940 or in
any other form permitted by law; (b) to take any action necessary to comply
with or obtain and continue any exemptions from the Investment Company Act of
1940 or to comply with any other applicable law; (c) to transfer any assets
in any Sub-Account to another Sub-Account, or to one or more separate
investment accounts, or to Liberty Life's general account; or to add, combine
or remove Sub-Accounts in the Variable Account; and (d) to change the way
Liberty Life assesses charges, so long as the aggregate amount is not
increased beyond that currently charged to the Variable Account and the
Eligible Funds in connection with the Certificates.
DEDUCTIONS
Deductions for Certificate Maintenance Charge
Liberty Life has responsibility for all administration of the Certificates
and the Variable Account. Liberty Life has contracted to an affiliate the
actual day-to-day administration of the Certificates, for which it pays a
fee. This administration includes, but is not limited to, preparation of the
Certificates, maintenance of Certificate Owners' records, and all accounting,
valuation, regulatory and reporting requirements. Liberty Life assesses a
Certificate Maintenance Charge for such services during the accumulation and
annuity payment periods. At the present time the Certificate Maintenance
Charge is $35 per Certificate Year. PRIOR TO THE INCOME DATE THE CERTIFICATE
MAINTENANCE CHARGE IS NOT GUARANTEED AND MAY BE CHANGED BY LIBERTY LIFE.
Prior to the Income Date, the full amount of the charge will be deducted from
the Variable Account Value on each Certificate Anniversary and on the date of
any total surrender not falling on the Certificate Anniversary. On the
Income Date, a pro-rata portion of the charge due on the next Certificate
Anniversary will be deducted from the Variable Account Value. This pro-rata
charge covers the period from the prior Certificate Anniversary to the Income
Date. For example, if the Income Date occurs 73 days after that prior
anniversary, then one-fifth (i.e., 73 days/365 days) of the annual charge
would be deducted on the Income Date. The charge will be deducted from each
Sub-Account in the proportion that the value of each bears to the Variable
Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of
the Certificate Maintenance Charge for a payee's annuity will be the same as
the yearly amount in effect immediately before the annuity payments begin.
Liberty Life may not later change the amount of the Certificate Maintenance
Charge deducted from the annuity payments. The charge will be deducted on a
pro-rata basis from each annuity payment. For example, if annuity payments
are monthly, then one-twelfth of the annual charge will be deducted from each
payment.
Deductions for Mortality and Expense Risk Charge
Although variable annuity payments made to Annuitants will vary in accordance
with the investment performance of the investments of the Variable Account,
they will not be affected by the mortality experience (death rate) of persons
receiving such payments or of the general population. Liberty Life
guarantees the Death Benefits described below (see "Death Benefit"). Liberty
Life assumes an expense risk since the Certificate Maintenance Charge after
the Income Date will stay the same and not be affected by variations in
expenses.
To compensate it for assuming these mortality and expense risks, for each
Valuation Period Liberty Life deducts from each Sub-Account a Mortality and
Expense Risk Charge equal on an annual basis to .35% of the average daily net
asset value of the Sub-Account. The charge is deducted during both the
accumulation and annuity periods (i.e., both before and after the Income
Date). Less than the full charge will be deducted from Sub-Account values
attributable to Certificates issued to employees of Liberty Life and other
persons specified in "Sales of the Certificates".
Deductions for Transfers of Variable Account Value
The Certificate allows Liberty Life to charge a transfer fee. Currently no
fee is being charged. Certificate Owners will be notified, in advance, of
the imposition of any fee. The fee will not exceed the lesser of $25 and
the cost of effecting a transfer.
Deductions for Premium Taxes
Liberty Life deducts the amount of any premium taxes levied by any state or
governmental entity when paid unless Liberty Life elects to defer such
deduction. It is not possible to describe precisely the amount of premium
tax payable on any transaction involving the Certificate offered hereby.
Such premium taxes depend, among other things, on the type of Certificate
(Qualified or Non-Qualified), on the state of residence of the Certificate
Owner, the state of residence of the Annuitant, the status of Liberty Life
within such states, and the insurance tax laws of such states. For New York
Certificates, the current premium tax rate is 0%.
Deductions for Income Taxes
Liberty Life will deduct from any amount payable under the Certificate any
income taxes that a governmental authority requires Liberty Life to withhold
with respect to that amount. See "Income Tax Withholding".
Total Variable Account Expenses
The Variable Account's total expenses in relation to the Certificate will be
the Certificate Maintenance Charge and the Mortality and Expense Risk Charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out
of the assets of the Eligible Funds. These deductions and expenses are
described in the Eligible Fund prospectus.
OTHER SERVICES
The Program. Liberty Life offers the following investment related program
which is available only prior to the Income Date: Systematic Withdrawal
Program. This Program has its own requirements, as discussed below. Liberty
Life reserves the right to terminate the Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. The current conditions and
procedures are described in Appendix A.
Systematic Withdrawal Program. To the extent permitted by law, Liberty Life
will make monthly, quarterly, semi-annual or annual distributions of a
predetermined dollar amount to a Certificate Owner that has enrolled in the
Systematic Withdrawal Program. Under the Program, all distributions will be
made directly to the Certificate Owner and will be treated for federal tax
purposes as any other withdrawal or distribution of Certificate Value. (See
"Tax Status".) A Certificate Owner may specify the amount of each partial
withdrawal, subject to a minimum of $100.
Unless the Certificate Owner specifies the Sub-Account or Sub-Accounts from
which withdrawals of Certificate Value shall be made or if the amount in a
specified Sub-Account is less than the predetermined amount, Liberty Life
will make withdrawals under the Program from the Sub-Accounts in amounts
proportionate to the amounts in the Sub-Accounts. All withdrawals under the
Program will be effected by canceling the number of Accumulation Units equal
in value to the amount to be distributed to the Certificate Owner.
THE CERTIFICATES
Variable Account Value
The Variable Account Value for a Certificate is the sum of the value of each
Sub-Account to which values are allocated under a Certificate. The value of
each Sub-Account is determined at any time by multiplying the number of
Accumulation Units attributable to that Sub-Account by the Accumulation Unit
value for that Sub-Account at the time of determination. The Accumulation
Unit value is an accounting unit of measure used to determine the change in
an Accumulation Unit's value from Valuation Period to Valuation Period.
Each Purchase Payment that is made results in additional Accumulation Units
being credited to the Certificate and the appropriate Sub-Account thereunder.
The number of additional units for any Sub-Account will equal the amount
allocated to that Sub-Account divided by the Accumulation Unit value for that
Sub-Account at the time of investment.
Valuation Periods
The Variable Account is valued each Valuation Period using the net asset
value of the Eligible Fund shares. A Valuation Period is the period
commencing at the close of trading on the New York Stock Exchange on each
Valuation Date and ending at the close of trading for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock
Exchange is open for business. The New York Stock Exchange is currently
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net Investment Factor
The Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, Liberty Life utilizes an Accumulation Unit value.
Each Sub-account has its own Accumulation Units and value per Unit. The Unit
value applicable during any Valuation Period is determined at the end of that
period.
When Liberty Life first purchased Eligible Fund shares on behalf of the
Variable Account, Liberty Life 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. Liberty Life calculates a net investment factor
for each Sub-Account by dividing (a) by (b) and then subtracting (c) (i.e.,
(a/b) _ c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of the
Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund if
the "ex-dividend" date occurs during that same Valuation Period.
(b) is the net asset value per share of the Eligible Fund at the end of the
prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the daily Mortality and Expense Risk
Charge; plus
(ii) a charge factor, if any, for any tax provision established by Liberty
Life as a result of the operations of that Sub-Account.
Modification of the Certificate
Only Liberty Life's President or Secretary may agree to alter the Certificate
or waive any of its terms. Any changes must be made in writing and with the
Certificate Owner's consent, except as may be required by applicable law.
Right to Revoke
The Certificate Owner may return the Certificate within 10 days after he or
she receives it by delivering or mailing it to either Liberty Life's Office
or Manning & Napier Insurance Fund, Inc. 1100 Chase Square, P.O. Box 40610,
Rochester, New York, 14604. The return of the Certificate by mail will be
effective when the postmark is affixed to a properly addressed and postage-
prepaid envelope. The returned Certificate will be treated as if Liberty
Life never issued it and Liberty Life will refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant
These provisions apply if, before the Income Date while the Certificate is In
Force, the primary Certificate Owner or any joint Certificate Owner dies
(whether or not the decedent is also the Annuitant) or the Annuitant dies
under a Certificate with a non-natural Certificate Owner such as a trust.
The Designated Beneficiary will control the Certificate after such a death.
If the decedent's surviving spouse (if any) is the sole Designated
Beneficiary, the surviving spouse will automatically become the new sole
primary Certificate Owner as of the decedent's date of the death. And, if
the Annuitant is the decedent, the new Annuitant will be any living
contingent annuitant, otherwise the surviving spouse. The Certificate can
stay in force until another death occurs (i.e., until the death of the
Annuitant, primary Certificate Owner or joint Certificate Owner). Except for
this paragraph, all "Death Provisions" will apply to that subsequent death.
In all other cases, the Certificate can continue up to five years from the
date of death. During this period, the Designated Beneficiary may exercise
all ownership rights, including the right to make transfers or partial
surrenders or the right to totally surrender the Certificate for its
Surrender Value. If the Certificate is still in effect at the end of the
five-year period, Liberty Life will automatically end it then by paying the
Certificate Value to the Designated Beneficiary. If the Designated
Beneficiary is not alive then, Liberty Life will pay any person(s) named by
the Designated Beneficiary in a Written Request; otherwise the Designated
Beneficiary's estate.
The covered person under this paragraph shall be the primary Certificate
Owner or, if there is a non-natural Certificate Owner such as a trust, the
Annuitant shall be the covered person. If the covered person dies, the
Certificate Value will be increased, as provided below, if it is less than
the Death Benefit Amount ("DBA"). The DBA is:
Death Benefit. The death benefit at issue is the initial Purchase Payment.
Thereafter, it is the prior death benefit plus any additional Purchase
Payments, less any partial withdrawals, including any applicable surrender
charge.
When Liberty Life receives due proof of the covered person's death, Liberty
Life will compare, as of the date of death, the Certificate Value to the DBA.
If the Certificate Value was less than the DBA, Liberty Life will increase
the current Certificate Value by the amount of the difference. Note that
while the amount of the difference is determined as of the date of death,
that amount is not added to the Certificate Value until Liberty Life receives
due proof of death. The amount to be credited will be allocated to the
Variable Account based on the Purchase Payment allocation selection that is
in effect when Liberty Life receives due proof of death. If the Certificate
is not surrendered, it will continue for the time period specified above.
Payment of Benefits. Instead of receiving a lump sum, the Certificate Owner
or any Designated Beneficiary may direct by Written Request that Liberty Life
pay any benefit of $5,000 or more under an annuity payment option that meets
the following: (a) the first payment to the Designated Beneficiary must be
made no later than one year after the date of death; (b) payments must be
made over the life of the Designated Beneficiary or over a period not
extending beyond that person's life expectancy; and (c) any payment option
that provides for payments to continue after the death of the Designated
Beneficiary will not allow the successor payee to extend the period of time
over which the remaining payments are to be made.
Death of Certain Non-Certificate Owner Annuitant. These provisions apply if,
before the Income Date while the Certificate is In Force, (a) the Annuitant
dies, (b) the Annuitant is not a Certificate Owner, and (c) the Certificate
Owner is a natural person. The Certificate will continue in force after the
Annuitant's death. The new Annuitant will be any living contingent
annuitant, otherwise the primary Certificate Owner.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
Death of Annuitant. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the
Certificate after such a death. The Certificate Value will be increased, as
provided below, if it is less than the Death Benefit Amount ("DBA") as
defined above. When Liberty Life receives due proof of the Annuitant's
death, Liberty Life will compare, as of the date of death, the Certificate
Value to the DBA. If the Certificate Value was less than the DBA, Liberty
Life will increase the current Certificate Value by the amount of the
difference. Note that while the amount of the difference is determined as of
the date of death, that amount is not added to the Certificate Value until
Liberty Life receives due proof of death. The amount to be credited will be
allocated to the Variable Account based on the Purchase Payment allocation
selection that is in effect when Liberty Life receives due proof of death.
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the
particular Qualified Plan. During this period, the Designated Beneficiary
may exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to totally surrender the Certificate for its
Certificate Withdrawal Value. If the Certificate is still in effect at the
end of the period, Liberty Life will automatically end it then by paying the
Certificate Withdrawal Value to the Designated Beneficiary. If the
Designated Beneficiary is not alive then, Liberty Life will pay any person(s)
named by the Designated Beneficiary in a Written Request; otherwise the
Designated Beneficiary's estate.
Payment of Benefits. Instead of receiving a lump sum, the Certificate Owner
or any Designated Beneficiary may direct by Written Request that Liberty Life
pay any benefit of $5,000 or more under an annuity payment option that meets
the following: (a) the first payment to the Designated Beneficiary must be
made no later than one year after the date of death; (b) payments must be
made over the life of the Designated Beneficiary or over a period not
extending beyond that person's life expectancy; and (c) any payment option
that provides for payments to continue after the death of the Designated
Beneficiary will not allow the successor payee to extend the period of time
over which the remaining payments are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application. The
Certificate Owner may exercise all the rights of the Certificate. Joint
Certificate Owners are permitted but not contingent Certificate Owners.
The Certificate Owner may by Written Request change the Certificate Owner,
primary beneficiary, contingent beneficiary or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of such
person.
Because a change of Certificate Owner by means of a gift (i.e., a transfer
without full and adequate consideration) may be a taxable event, a
Certificate Owner should consult a competent tax adviser as to the tax
consequences resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership. A
Certificate Owner should consult the Plan Administrator and a competent tax
adviser as to the tax consequences resulting from such a transfer.
ASSIGNMENT
The Certificate Owner may assign the Certificate at any time. A copy of any
assignment must be filed with Liberty Life. The Certificate Owner's rights
and those of any revocably-named person will be subject to the assignment.
Any Qualified Certificate may have limitations on assignability.
Because an assignment may be a taxable event, a Certificate Owner should
consult a competent tax adviser as to the tax consequences resulting from any
such assignment.
PARTIAL WITHDRAWALS AND SURRENDER
The Certificate Owner may make partial withdrawals from the Certificate.
Liberty Life must receive a Written Request and the minimum amount to be
withdrawn must be at least $300 or such lesser amount as Liberty Life may
permit in conjunction with a periodic withdrawal program. If the Certificate
Value after a partial withdrawal would be below $2,500, Liberty Life will
treat the request as a withdrawal of only the excess amount over $2,500.
Unless the request specifies otherwise, the total amount withdrawn will be
deducted from all Sub-Accounts of the Variable Account in the ratio that the
value in each Sub-Account bears to the total Variable Account Value.
The Certificate Owner may totally surrender the Certificate by making a
Written Request. Surrendering the Certificate will end it. Upon surrender,
the Certificate Owner will receive the Certificate Withdrawal Value.
Liberty Life will pay the amount of any surrender within seven days of
receipt of such request. Alternatively, the Certificate Owner may purchase
for himself or herself an annuity payment option with any surrender benefit
of at least $5,000. Liberty Life's consent is needed to choose an option if
the Certificate Owner is not a natural person.
Annuity Options based on life contingencies cannot be surrendered after
annuity payments have begun. Option A, which is not based on life
contingencies, may be surrendered if a variable payout has been selected.
Because of the potential tax consequences of a full or partial surrender, a
Certificate Owner should consult a competent tax adviser regarding a
surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Certificate is In Force,
payments will begin under the annuity option or options the Certificate Owner
has chosen. The amount of the payments will be determined by applying the
Certificate Value (less any premium taxes not previously deducted and less
any applicable Certificate Maintenance Charge) on the Income Date in
accordance with the option selected.
Income Date and Annuity Option
The Certificate Owner may select an Income Date and Annuity Option at the
time of application. If the Certificate Owner does not select a Annuity
Option, Option B will automatically be designated. If the Certificate Owner
does not select an Income Date for the Annuitant, the Income Date will
automatically be the Annuitant's 90th birthday.
Change in Income Date and Annuity Option
The Certificate Owner may choose or change an Annuity Option or the Income
Date by making a Written Request to Liberty Life at least 30 days prior to
the Income Date. However, any Income Date must be: (a) for fixed annuity
options, not earlier than the first Certificate Anniversary; and (b) not
later than the Annuitant's 90th birthday or any maximum date permitted under
state law.
Annuity Options
The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available in
two forms--as a variable annuity for use with the Variable Account and as a
fixed annuity for use with Liberty Life's general account. Variable annuity
payments will fluctuate while fixed annuity payments will not. The dollar
amount of each fixed annuity payment will be determined by dividing the
amount being applied to a fixed annuity option by $1,000 and multiplying the
result by the greater of: (a) the applicable factor shown in the appropriate
table in the Certificate; or (b) the factor currently offered by Liberty Life
at the time annuity payments begin. This current factor may be based on the
sex of the payee unless to do so would be prohibited by law.
If no Annuity Option is selected, Option B will automatically be applied.
Unless the Certificate Owner chooses otherwise, Variable Account Value, less
any premium taxes not previously deducted and less any applicable Certificate
Maintenance Charge will be applied in its entirety to a variable annuity
option. Whether variable or fixed, the same amount applied to each option
will produce a different initial annuity payment as well as different
subsequent payments.
The payee is the person who will receive the sum payable under 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 to apply under any variable or fixed option is less
than $5,000, Liberty Life has reserved the right to pay such amount in one
sum to the payee in lieu of the payment otherwise provided for.
Annuity payments will be made monthly unless quarterly, semi-annual or annual
payments are chosen by Written Request. However, if any payment provided for
would be or becomes less than $100, Liberty Life has the right to reduce the
frequency of payments to such an interval as will result in each payment
being at least $100.
Option A: Income For a Fixed Number of Years. Liberty Life will pay an
annuity for a chosen number of years, not fewer than 5 nor over 50 (a period
of years over 30 may be chosen only if it does not exceed the difference
between age 100 and the Annuitant's age on the date of the first payment).
At any time while variable annuity payments are being made, the payee may
elect to receive the following amount: (a) the present value of the remaining
payments, commuted at the interest rate used to create the annuity factor for
this option (this interest rate is 5% per year, unless 3% per year is chosen
by Written Request at the time the option is selected). Instead of receiving
a lump sum, the payee can elect another payment option. If, at the death of
the payee, Option A payments have been made for less than the chosen number
of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this option. For the variable annuity,
this interest rate is 5% per year, unless 3% per year had been chosen by
the payee at the time the option was selected.
The Mortality and Expense Risk Charge is deducted during the Option A payment
period if a variable payout has been selected, but Liberty Life has no
mortality risk during this period.
If annual payments are chosen for Option A and a variable payout has been
selected, Liberty Life has available a "stabilizing" payment option that can
be chosen. Each annual payment will be determined as described in "Variable
Annuity Payment Values". Each annual payment will then be placed in Liberty
Life's general account, from which it will be paid out in twelve equal
monthly payments. The sum of the twelve monthly payments will exceed the
annual payment amount because of an interest rate factor used by Liberty Life
that will vary from year to year. The commutation method described above for
calculating the present value of remaining payments applies to the annual
payments. Any monthly payments remaining before the next annual payment will
be commuted at the interest rate used to determine that year's monthly
payments.
See "Annuity Payments" for the manner in which Option A may be taxed.
Option B: Life Income with 10 Years of Payments Guaranteed. Liberty Life
will pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create
the annuity factor for this option. For the variable annuity, this
interest rate is 5% per year, unless 3% per year had been chosen by the
payee at the time the option was selected.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. Liberty Life will pay an annuity
for as long as either the payee or a designated second natural person is
alive. The amount of the annuity payments will depend on the age of both
persons on the Income Date and it may also depend on each person's sex. IT
IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF BOTH
PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE ONLY TWO
ANNUITY PAYMENTS IF BOTH PAYEES DIE AFTER RECEIPT OF THE SECOND PAYMENT AND
SO ON.
Variable Annuity Payment Values
The amount of the first variable annuity payment is determined by Liberty
Life using an annuity purchase rate that is based on an assumed annual
investment return of 5% per year, unless 3% is chosen by Written Request.
Subsequent variable annuity payments will fluctuate in amount and reflect
whether the actual investment return of the selected Sub-Account(s) (after
deducting the Mortality and Expense Risk Charge) is better or worse than the
assumed investment return. The total dollar amount of each variable annuity
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge. Currently,
a payee can instruct Liberty Life to change the Sub-Account(s) used to
determine the amount of the variable annuity payments once every 6 months.
Proof of Age, Sex, and Survival of Annuitant
Liberty Life 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, Liberty Life will compute the amount payable based on the correct
age and sex. If income payments have begun, any underpayments Liberty Life
may have made will be paid in full with the next annuity payment. Any
overpayments, unless repaid in one sum, will be deducted from future annuity
payments until Liberty Life is repaid in full.
SUSPENSION OF PAYMENTS
Liberty Life reserves the right to suspend or postpone any type of payment
from the Variable Account for any period when: (a) the New York Stock
Exchange is closed other than customary weekend or holiday closings; (b)
trading on the Exchange is restricted; (c) an emergency exists as a result of
which it is not reasonably practicable to dispose of securities held in the
Variable Account or determine their value; or (d) the Securities and Exchange
Commission permits delay for the protection of security holders. The
applicable rules and regulations of the Securities and Exchange Commission
shall govern as to whether the conditions described in (b) and (c) exist.
TAX STATUS
Introduction
The Certificate is designed for use by individuals in retirement plans which
may or may not be Qualified Plans under the provisions of the Internal
Revenue Code (the "Code"). The ultimate effect of federal income taxes on
the Certificate Value, on annuity payments, and on the economic benefit to
the Certificate Owner, Annuitant or Designated Beneficiary depends on the
type of retirement plan for which the Certificate is purchased and upon the
tax and employment status of the individual concerned. The discussion
contained herein is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax adviser. No attempt is
made to consider any applicable state or other tax laws. Moreover, the
discussion herein is based upon Liberty Life's understanding of current
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of those current federal
income tax laws or of the current interpretations by the Internal Revenue
Service.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are
no income taxes on increases in the value of a Certificate until a
distribution occurs, in the form of a full surrender, a partial surrender, an
assignment or gift of the Certificate, or annuity payments. 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. A Certificate Owner who fully surrenders
his or her Certificate is taxed on the portion of the payment that exceeds
his or her cost basis in the Certificate. For Non-Qualified Certificates,
the cost basis is generally the amount of the Purchase Payments made for the
Certificate and the taxable portion of the surrender payment is taxed as
ordinary income. For Qualified Certificates, the cost basis is generally
zero and the taxable portion of the surrender payment is generally taxed as
ordinary income subject to special 5-year income averaging for lump-sum
distributions received before January 1, 2000. A Designated Beneficiary
receiving a lump sum surrender benefit after the death of the Annuitant or
Certificate Owner is taxed on the portion of the amount that exceeds the
Certificate Owner's cost basis in the Certificate. If the Designated
Beneficiary elects to receive annuity payments within 60 days of the
decedent's death, different tax rules apply. See "Annuity Payments" below.
For Non-Qualified Certificates, the tax treatment applicable to Designated
Beneficiaries may be contrasted with the income-tax-free treatment applicable
to persons inheriting and then selling mutual fund shares with a date-of-
death value in excess of their basis.
Partial withdrawals received under Non-Qualified Certificates prior to
annuitization are first included in gross income to the extent Certificate
Value exceeds Purchase Payments. Then, to the extent the Certificate Value
does not exceed Purchase Payments, such withdrawals are treated as a non-
taxable return of principal to the Certificate Owner. For partial
withdrawals under a Qualified Certificate, payments are treated first as a
non-taxable return of principal up to the cost basis and then a taxable
return of income. Since the cost basis of Qualified Certificates is generally
zero, partial surrender amounts will generally be fully taxed as ordinary
income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount assigned or pledged and thus
is subject to taxation under the rules applicable to partial withdrawals or
surrenders. A Certificate Owner who gives away the Certificate (i.e.,
transfers it without full and adequate consideration) to anyone other than
his or her spouse is treated for income tax purposes as if he or she had
fully surrendered the Certificate.
A special computational rule applies if Liberty Life issues to the
Certificate Owner, during any calendar year, (a) two or more Certificates or
(b) one or more Certificates and one or more of Liberty Life's other annuity
contracts. Under this rule, the amount of any distribution includable in the
Certificate Owner's gross income is to be determined under Section 72(e) of
the Code by treating all the Liberty Life contracts as one contract. Liberty
Life believes that this means the amount of any distribution under one
Certificate will be includable in gross income to the extent that at the time
of distribution the sum of the values for all the Certificates or contracts
exceeds the sum of the cost bases for all the contracts.
Annuity Payments. The non-taxable portion of each variable annuity payment
is determined by dividing the cost basis of the Certificate that is allocated
to variable payments by the total number of expected payments while the non-
taxable portion of each fixed annuity payment is determined by an "exclusion
ratio" formula which establishes the ratio that the cost basis of the
Certificate that is allocated to fixed payments bears to the total expected
value of annuity payments for the term of the annuity. The remaining portion
of each payment is taxable. Such taxable portion is taxed at ordinary income
rates. For Qualified Certificates, the cost basis is generally zero. With
annuity payments based on life contingencies, the payments will become fully
taxable once the payee lives longer than the life expectancy used to
calculate the non-taxable portion of the prior payments. Because variable
annuity payments can increase over time and because certain payment options
provide for a lump sum right of commutation, it is possible that the IRS
could determine that variable annuity payments should not be taxed as
described above but instead should be taxed as if they were received under an
agreement to pay interest. This determination would result in a higher
amount (up to 100%) of certain payments being taxable.
With respect to the "stabilizing" payment option available under Annuity
Option A, pursuant to which each annual payment is placed in Liberty Life's
general account and paid out with interest in twelve equal monthly payments,
it is possible the IRS could determine that receipt of the first monthly
payout of each annual payment is constructive receipt of the entire annual
payment. Thus, the total taxable amount for each annual payment would be
accelerated to the time of the first monthly payout and reported in the tax
year in which the first monthly payout is received.
Penalty Tax. Payments received by Certificate Owners, Annuitants, and
Designated Beneficiaries under Certificates may be subject to both ordinary
income taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on amounts received:
(a) after the taxpayer attains age 59 1/2; (b) in a series of substantially
equal payments made for life or life expectancy; (c) after the death of the
Certificate Owner (or, where the Certificate Owner is not a human being,
after the death of the Annuitant); (d) if the taxpayer becomes totally and
permanently disabled; or (e) under a Non-Qualified Certificate's annuity
payment option that provides for a series of substantially equal payments,
provided only one Purchase Payment is made to the Certificate, the
Certificate is not issued as a result of a Section 1035 exchange, and the
first annuity payment begins in the first Certificate Year.
Income Tax Withholding. Liberty Life is required to withhold federal income
taxes on taxable amounts paid under Certificates unless the recipient elects
not to have withholding apply. Liberty Life will notify recipients of their
right to elect not to have withholding apply.
Section 1035 Exchanges. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of
the Code. It is Liberty Life's understanding that in such an event: (a) the
new Certificate will be subject to the distribution-at-death rules described
in "Death Provisions for Non-Qualified Certificates"; (b) Purchase Payments
made between August 14, 1982 and January 18, 1985 and the income allocable to
them will, following an exchange, no longer be covered by a "grandfathered"
exception to the penalty tax for a distribution of income that is allocable
to an investment made over ten years prior to the distribution; and (c)
Purchase Payments made before August 14, 1982 and the income allocable to
them will, following an exchange, continue to receive the following
"grandfathered" tax treatment under prior law: (i) the penalty tax does not
apply to any distribution; (ii) partial withdrawals are treated first as a
non-taxable return of principal and then a taxable return of income; and
(iii) assignments are not treated as surrenders subject to taxation. Liberty
Life's understanding of the above is principally based on legislative reports
prepared by the Staff of the Congressional Joint Committee on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments
underlying variable annuity contracts (other than pension plan contracts).
The Eligible Funds are designed to be managed to meet the diversification
requirements for the Certificate as those requirements may change from time
to time. If the diversification requirements are not satisfied, the
Certificate would not be treated as an annuity contract. As a consequence to
the Certificate Owner, income earned on a Certificate (including previously
non-taxable income earned in prior years) would be taxable to the Certificate
Owner in the year in which diversification requirements were not satisfied.
As a further consequence, Liberty Life would be subjected to federal income
taxes on assets in the Variable Account.
The Secretary of the Treasury announced in September 1986 that he expects to
issue regulations which will prescribe the circumstances in which a
Certificate Owner's control of the investments of a segregated asset account
may cause the Certificate Owner, rather than the insurance company, to be
treated as the owner of the assets of the account. The regulations could
impose requirements that are not reflected in the Certificate. Liberty Life,
however, has reserved certain rights to alter the Certificate and investment
alternatives so as to comply with such regulations. Since the regulations
have not been issued, there can be no assurance as to the content of such
regulations or even whether application of the regulations will be
prospective. For these reasons, Certificate Owners are urged to consult with
their own tax advisers.
Qualified Plans
The Certificate is designed for use with Qualified Plans. The tax rules
applicable to participants in Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, no attempt
is made herein to provide more than general information about the use of the
Certificate with Qualified Plans. Participants under a Qualified Plan as
well as Certificate Owners, Annuitants, and Designated Beneficiaries are
cautioned that the rights of any person to any benefits under a Qualified
Plan may be subject to the terms and conditions of the plan regardless of the
terms and conditions of the Certificate issued in connection therewith.
Following is a brief description of the type of Qualified Plans offered and
of the use of the Certificate in connection therewith. Purchasers of the
Certificate should seek competent advice concerning the terms and conditions
of the particular Qualified Plan and use of the Certificate with that Plan.
Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity."
These Individual Retirement Annuities are subject to limitations on the
amount which may be contributed, the persons who may be eligible, and on the
time when distributions may commence. In addition, distributions from
certain types of Qualified Plans may be placed on a tax-deferred basis into
an Individual Retirement Annuity.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with its view of present applicable law, Liberty Life 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. Liberty Life will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has
received instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result Liberty Life determines that it is permitted to vote the shares
of the Eligible Funds in its own right, it may elect to do so.
The person having the voting interest under a Certificate prior to the Income
Date shall be the Certificate Owner. The number of shares held in each Sub-
Account which are attributable to each Certificate Owner is determined by
dividing the Certificate Owner's Variable Account Value in each Sub-Account
by the net asset value of the applicable share of the Eligible Fund. The
person having the voting interest after the Income Date under an annuity
payment option shall be the payee. The number of shares held in the Variable
Account which are attributable to each payee is determined by dividing the
reserve for the annuity payments by the net asset value of one share. During
the annuity payment period, the votes attributable to a payee decrease as the
reserves underlying the payments decrease.
The number of shares in which a person has a voting interest will be
determined as of the date coincident with the date established by the
respective Eligible Fund for determining shareholders eligible to vote at the
meeting of the Fund and voting instructions will be solicited by written
communication prior to such meeting in accordance with the procedures
established by the Eligible Fund.
Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting
instructions with respect to the proportion of the Eligible Fund shares held
in the Variable Account corresponding to his or her interest in the Variable
Account.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC") serves as the Principal Underwriter
for the Certificate described in this Prospectus. The Certificate will be
sold by salespersons who represent Liberty Life Assurance Company of Boston,
an affiliate of KFSC, as variable annuity agents and who are registered
representatives of broker/dealers who have entered into distribution
agreements with KFSC. KFSC is registered under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. It is located at 125 High Street, Boston, Massachusetts 02110.
Different Certificates may be sold (1) to a person who is an officer,
director, or employee of Liberty Life, or an affiliate of Liberty Life, a
trustee or officer of an Eligible Fund, or an employee or associated person
of an entity which has entered into a sales agreement with the Principal
Underwriter for the distribution of Certificates or (2) to any Qualified Plan
established for such a person. Such Certificates may be different from the
Certificates sold to others in that they are not subject to the deduction for
the Certificate Maintenance Charge.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the Principal
Underwriter are a party. Liberty Life is engaged in various kinds of routine
litigation which in its judgment is not of material importance in relation to
the total capital and surplus of Liberty Life.
INQUIRIES BY CERTIFICATE OWNERS
Certificate Owners with questions about their Certificates may either write
Liberty Life's Service Office, 125 High Street, Boston, MA 02110, or call
(800) 367-3653 or write Manning & Napier Insurance Fund, Inc. at P.O. Box
40610 Rochester, New York 14604 or call (800) 466-3863.
TABLE OF CONTENTS_STATEMENT OF ADDITIONAL INFORMATION
Page
Liberty Life Assurance Company of Boston 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-Account Payments 4
Safekeeping of Assets 4
Principal Underwriter 4
Experts 4
Investment Performance 5
Yields for Cash Income Fund (CIF) Sub-Account 6
Financial Statements 7
Liberty Life Assurance Company Of Boston 9
<PAGE>
APPENDIX A
TELEPHONE INSTRUCTIONS
Telephone Transfers of Certificate Values
1. If there are joint Certificate Owners, both must authorize Liberty Life
and Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund")
to accept telephone instructions but either Certificate Owner can give
telephone instructions.
2. All callers will be required to identify themselves. Liberty Life
reserves the right to refuse to act upon any telephone instructions in cases
where the caller has not sufficiently identified himself/herself to Liberty
Life's or Manning & Napier Insurance Fund's satisfaction.
3. Neither Liberty Life, Manning & Napier Insurance Fund, nor any person
acting on its behalf shall be subject to any claim, loss, liability, cost or
expense if it or such person acted in good faith upon a telephone
instruction, including one that is unauthorized or fraudulent; however,
Liberty Life and/or Manning & Napier Insurance Fund will employ reasonable
procedures to confirm that a telephone instruction is genuine and, if Liberty
Life and/or Manning & Napier Insurance Fund does not, Liberty Life and/or
Manning & Napier Insurance Fund may be liable for losses due to an
unauthorized or fraudulent instruction. The Certificate Owner thus bears the
risk that an unauthorized or fraudulent instruction that is executed may
cause the Certificate Value to be lower than it would be had no instruction
been executed.
4. All conversations will be recorded with disclosure at the time of the
call.
5. The application for the Certificate may allow a Certificate Owner to
create a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated as
durable in nature and shall not be affected by the subsequent incapacity,
disability or incompetency of the Certificate Owner. Either Liberty Life,
Manning & Napier Insurance Fund or the authorized person may cease to honor
the power by sending written notice to the Certificate Owner at the
Certificate Owner's last known address. Neither Liberty Life, Manning &
Napier Insurance Fund nor any person acting on its behalf shall be subject to
liability for any act executed in good faith reliance upon a power of
attorney.
6. Telephone authorization shall continue in force until (a) Liberty Life
and/or Manning & Napier Insurance Fund receives the Certificate Owner's
written revocation, (b) Liberty Life and/or Manning & Napier Insurance Fund
discontinues the privilege, or (c) Liberty Life and/or Manning & Napier
Insurance Fund receives written evidence that the Certificate Owner has
entered into a market timing or asset allocation agreement with an investment
adviser or with a broker/dealer.
7. Telephone transfer instructions received by Liberty Life at 800-367-3653
and/or Manning & Napier Insurance Fund at (800) 466-3863 before the close of
trading on the New York Stock Exchange (currently 4:00 P.M. Eastern Time)
will be initiated that day based on the unit value prices calculated at the
close of that day. Instructions received after the close of trading on the
NYSE will be initiated the following business day.
8. Once instructions are accepted by Liberty Life and/or Manning & Napier
Insurance Fund, they may not be canceled.
9. All transfers must be made in accordance with the terms of the
Certificate and current prospectus. If the transfer instructions are not in
good order, Liberty Life and/or Manning & Napier Insurance Fund will not
execute the transfer and will notify the caller within 48 hours.
10. If 100% of any Sub-Account's value is transferred and the allocation
formula for Purchase Payments includes that Sub-Account, then the allocation
formula for future Purchase Payments will change accordingly unless Liberty
Life receives telephone instructions to the contrary. For example, if the
allocation formula is 50% to Sub-Account A and 50% to Sub-Account B and all
of Sub-Account A's value is transferred to Sub-Account B, the allocation
formula will change to 100% to Sub-Account B unless Liberty Life is
instructed otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1-6 above are applicable.
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT J
OF
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON ("Liberty Life")
This Statement of Additional Information is not a prospectus but it relates
to, and should be read in conjunction with, the Manning & Napier variable
annuity prospectus dated July 11, 1997. The prospectus is available, at no
charge, by writing Keyport Financial Services Corp. at 125 High Street,
Boston, MA 02110 or by calling (800) 437-4466. It may also be obtained by
writing Manning & Napier Insurance Fund, Inc. at P.O. Box 40610, Rochester,
New York 14604, or by calling (800) 466-3868.
TABLE OF CONTENTS
Page
Liberty Life Assurance Company of Boston...................................2
Variable Annuity Benefits..................................................2
Variable Annuity Payment Values..........................................2
Re-Allocating Sub-Account Payments.......................................3
Safekeeping of Assets......................................................4
Principal Underwriter......................................................4
Experts....................................................................4
Investment Performance.....................................................4
Yields for Cash Income Fund (CIF) Sub-Account............................5
Financial Statements.......................................................6
Liberty Life Assurance Company of Boston.................................7
The date of this statement of additional information is July 11, 1997.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Liberty Mutual Insurance Company ("Liberty Mutual") and Liberty Mutual Fire
Insurance Company ("Liberty Mutual Fire") are the ultimate corporate parents
of Liberty Life. Liberty Mutual and Liberty Mutual Fire ultimately control
Liberty Life through the following intervening holding company subsidiary:
Liberty Mutual Property-Casualty Holding Corporation. Liberty Mutual
Insurance Company is a multi-line insurance company. For additional
information about Liberty Life, see page __ of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium
taxes and then dividing the remaining value of that Sub-Account by $1,000 and
multiplying the result by the greater of: (a) the applicable factor from the
Certificate's annuity table for the particular payment option; or (b) the
factor currently offered by Liberty Life 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, Liberty Life 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 Liberty Life first purchased Eligible Fund shares on behalf of the
Variable Account, Liberty Life 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),
Liberty Life calculates a net investment factor for each Sub-Account by
dividing (a) by (b), where:
(a) is equal to the net investment factor as defined in the
prospectus; and
(b) is the assumed investment factor for the current Valuation
Period. The assumed investment factor adjusts for the interest
assumed in determining the first variable annuity payment. Such
factor for any Valuation Period shall be the accumulated value, at
the end of such period, of $1.00 deposited at the beginning of such
period at the assumed annual investment rate (AIR). The AIR for
Annuity Units based on the Certificate's annuity tables is 5% per
year. An AIR of 3% per year is also currently available upon
Written Request.
With a particular AIR, payments after the first one will increase or decrease
from month to month based on whether the actual annualized investment return
of the selected Sub-Account(s) (after deducting the Mortality and Expense
Risk Charge) is better or worse than the assumed AIR percentage. If a given
amount of Sub-Account value is applied to a particular payment option, the
initial payment will be smaller if a 3% AIR is selected instead of a 5% 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%, 5%, 3%, or 0% between the time of the first and second
payments. With an actual 9% return, the 3% AIR and 5% AIR payments would
both increase in amount but the 3% AIR payment would increase by a larger
percentage. With an actual 5% return, the 3% AIR payment would increase in
amount while the 5% AIR payment would stay the same. With an actual return
of 3%, the 3% AIR payment would stay the same while the 5% AIR payment would
decrease in amount. Finally, with an actual return of 0%, the 3% AIR and 5%
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 5% 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 5% AIR payment amount but
eventually the 3% AIR payment amount will become larger than the 5% 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
Liberty Life to change the Sub-Account(s) used to determine the amount of
the variable annuity payments 1 time every 6 months. The payee's request
must specify the percentage of the annuity payment that is to be based on the
investment performance of each Sub-Account. The percentage for each Sub-
Account, if not zero, must be at least 10% and must be a whole number. At
the end of the Valuation Period during which Liberty Life receives the
request, Liberty Life 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.
SAFEKEEPING OF ASSETS
Liberty Life is responsible for the safekeeping of the assets of the Variable
Account.
Liberty Life has responsibility for providing all administration of the
Certificates and the Variable Account. This administration includes, but is
not limited to, preparation of the Contracts and Certificates, maintenance of
Certificate Owners' records, and all accounting, valuation, regulatory and
reporting requirements. Liberty Life has contracted with Keyport Life
Insurance Company, an affiliate, to provide all administration for the
Contracts and Certificates, as its agent. Keyport Life Insurance Company's
compensation is based on the number of Certificates and on the Certificate
Value of these Certificates.
PRINCIPAL UNDERWRITER
The Certificates, which are offered continuously, are distributed by Keyport
Financial Services Corp. ("KFSC"), which is an affiliate of Liberty Life.
EXPERTS
The financial statements of Liberty Life Assurance Company of Boston at
December 31, 1996, and for the year then ended appearing in this Statement of
Additional Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of Liberty Life Assurance Company of Boston as of
December 31, 1995 and for each of the years in the two-year period ended
December 31, 1995 have been included herein in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also be
compared to the performance of sub-accounts used with variable annuities
offered by other insurance companies. This comparative information may be
expressed as a ranking prepared by Financial Planning Resources, Inc. of
Miami, FL (The VARDS Report), Lipper Analytical Services, Inc., or by
Morningstar, Inc. of Chicago, IL (Morningstar's Variable Annuity Performance
Report), which are independent services that compare the performance of
variable annuity sub-accounts. The rankings are done on the basis of changes
in accumulation unit values over time and do not take into account any
charges (such as sales charges or administrative charges) that are deducted
directly from contract values.
Ibbotson Associates of Chicago, IL provides historical returns from 1926 on
capital markets in the United States. The Variable Account may quote the
performance of its Sub-Accounts in conjunction with the long-term performance
of capital markets in order to illustrate general long-term risk versus
reward investment scenarios. Capital markets tracked by Ibbotson Associates
include common stocks, small company stocks, long-term corporate bonds, long-
term government bonds, U.S. Treasury Bills, and the U.S. inflation rate.
Historical total returns are determined by Ibbotson Associates for: Large
Company Stocks, represented by the Standard and Poor's Composite Price Index
(an unmanaged weighted index of 90 stocks prior to March 1957 and 500 stocks
thereafter of industrial, transportation, utility and financial companies
widely regarded by investors as representative of the stock market); Small
Company Stocks, represented by the fifth capitalization quintile (i.e., the
ninth and tenth deciles) of stocks on the New York Stock Exchange for 1926-
1981 and by the performance of the Dimensional Fund Advisors Small Company
9/10 (for ninth and tenth deciles) Fund thereafter; Long Term Corporate
Bonds, represented beginning in 1969 by the Salomon Brothers Long-Term High-
Grade Corporate Bond Index, which is an unmanaged index of nearly all Aaa and
Aa rated bonds, represented for 1946-1968 by backdating the Salomon Brothers
Index using Salomon Brothers' monthly yield data with a methodology similar
to that used by Salomon Brothers in computing its Index, and represented for
1925-1945 through the use of the Standard and Poor's monthly High-Grade
Corporate Composite yield data, assuming a 4% coupon and a 20-year maturity;
Long-Term Government Bonds, measured each year using a portfolio containing
one U.S. government bond with a term of approximately twenty years and a
reasonably current coupon; U.S. Treasury Bills, measured by rolling over each
month a one-bill portfolio containing, at the beginning of each month, the
shortest-term bill having not less than one month to maturity; Inflation,
measured by the Consumer Price Index for all Urban Consumers, not seasonably
adjusted, since January, 1978 and by the Consumer Price Index before then.
The stock capital markets may be contrasted with the corporate bond and U.S.
government securities capital markets. Unlike an investment in stock, an
investment in a bond that is held to maturity provides a fixed rate of
return. Bonds have a senior priority to common stocks in the event the
issuer is liquidated and interest on bonds is generally paid by the issuer
before it makes any distributions to common stock owners. Bonds rated in the
two highest rating categories are considered high quality and present minimal
risk of default. An additional advantage of investing in U.S. government
bonds and Treasury bills is that they are backed by the full faith and credit
of the U.S. government and thus have virtually no risk of default. Although
government securities fluctuate in price, they are highly liquid.
Yields for Cash Income Fund (CIF) Sub-Account
Yield and effective yield percentages for the CIF Sub-Account are calculated
using the method prescribed by the Securities and Exchange Commission. Both
yields reflect the deduction of the annual 0.35% asset-based Certificate
charge. Both yields also reflect, on an allocated basis, the Certificate's
annual $35 Certificate Maintenance Charge. Both yields do not reflect
premium tax charges. The yields would be lower if these charges were
included. The following are the standardized formulas:
Yield equals: (A - B - 1) X 365
C 7
Effective Yield Equals: (A - B)365/7 - 1
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day
period. The assumed annual CIF charge is equal to the $35
Certificate charge multiplied by a fraction equal to the average
number of Certificates with CIF 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 CIF Accumulation Unit during the 7-day
period divided by the average Certificate Value in CIF 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 CIF Sub-Account will continue over an entire year. The
effective yield formula also annualizes seven days of net income but it
assumes that the net income is reinvested over the year. This compounding
effect causes effective yield to be higher than the yield.
FINANCIAL STATEMENTS
The Variable Account has not yet commenced operations and therefore no
financial statements are included. The financial statements of Liberty Life
are provided as relevant to its ability to meet its financial obligations
under the Certificates.
<PAGE>
Report of Independent Auditors
The Board of Directors
Liberty Life Assurance Company of Boston
We have audited the accompanying balance sheet of Liberty Life Assurance
Company of Boston (the Company) as of December 31, 1996, and the related
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Liberty Life Assurance
Company of Boston at December 31, 1996, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
February 28, 1997 /s/ Ernst & Young LLP
Boston, Massachusetts
<PAGE>
Independent Auditors' Report
The Board of Directors
Liberty Life Assurance Company of Boston:
We have audited the accompanying balance sheet of Liberty Life Assurance
Company of Boston as of December 31, 1995, and the related statements of
income, stockholders' equity, and cash flows for each of the years in the two-
year period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
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 Liberty Life Assurance
Company of Boston as of December 31, 1995 and the results of its operations
and its cash flows for each of the years in the two-year period then ended,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 16, 1996
<PAGE>
Liberty Life Assurance Company of Boston
Balance Sheets
December 31
1996 1995
(In Thousands)
Assets
Investments:
Fixed maturities, available for sale $1,737,187 $1,522,447
Equity securities, available for sale 4,122 4,191
Policy loans 45,345 40,672
Short-term investments 78,715 121,471
Other invested assets 38,281 32,339
Total investments 1,903,650 1,721,120
Cash and cash equivalents 34,372 64,801
Amounts recoverable from reinsurers 48,800 36,919
Premiums receivable 8,421 4,974
Investment income due and accrued 20,820 17,275
Deferred policy acquisition costs 77,424 62,762
Other assets 7,050 7,545
Assets held in separate accounts 1,097,040 899,519
Total assets $3,197,577 $2,814,915
Liabilities and Stockholders' Equity:
Liabilities:
Future Policy benefits $ 936,842 $ 809,042
Policyholders' and beneficiaries' funds 548,153 441,619
Policy and contract claims 30,394 19,344
Dividends to policyholders 12,919 12,309
Experience rating refund reserves 2,400 1,190
Liability for participating policies 68,504 65,256
Federal income taxes payable 542 -
Deferred federal income taxes 73,973 93,158
Due to Parent 8,907 9,334
Accrued expenses and other liabilities 117,144 191,894
Liabilities related to separate accounts 1,097,040 899,519
Total liabilities 2,896,818 2,542,665
Stockholders' equity:
Common stock, $312.50 par value; 8,000
shares authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 52,500 2,500
Net unrealized gains on investments,
net of federal income taxes of $43,793
and $66,391 81,330 122,875
Cumulative foreign currency translations,
net of federal income taxes of $612 and $515 1,139 957
Retained earnings 163,290 143,418
Total stockholders' equity 300,759 272,250
Total liabilities and stockholders' equity $3,197,577 $2,814,915
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Income
Year Ended December 31
1996 1995 1994
(In Thousands)
Revenues:
Premiums, net $283,965 $197,017 $130,606
Net investment income 122,527 108,721 97,022
Realized gains on investments 6,722 5,091 3,043
Contractholder charges and assessments 5,759 5,428 4,943
Other revenues 4,469 4,323 3,776
Total revenues 423,442 320,580 239,390
Benefits and expenses:
Death and other policy benefits 173,281 126,029 110,158
Recoveries from reinsurers on ceded claims (11,454) (10,489) (5,858)
Provision for future policy benefits and
other policy liabilities 121,347 88,903 41,609
Interest credited to policyholders 32,252 27,527 18,347
Change in deferred policy acquisition
costs (15,247) (11,101) (9,921)
General expenses 69,926 52,555 38,381
Insurance taxes and licenses 6,956 4,997 3,550
Dividends to policyholders 12,610 12,277 11,671
Total benefits and expenses 389,671 290,698 207,937
Income from continuing operations before
federal income taxes and earnings of
participating policies 33,771 29,882 31,453
Federal income taxes 10,327 10,782 11,003
Income from continuing operations before
earnings of participating policies 23,444 19,100 20,450
Earnings of participating policies net
of federal income tax benefit of $2,514
in 1996, $2,581 in 1995 and $835 in 1994 3,247 3,397 1,545
Income from continuing operations 20,197 15,703 18,905
Discontinued operations:
Loss from operations on discontinued
group health, net of federal income
(benefits) taxes of ($175) in 1996, ($1,236)
in 1995 and $100 in 1994 (325) (2,267) 24
Net income $ 19,872 $ 13,436 $ 18,929
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(In Thousands)
Net
Unrealized Cumulative
Additional Gains Foreign
Common Paid-In (Losses) on Currency Retained
Stock Capital Investments Translations Earnings Total
Balance at
January 1, 1994 $2,500 2,500 105,774 203 111,053 $222,030
Net income 18,929 18,929
Net unrealized
gains (losses) on
investments, net
of deferred
federal income
taxes of ($425) (93,500) (93,500)
Cumulative foreign
currency translations,
net of deferred
federal income taxes
of ($140) 260 260
Balance at
December 31, 1994 2,500 2,500 12,274 463 129,982 147,719
Net income 13,436 13,436
Net unrealized
gains (losses) on
investments, net
of deferred
federal income
taxes of ($59,758) 110,601 110,601
Cumulative foreign
currency translations,
net of deferred
federal income taxes
of ($267) 494 494
Balance at
December 31, 1995 2,500 2,500 122,875 957 143,418 272,250
Additional Paid-In
Capital 50,000 50,000
Net income 19,872 19,872
Net unrealized
gains (losses) on
investments, net
of deferred
federal income
taxes of $22,598 (41,545) (41,545)
Cumulative foreign
currency translations,
net of deferred federal
income taxes
of ($97) 182 182
Balance at
December 31, 1996 $2,500 52,500 81,330 1,139 163,290 $300,759
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Cash Flows
Years ended December 31
1996 1995 1994
(In Thousands)
Cash flows from operating activities:
Premiums collected $ 280,613 $ 197,607 $ 127,716
Investment income received 98,899 89,412 80,817
Other considerations received 10,331 9,421 22,599
Policyholder claims paid (124,297) (96,494) (123,676)
Surrender benefits paid (33,748) (5,927) (5,317)
Policyholder dividends paid (12,008) (11,685) (11,081)
General expenses paid (67,834) (56,736) (41,915)
Insurance taxes and licenses paid (3,959) (6,000) (6,346)
Federal income taxes paid, including
capital gains taxes (5,858) (12,878) (4,897)
Intercompany net receipts (426) 9,201 (16,620)
Other receipts (payments) 12,218 (2,782) (6,904)
Net cash flows provided by operating
activities 153,931 113,139 14,376
Cash flows from investing activities:
Proceeds from fixed maturities sold 128,493 41,763 66,835
Proceeds from fixed maturities matured 91,292 75,084 124,347
Cost of fixed maturities acquired (480,206) (224,725) (315,121)
Proceeds from equity securities sold 125,997 87,449 45,632
Cost of equity securities acquired (122,197) (86,390) (45,898)
Change in policy loans (4,673) (4,087) (3,827)
Investment cash in transit 126 (182) 34
Proceeds from short-term investments
sold or matured 833,144 485,257 902,371
Cost of short-term investments acquired (790,040) (566,870) (879,643)
Proceeds from other long-term investments
sold 5,997 4,320 2,657
Cost of other long-term investments
acquired (6,904) (13,427) (5,772)
Net cash used in investing activities (218,971) (201,808) (108,385)
Cash flows from financing activities:
Additional paid-in capital 50,000 - -
Policyholders' deposits on investment
contracts 139,579 62,019 124,565
Policyholders' withdrawals from
investment contracts (65,343) (62,314) (30,608)
Change in securities loaned (89,625) 148,710 93,957
Net cash provided by financing activities 34,611 148,415 (52)
Change in cash and cash equivalents (30,429) 59,746 5,107
Cash and cash equivalents,
beginning of year 64,801 5,055
Cash and cash equivalents, end of year $ 34,372 $ 64,801 $ 5,055
Reconciliation of net income to net cash
flows from operating activities:
Net income $ 19,872 $ 13,436 $ 18,929
Adjustments to reconcile net income to
net cash flows from operating
activities:
Realized capital gains on investments (6,722) (5,091) (3,211)
Accretion of bond discount (20,271) (17,822) (16,297)
Interest credited to policyholders 32,252 27,543 18,347
Changes in assets and liabilities:
Proceeds from securities loaned 89,625 (148,710) -
Amounts recoverable from reinsurers (11,881) 4,897 (16,735)
Premiums receivable (3,447) 413 (418)
Investment income due and accrued (3,545) (1,409) (1,336)
Deferred policy acquisition costs (15,247) (10,888) (9,921)
Other assets 495 1,354 (1,846)
Future policy benefits 127,800 88,924 45,660
Policy and contract claims 11,050 (1,523) (494)
Dividends to policyholders 610 567 590
Experience rating refund liabilities 1,210 (510) 550
Liability for participating policies 3,248 3,397 1,544
Federal income taxes payable 542 (5,830) 4,643
Deferred federal income taxes 3,805 3,235 1,563
Due to Parent (427) 9,201 (16,620)
Accrued expenses and other liabilities (75,038) 151,955 (5,454)
Net cash flows provided by
operating activities $ 153,931 $ 113,139 $ 14,376
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(In Thousands)
1. Nature of Operations and Significant Accounting Policies
Organization
Liberty Life Assurance Company of Boston ("The Company") is domiciled in the
Commonwealth of Massachusetts. The Company is directly owned 100% by Liberty
Mutual Property-Casualty Holding Corporation, a subsidiary directly owned 90%
by Liberty Mutual Insurance Company and 10% by Liberty Mutual Fire Insurance
Company ("Liberty Mutual").
The Company insures life, annuity and accident and health risks for groups
and individuals. The Company also issues structured settlement contracts and
administers separate account contracts. The Company is licensed and sells its
products in all 50 states, the District of Columbia, and Canada.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses during the
year. Actual amounts could subsequently differ from such estimates.
Investments
Fixed maturity and equity securities are classified as available for sale and
are carried at fair value. Unrealized gains and losses on fixed maturity and
equity securities are reported as a separate component of stockholders'
equity, net of applicable deferred income taxes.
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 adjustments are
included in investment income.
Short-term investments include investments with maturities of less than one
year at the date of acquisition.
Other invested assets, specifically investments in limited partnerships, are
accounted for using the equity method.
Policy loans are reported at unpaid loan balances.
Realized capital gains and losses are determined on the specific
identification basis.
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 underwriting, and variable agency
expenses. Acquisition costs related to traditional life insurance and certain
long-duration group accident and health insurance, to the extent recoverable
from future policy revenues, are deferred and amortized over the premium-
paying period of the related policies using assumptions consistent with those
used in computing policy benefit reserves. For universal life insurance and
investment products, to the extent recoverable from future gross profits,
deferred policy acquisition costs are amortized generally in proportion to
the present value of expected gross profits from surrender charges and
investment, mortality, and expense margins. Deferred policy acquisition costs
are adjusted for amounts relating to unrealized gains and losses on fixed
maturity and equity securities the Company has designated as available for
sale. This adjustment, net of tax, is included with the change in net
unrealized gains or losses that is credited or charged directly to
stockholders' equity. Deferred policy acquisition costs have decreased for
this adjustment by $585 and $2,834 at December 31, 1996 and 1995,
respectively.
The Company began deferring acquisition costs relating to group life and
disability insurance as of January 1, 1995. Costs relating to these policies
are amortized straight line over a five year period. Anticipated premium
revenue was estimated using the same assumptions which were used for
computing liabilities for future policy benefits.
Recognition of Traditional Life Premium Revenue and Related Expenses
Premiums on traditional life insurance policies are recognized as revenue
when due. Benefits and expenses are associated with premiums so as to result
in the recognition of profits over the life of the policies. This association
is accomplished by providing liabilities for future policy benefits and the
deferral and subsequent amortization of acquisition costs.
Recognition of Universal Life Revenue and Policy Account Balances
Revenues from universal life policies represent investment income from the
related invested assets and amounts assessed against policyholders. Included
in such assessments are mortality charges, surrender charges paid and
administrative fees. Policy account balances consist of consideration
received plus credited interest, less accumulated policyholder charges,
assessments and withdrawals. Credited interest rates were between 5.75% and
6.3% in 1996 and between 6.3% and 6.5% in 1995 and 1994.
Investment Contracts
The Company writes certain annuity and structured settlement contracts
without mortality risk which are accounted for as investment contracts.
Revenues for investment contracts consist of investment income from the
related invested assets, with profits recognized to the extent investment
income earned exceeds the amount credited to the contract. This method of
computing the liability for future policy benefits effectively results in
recognition of profits over the benefit period. Policy account balances
consist of consideration received plus credited interest less policyholder
withdrawals. Credited interest rates were between 5.35% and 7.05% in 1996,
between 5.6% and 7.25% in 1995, and between 5.0% and 5.25% in 1994 for
annuity contracts. Credited interest rates were between 6.2% and 11.4% in
1996, 1995 and 1994 for structured settlement contracts.
Future Policy Benefits
Liabilities for future policy benefits for traditional life policies have
been computed using the net level premium method based on estimated future
investment yield, mortality and withdrawal experience. Interest rate
assumptions were between 4.5% and 10.25% for all years of issue. Mortality
assumptions have been calculated principally on an experience multiple
applied to the 1955-60 and 1965-70 Select and Ultimate Basic Tables for
issued prior to 1986, the 1986 Bragg Non-Smoker/Smoker Select and Ultimate
Basic Tables for 1986 to 1992 issues, and the 1991 Bragg Non-Smoker/Smoker
Select and Ultimate Basic Tables for 1993 and subsequent issues. Withdrawal
assumptions are generally based on the Company's experience.
The liability for future policy benefits with respect to structured
settlement contracts with life contingencies and single premium group
annuities (group pension) is determined based on interest crediting rates
between 6.2% and 11.4%, and the mortality assumptions are based on the 1971
GAM and IAM tables.
Future policy benefits for long-term disability cases are computed using the
1987 Commissioners' Group Disability Table adjusted for the Company's
experience.
Policy and Contract Claims
Accident and health business policy and contract claims principally include
claims in course of settlement and claims incurred but not reported, which
are determined based on a formula derived as a result of the Company's past
experience. Claims liabilities may be more or less than the amounts paid when
the claims are ultimately settled. Such differences are considered changes in
estimates and are recorded in the statement of income in the year the claims
are settled.
Reinsurance
All assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis in the accompanying balance sheets. The
accompanying statements of operations reflect premiums, benefits and
settlement expenses net of reinsurance ceded.
Reinsurance premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for original policies issued and the terms of
the reinsurance contracts.
Federal Income Taxes
The Company has adopted the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes
the enactment date.
Participating Policies
Participating policies approximate 33% and 35% of life insurance in force at
December 31, 1996 and 1995, respectively, and 18% and 56% of individual life
insurance premium revenue in 1996 and 1995, respectively. Dividends to
participating policyholders are calculated as the sum of the difference
between the assumed mortality, interest and loading, and the actual
experience of the Company relating to participating policyholders. As a
result of statutory regulations, the major portion of earnings from
participating policies inures to the benefit of the participating
policyholders and is not available to stockholders. Undistributed earnings of
the participating block of business is represented by the liability for
participating policies in the accompanying balance sheets. The payment of
dividends to stockholders is further restricted by insurance laws of the
Commonwealth of Massachusetts.
Foreign Currency Translations
The Company enters into certain transactions that are denominated in a
currency other than the U.S. dollar. Functional currencies are assigned to
foreign currencies. The resulting translation adjustments from such
transactions are accumulated and then converted to U.S. dollars. The
unrealized gain or loss from this translation is recorded as a separate
component of stockholders' equity, net of deferred federal income taxes. The
translations are calculated using current exchange rates for the balance
sheet and average exchange rates for the statement of operations.
Separate Accounts
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
annuity contracts, and for which the contractholder, rather than Liberty Life
Assurance, bears the investment risk. Separate account contractholders have
no claim against the assets of the general account of Liberty Life Assurance.
Separate account assets are reported at market value. The operations of the
separate accounts are not included in the accompanying financial statements.
Fees charged on separate account policyholder deposits are included in other
income.
Reclassification
Certain 1995 balances have been reclassified to permit comparison with the
1996 presentation.
2. Investments
Fixed Maturities
The amortized cost, gross unrealized gains and losses, and fair value of
investments in fixed maturities are summarized as follows:
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S government
corporations and agencies $ 408,214 $ 86,080 $ (1,195) $ 493,099
Debt securities issued by
foreign governments 24,762 87 (256) 24,593
Corporate securities 614,901 29,667 (3,864) 640,704
U.S. government guaranteed
mortgage-backed securities 567,343 16,402 (4,954) 578,791
Total fixed maturities $1,615,220 $132,236 $(10,269) $1,737,187
At December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S government
corporations and agencies $ 380,296 $116,737 $ (37) $ 496,996
Debt securities issued by
foreign governments 19,651 1,839 (7) 21,483
Corporate securities 313,686 18,727 (2,797) 329,616
U.S. government guaranteed
mortgage-backed securities 621,282 53,523 (453) 674,352
Total fixed maturities $1,334,915 $190,826 $ (3,294) $1,522,447
The amortized cost and fair value of the Company's investment in fixed
maturities by contractual maturity is summarized as follows:
At December 31, 1996
Amortized Fair
Cost Value
Maturity in one year or less $ 29,651 $ 30,279
Maturity after one year through five years 169,258 172,798
Maturity after five years through ten years 313,404 335,973
Maturity after ten years 535,564 619,346
U.S. government guaranteed mortgage-
backed securities 567,343 578,791
Total fixed maturities $1,615,220 $1,737,187
The expected maturities in the foregoing table may differ from contractual
maturities because certain borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Gross gains of $1,462 and $811, and gross losses of $1,411, and $445 were
realized on the sales of fixed maturities respectively.
At December 31, 1996, bonds with an admitted asset value of $14,232 were on
deposit with state insurance departments to satisfy regulatory requirements.
Equity Securities and Other Invested Assets
Unrealized gains and losses on investments in equity securities, available
for sale and other invested assets are recorded in a separate component of
stockholders' equity and do not affect operations. The cost, gross unrealized
gains and losses on, and the fair value of, those investments are summarized
as follows:
At December 31, 1996
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 3,098 $ 1,241 $ (217) $ 4,122
Other invested assets 32,729 6,462 (910) 38,281
Total $35,827 $ 7,703 $(1,127) $42,403
At December 31, 1995
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 3,086 $ 1,105 -- $ 4,191
Other invested assets 28,874 4,045 $ (580) 32,339
Total $31,960 $ 5,150 $ (580) $36,530
Net Investment Income
Major categories of the Company's net investment income are summarized as
follows:
Year ended December 31
1996 1995 1994
Investment income:
Fixed maturities $118,365 $104,779 $ 95,837
Equity securities 83 214 22
Policy loans 2,672 2,397 2,111
Short-term investments and cash equivalents 1,633 2,034 1,711
Other invested assets 1,476 878 342
Gross investment income 124,229 110,302 100,023
Less: Investment expenses 1,702 1,581 1,942
Discontinued operations -- -- 1,059
Net investment income $122,527 $108,721 $ 97,022
Realized Capital Gains on Investments
Realized capital gains on investments were derived from the following
sources:
Year ended December 31
1996 1995 1994
Fixed maturities $ 61 $ 366 $ 1,752
Equity securities 3,812 3,441 434
Short-term investments -- -- (4)
Other invested assets 2,849 1,284 1,029
Less: Discontinued operations -- 168
Realized capital gains on investments $ 6,722 $ 5,091 $ 3,043
Concentration of Investments
There were no investments in a single entity's fixed maturities in excess of
ten percent of stockholders' equity at December 31, 1996 and 1995,
respectively.
3. Reinsurance
Certain premiums and benefits are assumed from and ceded to other insurance
companies under various reinsurance agreements. Reinsurance assumed is not
significant. The ceded reinsurance agreements provide the Company with
increased capacity to write larger risks and maintain its exposure to loss
within capital resources.
The Company generally reinsures risks on life insurance policies over two
hundred fifty thousand dollars as well as selected risks of lesser amounts.
Life insurance in force and premium information is summarized as follows:
Year ended December 31, 1996
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Life insurance in force $25,127,732 $64,767 $1,699,677 $23,492,822
Premiums:
Group life and disability $ 193,209 $ 55 10,070 183,194
Individual life and annuity 103,191 2,939 5,536 100,594
Group pension 177 - - 177
Total premiums $ 296,577 $ 2,994 $ 15,606 $ 283,965
Year ended December 31, 1995
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Life insurance in force $17,374,371 $56,753 $1,110,191 $16,320,933
Premiums:
Group life and disability $ 105,415 $ 68 $ 12,223 $ 93,260
Individual life and annuity 103,732 123 2,477 101,378
Group pension 2,379 - - 2,379
Total premiums $ 211,526 $ 191 $ 14,700 $ 197,017
Amounts payable or recoverable for reinsurance on policy and contract
liabilities are not subject to periodic or maximum limits. At December 31,
1996, the Company's reinsurance recoverables are not material and no
individual reinsurer owed the Company an amount that was equal to or greater
than 3% of the Company's surplus.
Amounts recoverable from reinsurers are presented as an asset in the
accompanying financial statements and are summarized as follows:
At December 31
1996 1995
Group life and health $ 25,952 $ 19,377
Individual life and annuity 22,848 17,542
Total amounts recoverable from reinsurers $ 48,800 $ 36,919
4. Federal Income Taxes
The Company is included in a consolidated federal income tax return with
Liberty Mutual and its other subsidiaries. Under a written tax sharing
agreement, approved by the Board of Directors, Liberty Mutual collects from
and refunds to the subsidiaries the amount of taxes or benefits determined as
if Liberty Mutual and the subsidiaries filed separate returns.
Federal income tax expense (benefit) attributable to income from operations
was composed of the following:
Year ended December 31
1996 1995 1994
Continuing operations:
Current $ 7,011 $ 7,848 $ 9,559
Deferred 3,316 2,934 1,444
Federal income tax (benefit) expense $10,327 10,782 $11,003
Year ended December 31
1996 1995 1994
Discontinued operations:
Current $ (175) $ (1,236) $ (19)
Deferred 0 0 119
Federal income tax (benefit) expense $ (175) $ (1,236) $ 100
A reconciliation of federal income tax expense as recorded in the statements
of income with expected federal income tax expense computed at the applicable
federal tax rate of 35% is summarized as follows:
Year ended December 31
1996 1995 1994
Expected income tax expense $ 11,820 $ 10,458 $11,009
Adjustments to income taxes resulting from:
Reconciliation of prior year tax return (1,226) 401 -
Other, net (267) (77) (6)
Federal income tax expense $ 10,327 $10,782 $11,003
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred liabilities are summarized as
follows:
Year ended December 31
1996 1995 1994
Deferred tax assets:
Dividends to policyholders $ 3,349 $ 3,230 $ 3,242
Experience rating reserves - 14 102
Unearned interest on policy loans 303 283 -
Unearned group premium adjustment 962 585 448
Accrued surrender charges on deposit funds 401 - -
1987 disability reserve tax adjustment - 215 334
Other 60 29 281
Total deferred tax assets 5,075 4,356 4,407
Deferred tax liabilities:
Future policy benefits (11,760) (11,181) (12,002)
Deferred acquisition costs (18,818) (16,201) (13,742)
Bonds purchased at market discount (2,273) (1,769) (1,509)
Bonds market valuation adjustment (41,493) (64,788) (5,916)
Unrealized gain on other long-term
investments (2,300) (1,603) (717)
Reconciliation of taxes on other long-term
investments (951) (829) (134)
Cumulative foreign currency translations (612) (515) (248)
Deferred and uncollected premium adjustment (653) (565) (337)
Experience rating reserves (133) 0 0
Other (55) (63) -
Total deferred tax liabilities $(79,048) $(97,514) $(34,605)
Net deferred tax liability $(73,973) $(93,158) $(30,198)
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets, and, therefore, no such
valuation allowance has been established.
Prior to 1984, a portion of the Company's income was not taxed, but was
accumulated in a "policyholders' surplus account". In the event that those
amounts are distributed to stockholders', or the balance of the account
exceeds certain limitations under the Internal Revenue Code, the excess
amounts would become taxable at current rates. The policyholders' surplus
account balance at December 31, 1996 was approximately $4,000. Management
does not intend to take actions nor does management expect any events to
occur that would cause federal income taxes to become payable on that amount.
However, if such taxes were assessed, the amount of taxes payable would be
approximately $1,400.
5. Unpaid Claims Liability for Group Accident and Health Business
The following table provides a reconciliation of the beginning and ending
balances of unpaid claim liabilities, net of reinsurance recoverables:
Year ended December 31
1996 1995
Unpaid claim liabilities, at beginning of year $ 102,089 $ 76,630
Less: reinsurance recoverables 203 444
Net balance at beginning of year 101,886 76,186
Claims incurred related to:
Current year 104,526 52,747
Prior years 18,176 6,813
Total incurred 122,702 59,560
Claims paid related to:
Current year 34,342 15,413
Prior years 27,449 18,447
Total paid 61,791 33,860
Net balance at end of year 162,797 101,886
Plus: reinsurance recoverables 238 203
Balance, Unpaid claim liabilities,at end of year $ 163,035 $ 102,089
During 1996, approximately $17,000 of long-term disability business was
accepted from unaffiliated companies through buyout contracts. In return for
future premiums, as underwritten by the Company, the Company accepted the
risk for covered lines under those contacts, including certain claims which
were already in payment status. These claims, which were incurred in 1995 or
earlier, were not included in the December 31, 1995 claim reserves and
liabilities but are included as prior years incurred claims at December 31,
1996. The claims incurred related to prior years increased by $6,813 in 1995
due to changes in estimates of prior year insured events.
6. Risk-Based Capital and Retained Earnings
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount
of capital and surplus maintained by a life insurance company is to be
determined based on the various risk factors related to it. At December 31,
1996, the Company meets the RBC requirements.
The payment of dividends by the Company to stockholders is limited and cannot
be made except from earned profits. The maximum amount of dividends that may
be paid by life insurance companies without prior approval of the
Commonwealth of Massachusetts Insurance Commissioner is subject to
restrictions relating to statutory surplus and net gain from operations.
According to a resolution voted by the Board of Directors of Liberty Life
Assurance, not more than the larger of 10% of statutory profits on
participating business or fifty cents per thousand dollars of participating
business in force in a given year may accrue to the benefit of stockholders.
The amount of statutory unassigned surplus (deficit) held for the benefit of
participating policyholders is $(1,245) and for the stockholders is $83,428
at December 31, 1996. Dividends paid to policyholders were $12,008 and there
were no dividends paid to stockholders in 1996.
7. Commitments and Contingencies
The Company is named as a defendant in various legal actions arising
principally from claims made under insurance policies and contracts. Those
actions are considered by the Company in estimating reserves for policy and
contract liabilities. The Company's management believes that the resolution
of those actions will not have a material effect on the Company's financial
position or results of operations.
The Company is subject to insurance guaranty fund laws in the states in which
it does business. These laws assess insurance companies amounts to be used to
pay benefits to policyholders and claimants of insolvent insurance companies.
Many states allow these assessments to be credited against future premium
taxes. At December 31, 1996 and 1995, the Company has accrued $888 and $842,
respectively, of premium tax deductions. The Company recognizes its
obligations for guaranty fund assessments when it receives notice that an
amount is payable to a guaranty fund. Expenses incurred for guaranty fund
assessments were $150 and $472 in 1996 and 1995, respectively.
8. Separate Accounts
Separate Accounts held by the Company represent primarily funds which are
administered for pension plans. The assets consist of common stock, long-term
bonds, real estate and short-term investments. Except for long-term bonds
which are carried at amortized cost, the assets are carried at estimated fair
value. Investment income and changes in asset values do not affect the
operating results of the Company. Separate Accounts business is maintained
independently from the general account of the Company. The Company provides
administrative services for these contracts. Fees earned by the Company
related to these contracts included in other considerations were $1,503 and
$1,434 for the years ended December 31, 1996 and 1995, respectively.
9. Employee Benefits
The Company shares personnel with Liberty Mutual which has a non-contributory
defined benefit pension plan covering employees who have attained age twenty-
one and have completed one year of service. Benefits are based on years of
service and the employee's "final average compensation" which is the
employee's average annual compensation for the highest five consecutive
calendar years during the ten years immediately preceding retirement. Liberty
Mutual's funding and accounting policies are to contribute annually the
maximum amount that can be deducted for federal income tax purposes and to
charge such contributions to expense in the year deductible for income tax
purposes. Liberty Mutual's pension cost charged to operations for the entire
plan in 1996 and 1995 was $15,541 and $26,432 respectively. The Company's
allocated pension cost in 1996 and 1995 was $395 and $628, respectively.
As of January 1, 1996 and 1995, the actuarial present value of accumulated
vested and nonvested benefits for the entire plan, based on a valuation
interest rate of 8% in 1996 and 1995, approximated $657,550 and $607,595,
respectively, and the net assets, at fair market value, available for plan
benefits approximated $994,643 and $776,859 in 1996 and 1995, respectively.
Assets of the plan consist primarily of investments in life insurance company
separate accounts and a collective investment trust fund. At January 1, 1996
and 1995, separate account investments of the Company, included in plan
assets at fair market value, amounted to approximately $696,384 and $521,220
respectively.
10. Postretirement Benefits
Liberty Mutual provides certain health care and life insurance benefits
("postretirement") for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age while working
for the Liberty Companies. Alternatively, retirees may elect certain prepaid
health care benefit plans. Life insurance benefits are based upon a
participant's final compensation subject to the plan maximum.
Liberty Mutual records the costs of its postretirement benefits by the
accrual accounting method and has elected to amortize its transition
obligation for retirees and fully eligible or vested employees over 20 years.
The unamortized transition obligation was $155,840 and $165,580 at December
31, 1996 and 1995, respectively.
Net postretirement benefit costs for Liberty Mutual were approximately
$26,239 in 1996 and $30,979 in 1995 and includes the expected cost of such
benefits for newly eligible or vested employees, interest cost, gains and
losses arising from differences between actuarial assumptions and actual
experience, and amortization of the transition obligation. Liberty Mutual
made payments of $13,000 in 1996 and $14,000 in 1995, as claims were
incurred.
At December 31, 1996 and December 31, 1995, the accrued unfunded
postretirement benefit obligation for Liberty Mutual's retirees and other
fully eligible plan participants was $59,023 and $45,848, respectively. The
accumulated benefit obligation for non-vested employees was $96,742 and
$86,357 at December 31, 1996 and 1995, respectively. The discount rates used
in determining the accumulated postretirement benefit obligation were 7.25%
and 7% in 1996 and 1995, respectively, and the health care cost trend rates
were 10.75% and 11.25%, graded to 5% over 10 years, in 1996 and 1995,
respectively.
The Company's share of postretirement benefit costs were approximately $236
and $282 for 1996 and 1995, respectively.
The health care cost trend rate assumption has a significant effect on the
amount reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation of the entire plan as of December 31, 1996 by
approximately $13,899, and the estimated eligibility cost and interest cost
components of net periodic postretirement benefit cost for 1996 by
approximately $1,699.
11. Related Party Transactions
Under a Service Agreement between the Company and Liberty Mutual, the latter
provides personnel, office space, equipment, computer processing and other
services. The Company reimburses Liberty Mutual for these services at cost,
and for any other special services supplied at the Company's request.
Substantially all of the Company's insurance expenses incurred in 1996 and
1995 related to this agreement.
The Company insures the group term life and disability risks for Liberty
Mutual employees. Premiums associated with these policies amounted to $13,903
and $14,755 in 1996 and 1995, respectively.
The Company insures key officers of Liberty Mutual Group under an Optional
Life Insurance Plan. Premiums associated with this plan amounted to $4,967
and $4,278 in 1996 and 1995, respectively.
Liberty Mutual purchased structured settlement annuity contracts, with and
without life contingencies, from the Company. Premiums under these contracts
amounted to $91,754 and $78,567 in 1996 and 1995, respectively. The related
policy and contract reserves with respect to all structured settlement
annuity contracts purchased by Liberty Mutual amounted to $441,220 and
$386,565 at December 31, 1996 and 1995, respectively.
Liberty Mutual deposited $16,107 and $2,761 with the Company in 1996 and
1995, respectively, to fund certain Liberty Mutual environmental claim
transactions. Such amounts have been included in deposit type fund revenues
for the years ended December 31, 1996 and 1995, as well as in the liability
for premium and other deposit funds.
In 1996, Keyport Life Insurance Company began ceding 100% of the premiums and
benefits of certain structured settlement annuity contracts, with and without
life contingencies, to the Company. Premiums under these contracts amounted
to $3,194 in 1996. The related policy and contract reserves with respect to
these structured settlement annuity contracts assumed by the Company amounted
to $2,601 at December 31, 1996.
12. Fair Value of Financial Instruments
Fair values generally represent quoted market value prices for securities
traded in the public marketplace, or analytically determined values using bid
or closing prices for securities not traded in the public marketplace.
The following methods and assumptions were used by the Company in estimating
the "fair value" disclosures for financial instruments in the accompanying
financial statements and notes thereto:
Fixed Maturities
Fair values for publicly traded fixed maturities are determined using values
reported by an independent pricing service. Fair values of private placement
fixed maturities are determined by obtaining market indications from various
broker-dealers.
Cash and Short-term Investments
The carrying amounts reported in the accompanying balance sheets for these
financial instruments approximate their fair values.
Policy Loans
The carrying amounts reported in the accompanying balance sheets for these
financial instruments approximate their fair values.
Investment Contracts
The fair values for the Company's liabilities under investment-type insurance
contracts are estimated using discounted cash flow calculations, based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Policy Account Balances
The fair values of the Company's liabilities for insurance contracts other
than investment-type contracts are not required to be disclosed. However, the
fair values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate risk, such
that the Company's exposure to changing interest rates is minimized through
the matching of investment maturities with amounts due under insurance
contracts.
The carrying amount and fair value of the Company's financial instruments are
summarized a follows:
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Fixed maturities $1,737,187 $1,737,187 $1,522,447 $1,522,447
Equity securities 4,122 4,122 4,191 4,191
Other invested assets 38,281 38,281 32,339 32,339
Policy loans 45,345 45,345 40,672 40,672
Short-term investments 78,715 78,715 121,471 121,471
Individual and group annuities 153,927 153,742 150,562 149,223
Other policyholder funds
left on deposit 8,009 8,009 7,527 7,527
13. Deferred Policy Acquisition Costs
Details with respect to deferred policy acquisition costs are summarized as
follows:
Year ended December 31
1996 1995
Balance, beginning of year $ 62,762 $ 54,283
Additions 16,114 14,143
Amortization (867) (2,830)
Valuation adjustment for unrealized
gain on fixed maturities (585) (2,834)
Balance, end of year $ 77,424 $ 62,762
14. Segment Information
Revenues and income from continuing operations before federal income taxes
and earnings of participating policies for each of the Company's segments are
summarized as follows:
Year ended December 31
1996 1995 1994
Revenues from continuing operations:
Group life and disability $203,911 $108,132 $ 84,872
Individual life and annuity 186,696 175,960 116,966
Group pension 32,835 36,488 37,552
Total revenues from continuing operations $423,442 $320,580 $239,390
Income from continuing operations before federal
income taxes and earnings from participating
policies:
Group life and disability $ 8,377 $ 5,723 $ 11,559
Individual life and annuity 24,319 22,444 18,284
Group pension 1,075 1,715 1,610
Total income from continuing operations
before federal income taxes and
earnings of participating policies $ 33,771 $ 29,882 $ 31,453
15. Reconciliation to Statutory-Basis Accounting
The Company is required to file statutory financial statements with state
insurance regulatory authorities. Accounting principles used to prepare
statutory financial statements differ from the financial statements reported
herein which are prepared on the basis of generally accepted accounting
principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included in
the accompanying financial statements are summarized as follows:
Year ended December 31
Net income: 1996 1995 1994
Statutory basis, net income $ 3,554 $ 6,952 $ 4,289
Increases/(decreases)
Deferred policy acquisition costs 15,247 11,101 9,921
Policy reserves 9,631 2,779 8,971
Participating policies (3,248) (3,397) (1,545)
Deferred federal income taxes (3,316) (2,934) (1,563)
Deferred premiums (1,859) (1,763) (1,644)
Interest maintenance reserve (526) (439) 687
Other 389 1,137 (187)
Net income as reported herein $ 19,872 $ 13,436 $ 18,929
Year ended December 31
Stockholders' equity: 1996 1995 1994
Statutory basis, capital and surplus $137,933 $ 84,441 $ 76,434
Increases/(decreases)
Deferred policy acquisition costs 77,424 65,597 54,283
Policy reserves 102,214 92,583 88,531
Participating policies (68,504) (65,256) (61,859)
Asset valuation reserve 11,773 9,372 6,969
Interest maintenance reserve 4,327 4,853 5,292
Deferred federal income taxes (73,973) (93,158) (30,198)
Deferred premiums (17,346) (15,487) (9,970)
Net unrealized gain on fixed maturities 121,967 184,696 17,077
Other 4,944 4,609 1,160
Stockholders' equity as reported herein $300,759 $272,250 $147,719
16. Discontinued Operations
On December 31, 1993, the Company discontinued its Group Medical insured and
administrative services line of business. Substantially all of the insured
operating assets and future policy liabilities, as of December 31, 1993, were
ceded to Liberty Mutual effective January 1, 1994, until the termination date
of the contracts. After termination there is no additional insurance risk
associated with this particular line of business and all insured operating
assets and future policy liabilities will be extinguished.
<PAGE
PART C
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Liberty Life Assurance Company of Boston:
Balance Sheets for the years ended December 31, 1996
and 1995.
Statements of Income for the years ended December
31, 1996, 1995. and 1994.
Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995.
Statements of Cash Flows for the years ended
December 31, 1996 and 1995.
Notes to Financial Statements
(b) Exhibits:
* (1) Resolution of the Board of Directors establishing
Variable Account J
(2) Not applicable
* (3a) Principal Underwriter's Agreement
* (3b) Specimen Agreement between Principal Underwriter and
Dealer
(3c) Manning & Napier Broker/Dealer's Agreement
* (4a) Form of Group Variable Annuity Contract of Liberty
Assurance Company of Boston
* (4b) Form of Variable Annuity Certificate of Liberty Life
Assurance Company of Boston
* (4c) Form of Tax-Sheltered Annuity Endorsement
* (4d) Form of Individual Retirement Annuity Endorsement
* (4e) Form of Corporate/Keogh 401(a) Plan Endorsement
* (4f) Form of Unisex Endorsement
(4g) Specimen Group Variable Annuity Contract of Liberty
Life Assurance Company of Boston (M&N)
(4h) Specimen Variable Annuity Certificate of Liberty
Life Assurance Company of Boston (M&N)
* (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 Liberty Life Assurance
Company of Boston
(6b) By-Laws of Liberty Life Assurance Company of Boston
(7) Not applicable
* (8a) Form of Participation Agreement
(8b) Participation Agreement Among Manning & Napier
Insurance Fund, Inc., Manning & Napier Investor Services,
Inc., Manning & Napier Advisors, Inc., and Liberty Life
Assurance Company of Boston
(8c) Participation Agreement By and Among Liberty Life Assurance
Company of Boston, SteinRoe Variable Investment Trust and
Keyport Financial Services Corp.
(9) Opinion and Consent of Counsel
(10) Consents of Independent Auditors
(11) Not applicable
(12) Not applicable
*** (13) Schedule for Computations of Performance Quotations
* (15) Chart of Affiliations
* (16) Powers of Attorney
* (17) Specimen Tax-Sheltered Annuity Acknowledgement
* (18) Administrative Services Agreement
(27) Financial Data Schedule
* Incorporated by reference to Registration Statement (File No. 333-29811;
811-08269) filed on or about June 18, 1997.
** Incorporated by Reference to the Registration Statement on Form N-4
(Files No. 33-41122; 811-6329) filed on or about June 12, 1991.
*** To be Filed by Amendment.
Item 25. Officers and Directors of the Depositor.
Name and
Business Address* Position and Offices with Depositor
Gary L. Countryman Chairman of the Board & Chief Exec. Officer
Edmund F. Kelly President and CAO
Morton E. Spitzer Exec. VP and COO-Individual
Jean M. Scarrow Exec. VP and COO-Group
J. Phillip Bruen Vice President
Edwin J. Campbell Vice President
J. Paul Condrin, III Vice President
A. Alexander Fontanes Vice President
Andrew M. Girdwood, Jr. Vice President
Richard W. Hadley Vice President
Elizabeth P. Jefferson Vice President
Richard B. Lassow Vice President
Merrill J. Mack Vice President
Douglas T. Maines Vice President
John S. O'Donnell Vice President
Gerard A. Paolino Vice President
Steven M. Sentler Vice President
John A. Tymochko Vice President
Barry S. Gilvar Secretary
Elliot J. Williams Treasurer
Gerald H. Dolan Assistant Treasurer
Bernard Gillen Assistant Treasurer
James W. Jakobek Assistant Treasurer
Diane S. Bainton Assistant Secretary
Katherine Desiderio Assistant Secretary
Christine T. Devine Assistant Secretary
James R. Pugh Assistant Secretary
Directors
John B. Conners J. Paul Condrin, III Morton E. Spitzer
Gary L. Countryman Edmund F. Kelly Jean M. Scarrow
A. Alexander Fontanes Christopher C. Mansfield
*175 Berkeley Street, Boston, Massachusetts 02117, unless noted otherwise
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor controls the Registrant, and is an affiliate of Keyport
Financial Services Corp. (KFSC), a Massachusetts corporation functioning
as a broker/dealer of securities. KFSC files separate financial
statements. Both are ultimately owned by Liberty Mutual Insurance
Company.
The Depositor is an affiliate of Keyport Advisory Services Corp. (KASC),
a Massachusetts corporation functioning as an investment adviser. KASC
files separate financial statements and is ultimately owned by Liberty
Mutual Insurance Company.
Chart for the affiliations of the Depositor is Exhibit 15.
Item 27. Number of Contract Owners.
None
Item 28. Indemnification.
Directors and officers of the Depositor and the principal
underwriter are covered persons under Directors and Officers/Errors and
Omissions liability insurance policies. 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. (KFSC) is principal underwriter of
the SteinRoe Variable Investment Trust and the Keyport Variable Investment
Trust, which offer eligible funds for variable annuity and variable life
insurance contracts. KFSC is also principal underwriter for Variable
Account K of Liberty Life Assurance Company of Boston and for the KMA
Variable Account, Variable Account A and Keyport Variable Account-I of
Keyport Life Insurance Company and for the Independence Variable Annuity
Account and Independence Variable Life Account of Independence Life and
Annuity Company, both are affiliated companies of Liberty Life.
The directors and officers are:
Name and Principal Position and Offices
Business Address* with Underwriter
John W. Rosensteel Chairman of the Board and President
John E. Arant III Director and Vice President and Sales Officer
William L. Dixon Vice President-Compliance Officer
Francis E. Reinhart Director and Vice President-Administration
Rogelio P. Japlit Treasurer
James J. Klopper Clerk
Donald A. Truman Assistant Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
Liberty Life Assurance Company of Boston, 175 Berkeley St., Boston, MA
02117
Keyport Life Insurance Company, 125 High St., Boston, MA 02110
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The 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.
The 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.
The 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.
Registrant represents that it is relying on the November 28, 1988 no-
action letter (Ref. No. IP-6-88) relating to variable annuity contracts
offered as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code. Registrant further represents
that it has complied with the provisions of paragraphs (1) - (4) of that
letter. Specimen of acknowledgement form used to comply with paragraph (4)
is incorporated by reference to the Registration Statement Form N-4 (Files
No. 333-29811; 811-08269) filed on or about June 18, 1997.
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.
<PAGE>
SIGNATURES
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it has duly caused this Registration
Statement to be signed on its behalf, in the City of Boston and Commonwealth
of Massachusetts, on this 27th day of June, l997.
Variable Account J
(Registrant)
BY: Liberty Life Assurance Company of Boston
(Depositor)
BY: /s/Elliot J. WIlliams
Elliot J. Williams, Treasurer
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
/s/GARY L. COUNTRYMAN* /s/EDMUND F. KELLY*
GARY L. COUNTRYMAN EDMUND F. KELLY
Chairman of the Board President
/s/J. PAUL CONDRIN,III* /s/ELLIOT J. WILLIAMS 6/27/97
J. PAUL CONDRIN, III ELLIOT J. WILLIAMS Date
Director Treasurer
/s/JOHN B. CONNERS*
JOHN B. CONNERS
Director
/s/A. ALEXANDER FONTANES*
A. ALEXANDER FONTANES
Director
/s/EDMUND F. KELLY
EDMUND F. KELLY
Director
/s/CHRISTOPHER C. MANSFIELD*
CHRISTOPHER C. MANSFIELD
Director
*BY: /s/ELLIOT J. WILLIAMS 6/27/97
/s/JEAN M. SCARROW* Elliot J. Williams Date
JEAN M. SCARROW Attorney-in-Fact
Director
/s/MORTON E. SPITZER*
MORTON E. SPITZER
Director
*Elliot J. Williams has signed this document on the indicated date on behalf
of each of the above Directors and Officers of the Depositor pursuant to
powers of attorney duly executed by such persons and included herein as
Exhibit 16 in the Registration Statement (Files No. 333-29811; 811-08269)
filed on or about June 18, 1997.
<APEG>
EXHIBIT INDEX
Exhibit Page
(3c) Manning & Napier Broker/Dealer's Agreement
(4g) Specimen Group Variable Annuity Contract of Liberty Life
Assurance Company of Boston (M&N)
(4h) Specimen Variable Annuity Certificate of Liberty Life Assurance
Company of Boston (M&N)
(8b) Participation Agreement Among Manning & Napier Insurance Fund,
Inc., Manning & Napier Investor Services, Inc., Manning &
Napier Advisors, Inc., and Liberty Life Assurance Company of
Boston
(8c) Participation Agreement By and Among Liberty Life Assurance
Company of Boston, SteinRoe Variable Investment Trust and
Keyport Financial Services Corp.
(9) Opinion and Consent of Counsel
(10) Consents of Independent Auditors
(27) Financial Data Schedule
<PAGE>
EXHIBIT 3(c)
<PAGE>
MANNING & NAPIER
BROKER/DEALER'S
AGREEMENT
Liberty Life Assurance Company of Boston ("Liberty Life"), Keyport Financial
Services Corp. ("KFSC") and Manning & Napier Investor Services, Inc. ("M&N")
hereby agree as follows:
1. KFSC is a principal underwriter for variable annuity contracts issued by
Liberty Life pursuant to separate accounts of Liberty Life and for other
contracts issued by Liberty Life that are subject to registration under
the Securities Act of 1933.
2. M&N desires to enter into a distribution agreement with KFSC and to have
its registered representatives appointed as agents of Liberty Life for
the purpose of selling the contract(s) (hereafter "Contracts").
3. M&N certifies that it is a registered broker-dealer under the Securities
Exchange Act of 1934 and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"). M&N agrees to
abide by all rules and regulations of the NASD and to comply with all
applicable state and federal laws and the rules and regulations of
authorized regulatory agencies affecting the sale of the Contracts.
4. M&N will select persons associated with it who are to be appointed as
agents of Liberty Life to solicit applications for the Contracts in
conformance with applicable state and federal laws. No agent will be
permitted to solicit for sales of the Contracts in New York or in any
other state where Liberty Life is not authorized to sell such Contracts
and Liberty Life so notifies M&N. Liberty Life will notify M&N in
writing of all jurisdictions in which the Contracts may be sold.
5. All solicitations for the Contracts will be made only by and
compensation, if any, for the solicitation of the Contracts shall be
paid only to duly authorized agents who possess the required licenses
and appointments. Continued solicitation for the Contracts shall be
contingent upon the continued qualification of such agents by
possession of the required licenses and appointments.
6. M&N shall have the responsibility to supervise all agents appointed
under this Agreement and shall indemnify and hold harmless the separate
accounts, the eligible mutual funds and their directors and trustees,
KFSC, and Liberty Life from any damage or expenses on account of any
wrongful act by M&N, its representatives, and agents in connection with
the solicitation of Contracts. Liberty Life and KFSC shall indemnify
and hold harmless M&N from any damages or expenses on account of any
wrongful act by Liberty Life or KFSC.
7. M&N shall review all applications for the Contracts, accept them on
M&N's behalf, and promptly forward them to Liberty Life (at the address
shown on the then current prospectus for the Contracts) together with
any purchase payments received with such applications without deduction
for any compensation. Liberty Life has the right to reject any
application for a Contract and return any purchase payment made in
connection therewith. M&N shall be free to exercise its own judgment in
selling Contracts, including the choice of time, place and manner of
sale, and shall have no obligation to sell Contracts and failure to sell
Contracts shall not be a breach of this Agreement.
8. M&N will offer and sell the Contracts only in accordance with the terms
and conditions of the then current prospectuses applicable to the
Contracts and the eligible mutual funds and will make no
representations not included in the prospectuses or in any authorized
supplemental material approved by KFSC and Liberty Life. M&N shall not
use or permit to be used supplemental material or advertising media with
regard to the Contracts other than with the prior written approval of
KFSC and Liberty Life.
9. M&N is performing the acts covered by this Agreement in the capacity of
independent contractor and not as an agent or employee of either KFSC
or Liberty Life. Neither KFSC nor Liberty Life shall be liable for any
obligation, act or omission of M&N.
10. M&N shall be paid by Liberty Life (on behalf of KFSC) compensation for
the sale of Contracts as set forth in the attached Compensation
Schedule(s). Liberty Life has the right to charge back any such
compensation under the conditions stated in such Schedule(s). Any
Compensation Schedule can be changed by KFSC and Liberty Life as of a
specified date, provided such date is at least 10 days after the date
the change is mailed to M&N's last known address. Any such change will
apply only to purchase payments received by Liberty Life after the
effective date of the change.
11. This Agreement shall take effect as of the date it is signed by Liberty
Life, which date is shown below. It shall continue in force from year
to year unless it is terminated. This Agreement may be terminated for
any reason by any party; such termination will become effective 60 days
after the mailing of a notice of termination to the other parties last
known address. This Agreement may be terminated by KFSC or Liberty Life
for cause (i.e. M&N's violation of any of the terms of this Agreement);
such termination will become effective on the 10th day after the mailing
of a notice of termination to the M&N's last known address if M&N has
not cured the cause by such day. Failure of KFSC or Liberty Life to
terminate this Agreement upon knowledge of a cause shall not constitute
a waiver of the right to terminate at a later time for such cause
provided such cause has not been cured in the interim. This Agreement
shall immediately terminate automatically if M&N shall cease to be a
member of the NASD or to possess the requisite licenses and
appointments, and M&N agrees to immediately notify KFSC and Liberty Life
of such an occurrence. No provisions of this Agreement other than
numbers 6, 9, 10 and 12 shall continue in force after any termination.
12. This Agreement may not be assigned by either party except with the
written consent of the non-assigning party. This Agreement shall be
construed in accordance with the laws of the Commonwealth of
Massachusetts.
Keyport Financial Services Corp. Manning & Napier Investor Services, Inc.
(Name of Broker/Dealer)
BY: ______________________________ BY: ______________________________
(Signature of Authorized Person)
TITLE:____________________________ TITLE:_______________________________
DATE:_____________________________ DATE:_______________________________
Liberty Life Assurance Company of Boston
BY:_______________________________
TITLE:____________________________
DATE:_____________________________
<PAGE>
COMPENSATION SCHEDULE
M&N VA (FORM #DVA(1)NY)
M&N shall be paid 0.0 (zero) percent of each purchase payment received
and accepted by Liberty Life under a M&N Variable Annuity Contract for which
the application was solicited by a representative of M&N.
<PAGE>
EXHIBIT 4(g)
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Read this Contract carefully. This document is a description of the
legal contract between the Group Contract Owner and Us.
A Certificate Owner may return a Certificate to Us within 10 days after
receipt by delivering or mailing it to Our Office. The return of the
Certificate by mail will be effective when the postmark is affixed to a
properly addressed and postage prepaid envelope. This returned Certificate
will be treated as if We never issued it and We will refund the Certificate
Value plus any amount deducted from the purchase payment before it was
allocated to the Variable Account. The Certificate Value will be determined
as of the date of surrender (i.e., for a mailed contract, the postmark date).
The Group Contract, as issued to the Group Contract Owner by Us with any
riders or endorsements, alone makes up the agreement under which benefits are
paid. The Group Contract may be inspected at the office of the Group
Contract Owner. In consideration of any application for a Certificate and
the payment of purchase payments, We agree, subject to the terms and
conditions of the Group Contract, to provide the benefits described in the
Certificate to the Certificate Owner. If a Certificate is In Force on the
Income Date, We will begin making income payments to the Annuitant. We will
make such payments according to the terms of the Certificate and Group
Contract.
Signed for the Company on the Issue Date at Our Home Office, 175
Berkeley Street, Boston, Massachusetts 02117:
_________________________ _________________________
Secretary President
POLICY DESCRIPTION
This is a GROUP VARIABLE ANNUITY CONTRACT with limited purchase payment
flexibility. This contract is nonparticipating with no dividends.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT. VARIABLE ANNUITY PAYMENTS WILL NOT DECREASE
OVER TIME IF THE SEPARATE ACCOUNT (AFTER DEDUCTION OF THE ANNUAL [1.55%]
ASSET CHARGE) HAS AN ANNUALIZED INVESTMENT RETURN OF AT LEAST 5.0%. SEE PAGES
12-13 AND 19 FOR FURTHER EXPLANATION. CONTRACT ASSETS ALLOCATED TO THE
SEPARATE ACCOUNT INCUR CHARGES OF [1.55%] BEFORE ANNUITY PAYMENTS BEGIN AND
[1.40%] ONCE ANNUITY PAYMENTS BEGIN. INCOME, CAPITAL GAINS, AND/OR LOSSES
WHETHER OR NOT REALIZED, FROM ASSETS ALLOCATED TO THE SEPARATE ACCOUNT ARE
CREDITED TO OR CHARGED AGAINST THE SEPARATE ACCOUNT WITHOUT REGARD TO INCOME,
CAPITAL GAINS, AND/OR LOSSES ARISING OUT OF ANY OTHER BUSINESS THE COMPANY
MAY CONDUCT.
Table of Contents
Page
Right to Examine Certificate 1
Definitions 2
Contract Schedule 3
General Provisions 5
Variable Account Provisions 10
Transfers 13
Partial Withdrawals and Total Surrender 14
Death Provisions 15
Annuity Provisions 16
Endorsements (if any) are before page 22
Definitions
Accumulation Period: The period prior to the Income Date during which
Purchase Payments may be made by a Certificate Owner.
Accumulation Unit: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
Adjusted Certificate Value: The Certificate Value less any applicable taxes
relating to a Certificate and Certificate Maintenance Charge. This amount is
applied to the applicable Annuity Tables to determine Annuity Payments.
Annuitant: The natural person on whose life Annuity Payments are based, and
to whom any Annuity Payments will be made starting on the Income Date.
Annuity Options: Options available for Annuity Payments.
Annuity Payments: The series of payments made to the Annuitant, starting on
the Income Date, under the Annuity Option selected.
Annuity Period: The period after the Income Date during which Annuity
Payments are made.
Annuity Unit: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
Beneficiary: The person(s) or entity(ies) who controls the Certificate if
any Certificate Owner dies before the Income Date.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
125 High Street, Boston, MA 02110
Service Office
125 High Street, 11th Floor
Boston, MA 02110
Contract Schedule
GROUP CONTRACT OWNER Liberty Insurance Trust
GROUP CONTRACT NUMBER DVA001NY
GROUP CONTRACT ISSUE DATE 00/00/97
MINIMUM INITIAL PAYMENT $5,000
MINIMUM ADDITIONAL PAYMENT $1,000
Charges
Distribution Charge - None
Administrative Charge - None
Mortality and Expense Risk Charge - We deduct 0.000957% of the assets in each
Variable Account Sub-account on a daily basis (equivalent to an annual rate
of .35%) for Our mortality and expense risks.
Certificate Maintenance Charge - We charge $35 to cover a portion of Our
ongoing Certificate maintenance expenses. The charge is incurred at the
beginning of the Certificate Year and is deducted on each Certificate
Anniversary and at the time of total surrender.
Transfer Charge - Currently none, however, We reserve the right to charge $25
for a transfer if a Certificate Owner makes more than 12 transfers per
Certificate Year.
Surrender Charge - None
Initial Purchase Payment Allocation
Currently, Certificate Owners can select 7 Sub-accounts. We reserve the
right to increase or decrease the number of available Sub-accounts. The
minimum a Certificate Owner may allocate to any Sub-account is 10% of any
Purchase Payment. An initial Purchase Payment may be invested as follows:
Manning & Napier Moderate Growth
Manning & Napier Growth
Manning & Napier Maximum Horizon
Manning & Napier Equity
Manning & Napier Small Cap
Manning & Napier Bond
SteinRoe Cash Income Fund
Transfer Guidelines
Number of Transfers and Transfer Charge: Currently, Certificate Owners are
permitted 12 transfers per Certificate Year during the Accumulation Period
and 1 transfer every 6 months during the Annuity Period. We reserve the
right to change, upon notice, the frequency of transfers a Certificate Owner
can make. We also reserve the right to impose a charge for any transfer in
excess of 12 per Certificate Year. The transfer charge is shown in the
Charges section of the Schedule.
Minimum amount to be transferred: None
Minimum amount which must remain in a Sub-account after transfer: None
Partial Withdrawals
A Certificate Owner may make partial withdrawals during the Accumulation
Period without incurring a Surrender Charge.
Minimum withdrawal amount: $300, unless the withdrawal is made pursuant to
Our Systematic Withdrawal Program described below, in which case the minimum
withdrawal is $100.
Minimum Certificate Value which must remain after a partial withdrawal:
$2,500.
Death Benefits
Adjustment of Certificate Value
When We receive due proof of death of the Certificate Owner, or the Annuitant
if the Certificate Owner is a non-natural Person, We will compare, as of the
date of death, the Certificate Value to the Death Benefit amount defined in
the Certificate Schedule. If the Certificate Value is less than the Death
Benefit, We will increase the current Certificate Value by the amount of the
difference. Any amount credited will be allocated to the Variable Account
based on the Purchase Payment allocation selection that is in effect when We
receive due proof of death.
Death Benefit Amount
A Certificate Schedule will contain the following Death Benefit provisions.
Purchase Payment Death Benefit
On the Certificate Date the Death Benefit is the initial Purchase Payment.
On subsequent Valuation Dates, the Death Benefit is calculated as follows:
(1) Start with the Death Benefit from the prior Valuation Date;
(2) Add to (1) any additional Purchase Payments paid during the current
Valuation Period and subtract from (1) any partial withdrawals
(including any associated Surrender Charge incurred) made during the
current Valuation Period.
The Variable Separate Account[s]
Sub-accounts investing in shares of mutual funds
Variable Account J is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Massachusetts, Our
state of domicile. Variable Account J is divided into Sub-accounts. Each
Sub-account listed below invests in shares of the corresponding Portfolio of
the Eligible Fund shown.
Sub-account Eligible Fund and Portfolio
Manning & Napier Insurance Fund, Inc.
Moderate Growth Manning & Napier Moderate Growth Portfolio
Sub-account seeks with equal emphasis long-term growth and
preservation of capital.
Growth Sub-account Manning & Napier Growth Portfolio -
seeks long-term growth of
capital. The secondary objective is the
preservation of capital.
Maximum Horizon Manning & Napier Maximum Horizon Portfolio -
Sub-account seeks to achieve the high level
of long-term capital growth typically
associated with the stock market.
Equity Sub-account Manning & Napier Equity Portfolio- seeks long-
term growth of capital.
Small Cap Sub-account Manning & Napier Small Cap Portfolio - seeks to
achieve long term growth of
capital by investing principally in the equity
securities of small issuers.
Bond Sub-account Manning & Napier Bond Portfolio -
seeks to maximize total return in the form of
both income and capital appreciation by
investing in fixed income securities without
regard to maturity.
SteinRoe Variable Investment Trust
SteinRoe Cash Income Cash Income Fund - seeks high current income
Sub-account from short-term money market instruments
("Money Market" Sub-account) while emphasizing preservation of capital and
maintaining excellent liquidity.
The Fixed Account - None
Definitions (continued)
Certificate: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract.
Certificate Anniversary: An anniversary of the Certificate Date.
Certificate Date: The date a Certificate is issued to a Certificate Owner.
The Certificate Date is shown on the Certificate Schedule.
Certificate Owner: The person who owns a Certificate under the Group
Contract. Any Joint Certificate Owners and the Certificate Owner own the
Certificate equally with rights of survivorship. All Owners must exercise
ownership rights and privileges together, including the signing of Written
Requests.
Certificate Value: The sum of the Certificate Owner's interest in the Sub-
accounts of the Variable Account and the Fixed Account during the
Accumulation Period.
Certificate Year: The first Certificate Year is the annual period which
begins on the Certificate Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
Eligible Fund: An investment entity shown on the Certificate Schedule.
Fixed Account: The account We establish to support Fixed Allocations. The
Contract Schedule shows whether the Fixed Account is available under the
Certificates.
Fixed Account Value: The value of all Fixed Account amounts accumulated
under a Certificate prior to the Income Date.
Fixed Allocation: An amount allocated to the Fixed Account that is credited
with a Guaranteed Interest Rate for a specified Guarantee Period.
Fixed Annuity: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
General Account: Our general investment account which contains all of Our
assets except those in the Variable Account and Our other separate accounts.
Group Contract Owner: The person or entity to which the Group Contract is
issued.
Guaranteed Interest Rate: The effective annual interest rate which We will
credit for a specified Guarantee Period.
Guarantee Period: The period of year(s) a rate of interest is guaranteed to
be credited within the Fixed Account.
Income Date: The date on which Annuity Payments begin. The Income Date is
shown on the Certificate Schedule.
In Force: The status of a Certificate before the Income Date so long as it
has not been totally surrendered and there has not been a death of a
Certificate Owner or Joint Certificate Owner that will cause the Certificate
to end within five years of the date of death.
Office: Our service office shown on the Certificate Schedule.
Person: A human being, trust, corporation, or any other legally recognized
entity.
Portfolio: A series of an Eligible Fund which constitutes a separate and
distinct class of shares.
Purchase Payment: A payment made by or on behalf of a Certificate Owner with
respect to a Certificate.
Sub-account: Variable Account assets are divided into Sub-accounts. Assets
of each Sub-account will be invested in shares of a Portfolio of an Eligible
Fund, or directly in portfolio securities.
Valuation Date: Each day on which We and the New York Stock Exchange
("NYSE") are open for business, or any other day that the Securities and
Exchange Commission requires that mutual funds, unit investment trusts or
other investment portfolios be valued.
Valuation Period: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business on the
next succeeding Valuation Date.
Variable Account: Our Variable Account(s) shown on the Certificate Schedule.
Variable Annuity: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-accounts of the
Variable Account.
We, Us, Our: Liberty Life Assurance Company of Boston.
Written Request: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
General Provisions
Purchase Payments
The initial Purchase Payment is due on the Certificate Date. It must be paid
at Our Office in United States currency. Coverage under a Certificate does
not take effect until We have accepted the initial Purchase Payment during a
Certificate Owner's lifetime. Each Purchase Payment after the Certificate
Date must be at least the amount shown on the Certificate Schedule. Provided
the Certificate Value under a Certificate does not go to zero, a Certificate
will stay in force until the Income Date even if a Certificate Owner make no
payments after the initial one. We reserve the right to reject any
subsequent Purchase Payment.
Allocation of Purchase Payments
An initial Purchase Payment is allocated to the Sub-accounts of the Variable
Account, and to the Fixed Account if available, in accordance with the
selections made by a Certificate Owner at the Certificate Date. Unless
otherwise changed by a Certificate Owner, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment. Allocation of
Purchase Payments is subject to the terms and conditions imposed by Us. We
reserve the right to allocate initial Purchase Payments to the Money Market
Sub-account until the expiration of the Right to Examine Certificate period
set forth on the first page of the Group Contract and the Certificate.
The Contract
The Group Contract, including the application, if any, and any attached rider
or endorsement constitute the entire contract between the Group Contract
Owner and Us. All statements made by the Group Contract Owner, any
Certificate Owner or any Annuitant will be deemed representations and not
warranties. No such statement will be used in any contest unless it is
contained in the application signed by the Group Contract Owner or in a
written instrument signed by the Certificate Owner, a copy of which has been
furnished to the Certificate Owner, the Beneficiary or to the Group Contract
Owner.
Only Our President or Secretary may agree to change any of the terms of the
Group Contract. Any changes must be in writing. Any change to the terms of
a Certificate must be in writing and with Certificate Owner's consent,
unless provided otherwise by the Group Contract and the Certificate.
To assure that the Group Contract and the Certificate will maintain their
status as a variable annuity under the Internal Revenue Code, We reserve the
right to change the Group Contract and any Certificate issued thereunder to
comply with future changes in the Internal Revenue Code, any regulations or
rulings issued thereunder, and any requirements otherwise imposed by the
Internal Revenue Service. The Group Contract Owner and the affected
Certificate Owner will be sent a copy of any such amendment.
We reserve the right, subject to the approval of the New York Superintendent
of Insurance and compliance with U.S. Laws as currently applicable or
subsequently changed, to: (a) operate the Variable Account in any form
permitted under the Investment Company Act of 1940, as amended, (the "1940
Act"), or in any other form permitted by law; (b) take any action necessary
to comply with or obtain and continue any exemptions from the 1940 Act, or to
comply with any other applicable law; (c) transfer any assets in any Sub-
account to another Sub-account, or to one or more separate investment
accounts, or the General Account; or to add, combine or remove Sub-accounts
in the Variable Account; and (d) change the way We assess charges, so long as
We do not increase the aggregate amount beyond that currently charged to the
Variable Account and the Eligible Funds in connection with a Certificate. If
the shares of any of the Eligible Funds should become unavailable for
investment by the Variable Account or if in Our judgment further investment
in such Portfolio shares should become inappropriate in view of the purpose
of the Certificate, We may add or substitute shares of another mutual fund
for the Portfolio shares already purchased under the Certificate. No
substitution of Portfolio shares in any Sub-account may take place without
prior approval of the Securities and Exchange Commission and notice to the
affected Certificate Owners, to the extent required by the 1940 Act.
Certificate Owner
A Certificate Owner has all rights and may receive all benefits under a
Certificate. A Certificate Owner is the person designated as such on the
Certificate Date, unless changed. A Certificate Owner may exercise all
rights of a Certificate while it is In Force, subject to the rights of (a)
any assignee under an assignment filed with Us, and (b) any irrevocably named
Beneficiary.
Joint Certificate Owner
A Certificate can be owned by Joint Certificate Owners. Upon the death of
any Certificate Owner or Joint Certificate Owner, the surviving owner(s) will
be the primary Beneficiary(ies). Any other beneficiary designation will be
treated as a Contingent Beneficiary unless otherwise indicated in a Written
Request filed with Us.
Annuitant
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by a Certificate Owner at the Certificate
Date, unless changed prior to the Income Date. Any change of Annuitant is
subject to Our underwriting rules then in effect. The Annuitant may not be
changed in a Certificate which is owned by a non-natural person. A
Certificate Owner may name a Contingent Annuitant. The Contingent Annuitant
becomes the Annuitant if the Annuitant dies while a Certificate is In Force.
If the Annuitant dies and no Contingent Annuitant has been named, We will
allow a Certificate Owner sixty days to designate someone other than the
Certificate Owner as Annuitant. The Certificate Owner will be the Contingent
Annuitant unless the Certificate Owner names someone else. If the Certificate
is owned by a non-natural person, the death of the Annuitant will be treated
as the death of the Certificate Owner and a new Annuitant may not be
designated.
Beneficiary
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint
Certificate Owner, the surviving owner(s) will become the primary
Beneficiary. Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request filed
with Us. If a Certificate Owner names more than one Person as Primary
Beneficiary or as Contingent Beneficiary, and does not state otherwise on an
application or in a Written Request to Us, any non-survivors will not receive
a benefit. The survivors will receive equal shares. Subject to the rights
of any irrevocable Beneficiary(ies), a Certificate Owner may change primary
or contingent Beneficiary(ies). A change must be made by Written Request and
will be effective as of the date the Written Request is signed. We will not
be liable for any payment We make or action We take before We receive the
Written Request.
Group Contract Owner
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the
claims of the Group Contract Owner or any of its creditors. The Group
Contract Owner may transfer ownership of this Group Contract. Any transfer
of ownership terminates the interest of any existing Group Contract Owner.
It does not change the rights of any Certificate Owner. Nothing in the Group
Contract shall invalidate or impair any rights granted to the Certificate
Owner by the Certificate or New York law.
Change of Certificate Owner, Beneficiary or Contingent Annuitant
While a Certificate is In Force, a Certificate Owner may by Written Request
change the primary Certificate Owner, Joint Certificate Owner, primary
Beneficiary, Contingent Beneficiary, Contingent Annuitant, or in certain
instances, the Annuitant. An irrevocably named Person may be changed only
with the written consent of such Person. The change will be effective,
following Our receipt of the Written Request, as of the date the Written
Request is signed. The change will not affect any payments We make or
actions We take prior to the time We receive the Written Request.
Assignment of the Certificate
A Certificate Owner may assign a Certificate at any time while it is In
Force. The assignment must be in writing and a copy must be filed at Our
Office. A Certificate Owner's rights and those of any revocably named Person
will be subject to the assignment. An assignment will not affect any
payments We make or actions We take before We receive the assignment. We are
not responsible for the validity of any assignment.
Misstatement of Age or Sex
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have begun, any underpayment(s) that have been made plus interest at
a rate of 5% per year will be paid in full with the next Annuity Payment.
Any overpayment plus interest at a rate of 5% per year, unless repaid to Us
in one sum, will be deducted from future Annuity Payments otherwise due until
We are repaid in full.
Non-Participating
A Certificate does not participate in Our divisible surplus.
Evidence of Death, Age, Sex or Survival
If a Certificate provision relates to the death of a natural Person, We will
require proof of death before We will act under that provision. Proof of
death shall be: (a) a certified death certificate; or (b) a certified decree
of a court of competent jurisdiction as to the finding of death; or (c) a
written statement by a medical doctor who attended the deceased; or (d) any
other document constituting due proof of death under applicable state law.
If Our action under a Certificate provision is based on the age, sex, or
survival of any Person, We may require evidence of the particular fact before
We act under that provision.
Protection of Proceeds
No Beneficiary or payee may commute or assign any payments under a
Certificate before they are due. To the extent permitted by law, no payments
shall be subject to the debts of any Beneficiary or payee or to any judicial
process for payment of those debts.
Reports
We will send Certificate Owners a report that shows the Certificate Value at
least once each Certificate Year. We will send any other reports that may be
required by law.
Taxes
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Purchase Payments or Certificate Value. We may, in Our
sole discretion, delay the deduction until a later date. By not deducting
tax payments at the time of Our payment, We do not waive any right We may
have to deduct amounts at a later date. We will, in Our sole discretion,
determine when taxes relate to a Certificate or to the operation of the
Variable Account. We reserve the right to establish a provision for federal
income taxes if We determine, in Our sole discretion, that We will incur a
tax as a result of the operation of the Variable Account. Such a provision
will be reflected in the Accumulation and Annuity Unit Values. We will
deduct for any income taxes incurred by Us as a result of the operation of
the Variable Account whether or not there was a provision for taxes and
whether or not it was sufficient. We will deduct from any payment under a
Certificate any withholding taxes required by applicable law.
Regulatory Requirements
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
Suspension or Deferral of Payments
We reserve the right to suspend or postpone payments for a withdrawal,
transfer, surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
(3) an emergency exists as a result of which valuation or disposal
of the assets and securities of the Variable Account is not
reasonably practicable; or
(4) the Securities and Exchange Commission, by order or
pronouncement, so permits for the protection of Certificate Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission govern as to whether the conditions described in (2) and (3) above
exist.
We reserve the right to delay payment of amounts allocated to the Fixed
Account for up to six months.
Variable Account Provisions
The Variable Account
The Variable Account(s) is designated on the Certificate Schedule and
consists of assets set aside by Us, which are kept separate from Our general
assets and all other variable account assets We maintain. We own the assets
of the Variable Account. Variable Account assets equal to reserves and other
contract liabilities will not be chargeable with liabilities arising out of
any other business We may conduct. We may transfer to Our General Account
assets which exceed the reserves and other liabilities of the Variable
Account. Income and realized and unrealized gains or losses from assets in
the Variable Account are credited to or charged against the account without
regard to other income, gains or losses in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The Sub-accounts
which are available under the Certificate are shown on the Certificate
Schedule. The assets of the Sub-accounts of the unit investment trust
variable separate account are allocated to the Eligible Fund(s) and the
Portfolio(s), if applicable, within an Eligible Fund shown on the Certificate
Schedule. The assets of the Sub-accounts of the investment company variable
separate account, if applicable, are invested in portfolios of securities
designed to meet the objectives of the Sub-Account shown on the Certificate
Schedule. We may, from time to time, add additional Sub-accounts, Eligible
Funds or Portfolios to those shown on the Certificate Schedule. A
Certificate Owner may be permitted to transfer Certificate Values or allocate
Purchase Payments to the additional Sub-Accounts, Eligible Funds or
Portfolios. However, the right to make such transfers or allocations will be
limited by the terms and conditions imposed by Us.
We also have the right to eliminate Sub-accounts from the Variable Account,
to combine two or more Sub-accounts or to substitute a new Portfolio for the
Portfolio in which a Sub-account invests. A substitution may become
necessary if, in Our discretion, a Portfolio or Sub-account no longer suits
the purposes of the Group Contract. This may happen: due to a change in
laws or regulations or a change in a Portfolio's investment objectives or
restrictions; because the Portfolio or Sub-account is no longer available for
investment; or for some other reason. We will obtain any prior approvals
that may be required from the insurance department of Our state of domicile,
the New york Superintendent of Insurance and from the SEC or any other
governmental entity before making such a substitution.
When permitted by law, We reserve the right to:
(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940 Act, if
it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the 1940 Act,
if it is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
Valuation of Assets
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
Accumulation Units
A Certificate Owner's Variable Account value will fluctuate in accordance
with the investment results of the Sub-accounts to which the Certificate
Owner has allocated his or her Purchase Payments or Certificate Value. In
order to determine how these fluctuations affect a Certificate Owner's
Certificate Value, We use an Accumulation Unit value. Accumulation Units are
used to account for all amounts allocated to or withdrawn from the Sub-
accounts of the Variable Account as a result of Purchase Payments, partial
withdrawals, transfers, or charges deducted from the Certificate Value. We
determine the number of Accumulation Units of a Sub-account purchased or
canceled by dividing the amount allocated to, or withdrawn from, the Sub-
account by the dollar value of one Accumulation Unit of the Sub-account as of
the end of the Valuation Period during which We receive the request for the
transaction.
Accumulation Unit Value
The Accumulation Unit Value for each Sub-account was initially set at $10.
Subsequent Accumulation Unit Values for each Sub-account are determined by
multiplying the Accumulation Unit Value for the immediately preceding
Valuation Period by a net investment factor for the Sub-account for the
current period. This factor may be greater or less than 1.0; therefore, the
Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
We calculate the net investment factor for each Sub-account investing in
shares of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the Sub-account
invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio that has an ex-
dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of the
preceding Valuation Period.
(c) is equal to:
(i) the sum of each Valuation Period equivalent of the annual rate for the
Mortality and Expense Risk Charge, for the Administrative Charge, and for
the Distribution Charge, if any, which are shown on the Certificate
Schedule; plus
(ii) a charge factor, if any, for any tax provision established by Us a result
of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing
directly in securities with the same formula, except:
(a) is equal to:
(i) the value of the assets in the Sub-account at the
end of the preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or
unrealized, credited to the assets during the current
Valuation Period; less
(iii) any capital losses, realized or unrealized,
charged against the assets during the current Valuation
Period; less
(iv) all operating and investment expenses relating to
the assets that are incurred during the current Valuation
Period.
(b) is the value of the assets in the Sub-account at the end of
the preceding Valuation Period.
Mortality and Expense Risk Charge
Each Valuation Period We deduct a Mortality and Expense Risk Charge from each
Sub-account of the Variable Account which is equal, on an annual basis, to
the amount shown on the Certificate Schedule. The Mortality and Expense Risk
Charge compensates Us for assuming the mortality and expense risks with
respect to the Certificates We issue. We guarantee the dollar amount of each
Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
Administrative Charge
Each Valuation Period We deduct an Administrative Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Administrative Charge compensates Us for the costs
associated with administration of the Variable Account and the Certificates
We issue.
Distribution Charge
Each Valuation Period We deduct a Distribution Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Distribution Charge compensates Us for the costs
associated with the distribution of the Certificates We issue.
Certificate Maintenance Charge
We deduct a Certificate Maintenance Charge from the Certificate Value by
canceling Accumulation Units from each applicable Sub-account to reimburse
Us for expenses relating to the maintenance of the Certificate. We will
deduct the Certificate Maintenance Charge from the Sub-accounts of the
Variable Account in the same proportion that the amount of Certificate Value
in each Sub-account bears to the Certificate Value. The Certificate
Maintenance Charge is shown on the Certificate Schedule. The Certificate
Maintenance Charge will be deducted from the Certificate Value on each
Certificate Anniversary during the Accumulation Period.
If a total surrender is made on a date other than a Certificate Anniversary,
the Certificate Maintenance Charge will be deducted at the time of surrender.
During the Annuity Period, the Certificate Maintenance Charge will be
deducted on a pro-rata basis from each Annuity Payment.
Transfers
Transfers: Subject to any limitation We impose on the number of transfers
permitted in a Certificate Year, a Certificate Owner may transfer all or part
of Certificate Owner's Certificate Value among the Sub-accounts and the Fixed
Account, if any, by Written Request or by telephone without the imposition of
any fees or charges. Transfers among the Sub-accounts and the Fixed Account
are permitted only during the Accumulation Period. The number of permitted
transfers, and the charge for transfers in excess of that number, are shown
on the Certificate Schedule. All transfers are subject to the following:
(1) If more than the number of free transfers, shown on the Certificate
Schedule, are made in a Certificate Year, We will deduct a transfer charge,
shown on the Certificate Schedule, for each subsequent transfer. The
transfer fee will be deducted from the Sub-account from which the transfer is
made. However, if Certificate Owner transfers his or her entire interest in
a Sub-account, the transfer fee will be deducted from the amount transferred.
If a Certificate Owner makes a transfer from more than one Sub-account, any
transfer fee will be allocated pro-rata among such Sub-accounts in proportion
to the amount transferred from each. The deduction of any fees We impose on
such transfers will not exceed the maximum listed on page 3.
(2) During the Annuity Period, transfers of values between Sub-accounts
will be made by converting the number of Annuity Units being transferred to
the number of Annuity Units in the Sub-account to which a transfer is made,
so that the next Annuity Payment, if it were made at that time, would be the
same amount that it would have been without the transfer. Thereafter,
Annuity Payments will reflect changes in the value of the new Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain in a Sub-account
after a transfer is shown on the Certificate Schedule.
(4) If 100% of the value of any Sub-account is transferred and the
current allocation for Purchase Payments includes that Sub-account, the
allocation for future Purchase Payments will change to reflect a Certificate
Owner's allocation of Certificate Value following the transfer.
(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described
above.
We will not be liable for transfers made in accordance with a Certificate
Owner's instructions. All amounts and Accumulation Units will be determined
as of the end of the Valuation Period in which We receive the request for
transfer.
Partial Withdrawals and Total Surrender
Partial Withdrawals
During the Accumulation Period while the Certificate is In Force, a
Certificate Owner may, upon Written Request, make a partial withdrawal,
subject to the provisions and limitations shown on the Certificate Schedule.
For purposes of determining whether a Surrender Charge is applicable to a
partial withdrawal:
(1) A partial withdrawal will first be taken from the portion of a
Certificate Owner's Certificate Value which is in excess of
Purchase Payments, and then from Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the
order in which the Purchase Payments were made, starting with the
first.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-account in the ratio that a Certificate Owner's interest in
the Sub-account bears to his or her Certificate Value in all the Sub-
accounts. A Certificate Owner must specify by Written Request in advance if
he or she wants Accumulation Units to be canceled in a manner other than the
method described above. If there is no value or insufficient value in the
Variable Account, then the amount withdrawn, or the insufficient portion,
will be deducted from the Fixed Account. If a Certificate Owner has multiple
Guarantee Periods, We will deduct such amount from each Guarantee Period's
values in the ratio that each Period's values bears to the total Fixed
Account Value. A Certificate Owner must specify by Written Request in
advance if he or she wants multiple Guarantee Periods to be reduced in a
manner other than the method described above. Any amount deducted from the
fixed account value may be subject to a market value adjustment, if
applicable.
Each partial withdrawal must be for an amount not less than the amount shown
on the Certificate Schedule. The Certificate Value which must remain in a
Certificate is shown on the Certificate Schedule. The Certificate Schedule
also shows any charge.
Total Surrender
During the Accumulation Period while the Certificate is In Force, a
Certificate Owner may, upon Written Request, make a total surrender of the
Certificate Withdrawal Value. The Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation Period during
which We receive a Written Request for a withdrawal or
surrender; less
(2) any applicable taxes not previously deducted; less
(3) any Surrender Charge; less
(4) any Certificate Maintenance Charge.
The Fixed Account Value, which is a component of the Certificate Value, may
be subject to a market value adjustment, if applicable.
We will pay the amount of any withdrawal or surrender within seven days
unless the Suspension or Deferral of Payments Provision is in effect.
Death Provisions
Death of Certificate Owner
These provisions apply if, during the Accumulation Period while the
Certificate is In Force, the Certificate Owner or any Joint Certificate Owner
dies (whether or not the decedent is also the Annuitant) or the Annuitant
dies under a Certificate owned by a non-natural Person. The "designated
beneficiary" will control the Certificate after such a death. This
"designated beneficiary" will be the first Person among the following who is
alive on the date of death: Certificate Owner; Joint Certificate Owner;
primary Beneficiary; Contingent Beneficiary; and Certificate Owner's estate.
If the Certificate Owner and Joint Certificate Owner are both alive, they
shall be the "designated beneficiary" together.
If the decedent's surviving spouse (if any) is the sole "designated
beneficiary", the surviving spouse will automatically become the new sole
Certificate Owner as of the date of the death. And, if the Annuitant is the
decedent, the new Annuitant will be any living Contingent Annuitant,
otherwise the surviving spouse. The Certificate may stay in force until
another death occurs (i.e., until the death of the Certificate Owner or Joint
Certificate Owner). Except for this paragraph, all of "Death Provisions" will
apply to that subsequent death.
In all other cases, the Certificate may stay in force up to five years from
the date of death. During this period, the "designated beneficiary" may
exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to surrender the Certificate for its
Certificate Withdrawal Value. If this Certificate is still in force at the
end of the five-year period, We will automatically end it then by paying to
the "designated beneficiary" the Certificate Withdrawal Value without the
deduction of any applicable Surrender Charges. If the "designated
beneficiary" is not alive then, We will pay any Person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
Death of Annuitant
These provisions apply if during the Accumulation Period while the
Certificate is In Force, (a) the Annuitant dies, (b) the Annuitant is not an
Owner, and (c) the Owner is a natural person. The Certificate will continue
In Force after the Annuitant's death. The new Annuitant will be any living
Contingent Annuitant, otherwise the Certificate Owner.
Payment of Benefits
Instead of receiving a lump sum, a Certificate Owner or any "designated
beneficiary" may by Written Request direct that We pay any benefit of $2,000
or more under an Annuity Option that meets the following: (a) the first
payment to the "designated beneficiary" must be made no later than one year
after the date of death; (b) payments must be made over the life of the
"designated beneficiary" or over a period not extending beyond that person's
life expectancy; and (c) any Annuity Option that provides for payments to
continue after the death of the "designated beneficiary" will not allow the
successor payee to extend the period of time over which the remaining
payments are to be made.
Annuity Provisions
General
If the Certificate is In Force on the Income Date, the Adjusted Certificate
Value will be applied under the Annuity Option selected by a Certificate
Owner. Annuity Payments may be made on a fixed or variable basis or both.
Income Date
The Income Date may be selected by a Certificate Owner. It is shown on the
Certificate Schedule. The Income Date can be any time after the Certificate
Date for variable payments and any time after the first Certificate
Anniversary for fixed payments. The Income Date may not be later than the
earlier of when the Annuitant reaches attained age 90 or that required under
state law. If no Income Date is selected, it will be the earlier of when the
Annuitant reaches attained age 90 or the maximum date permitted under state
law, if any.
Prior to the Income Date, a Certificate Owner may change the Income Date by
Written Request. Any change must be requested at least 30 days prior to the
new Income Date.
Selection of an Annuity Option
An Annuity Option may be selected by a Certificate Owner. If no Annuity
Option is selected, Option B will automatically be applied. Prior to the
Income Date, a Certificate Owner can change the Annuity Option selected by
Written Request. Any change must be requested at least 30 days prior to the
Income Date.
Frequency and Amount of Annuity Payments
Annuity Payments are paid in monthly installments unless quarterly, semi-
annual or annual payments are chosen. The Adjusted Certificate Value is
applied to the Annuity Table for the Annuity Option selected. If the
Adjusted Certificate Value to be applied under an Annuity Option is less than
$2,000, We reserve the right to make a lump sum payment in lieu of Annuity
Payments. If the Annuity Payment would be or becomes less than $100, We will
reduce the frequency of payments to a longer interval which will result in
each payment being at least $100.
Annuity Options
The following Annuity Options or any other Annuity Option acceptable to Us
may be selected:
OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to continue
for the remainder of the period, he/she may elect to have the present
value of the remaining payments commuted and paid in a lump sum. During
the payment period of a Variable Annuity, the payee may elect by Written
Request to receive the following amount: (a) the present value of the
remaining payments commuted; less (b) any Surrender Charge that may be
due by treating the value defined in (a) as a surrender. Instead of
receiving a lump sum, the payee may elect another Annuity Option. The
amount applied to that Option would not be reduced by the charge defined
in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity Payments
during the lifetime of the payee and in any event for 10 years certain.
If the payee dies during the guaranteed payment period and the
Beneficiary does not desire payments to continue for the remainder of
the guaranteed period, he/she may elect to have the present value of the
guaranteed payments remaining commuted and paid in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during
the joint lifetime of the payee and a designated second natural person
and then during the lifetime of the survivor.
Unless the Annuity Option provides for commutation by the payee, a payee may
not withdraw or otherwise end an Annuity Option after it begins. Payments
will end upon the payee's death unless the Annuity Option provides for
payments continuing to a successor payee. No successor payee may extend the
period of time over which the remaining payments are to be made.
Annuity
If a Certificate Owner selects a Fixed Annuity, the Adjusted Certificate
Value is allocated to the General Account and the Annuity is paid as a Fixed
Annuity. If the Certificate Owner selects a Variable Annuity, the Adjusted
Certificate Value will be allocated to the Sub-accounts of the Separate
Account in accordance with the selection he or she makes, and the Annuity
will be paid as a Variable Annuity. A Certificate Owner can also select a
combination of a Fixed and Variable Annuity and the Adjusted Certificate
Value will be allocated accordingly. If a Certificate Owner does not select
between a Fixed Annuity and a Variable Annuity, any Adjusted Certificate
Value in the Variable Account will be applied to a Variable Annuity and any
Adjusted Certificate Value in the Fixed Account will be applied to a Fixed
Annuity.
The Adjusted Certificate Value will be applied to the applicable Annuity
Table contained in the Certificate based upon the Annuity Option a
Certificate Owner selects. If, as of the Income Date, the current Annuity
Option rates applicable to the class of Certificates issued under the Group
Contract provide an initial Annuity Payment greater than the initial Annuity
Payment guaranteed under the applicable Annuity Table in the Certificate, the
greater payment will be made.
Fixed Annuity
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. After the initial
Fixed Annuity payment, the payments will not change regardless of investment,
mortality or expense experience.
Variable Annuity
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value
to the Sub-accounts during the Annuity Period. Variable Annuity payments are
not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount
of Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is
divided by the value of an Annuity Unit for each applicable Sub-
account as of the Income Date. This sets the number of Annuity
Units for each monthly payment for the applicable Sub-account. The
number of Annuity Units for each applicable Sub-account remains
fixed during the Annuity Period;
(2) the fixed number of Annuity Units per payment in each Sub-
account is multiplied by the Annuity Unit Value for that Sub-
account for the Valuation Period for which the payment is due.
This result is the dollar amount of the payment for each applicable
Sub-account.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account Variable Annuity payments reduced by the applicable portion of
the Certificate Maintenance Charge.
Annuity Unit
The value of any Annuity Unit for each Sub-Account of the Separate Account
was initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation
Period is determined as follows:
(1) the net investment factor calculated as set forth on pages 11-
12 (but without the Distribution Charge, if any) for the current
Valuation Period is multiplied by the value of the Annuity Unit for
the Sub-account for the immediately preceding Valuation Period.
(2) the result in (1) is then divided by the Assumed Investment
Rate Factor which equals 1.00 plus the Valuation Period equivalent
of the Assumed Investment Rate for the number of days in the
current Valuation Period. The Assumed Investment Rate is equal to
6% per year.
The value of an Annuity Unit may increase or decrease from Valuation Period
to Valuation Period.
Using the Tables
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
Date of First Payment Age Setback
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and
for any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next
section. Upon request, We will tell a Certificate Owner any such amount.
Basis of Calculation
Tables 1 and 4 are based on interest at 5% and 3%, respectively. Tables 2,
3, 5, and 6 are based on the 1983 Individual Annuity Valuation Tables (sex
distinct), with interest at 5% (Tables 2 and 3) and 3% (Tables 5 and 6),
projected dynamically with Projection Scale G.
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 1 FOR EACH
$1,000 APPLIED
Years Payment Years Payment Years Payment Years Payment
5 $18.74 12 $9.16 19 $6.71 25 $5.76
6 15.99 13 8.64 20 6.51 26 5.65
7 14.02 14 8.20 21 6.33 27 5.54
8 12.56 15 7.82 22 6.17 28 5.45
9 11.42 16 7.49 23 6.02 29 5.36
10 10.51 17 7.20 24 5.88 30 5.28
11 9.77 18 6.94
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 2 FOR EACH
$1,000 APPLIED
Age Male Female Age Male Female Age Male Female Age Male Female
30 $4.45 $4.34 47 $5.05 $4.78 64 $6.54 $5.98 80 $9.14 $8.67
31 4.47 4.35 48 5.11 4.82 65 6.68 6.10 81 9.29 8.86
32 4.50 4.37 49 5.17 4.87 66 6.82 6.22 82 9.44 9.05
33 4.52 4.39 50 5.23 4.92 67 6.97 6.35 83 9.57 9.23
34 4.55 4.41 51 5.29 4.97 68 7.12 6.49 84 9.69 9.40
35 4.57 4.43 52 5.36 5.02 69 7.28 6.63 85 9.81 9.55
36 4.60 4.45 53 5.43 5.08 70 7.44 6.79 86 9.91 9.69
37 4.63 4.47 54 5.50 5.13 71 7.61 6.95 87 10.01 9.82
38 4.67 4.49 55 5.58 5.20 72 7.78 7.12 88 10.10 9.94
39 4.70 4.52 56 5.67 5.27 73 7.95 7.30 89 10.17 10.04
40 4.74 4.55 57 5.76 5.34 74 8.12 7.48 90 10.24 10.13
41 4.78 4.57 58 5.85 5.41 75 8.30 7.67 91 10.30 10.21
42 4.82 4.60 59 5.95 5.49 76 8.47 7.87 92 10.35 10.27
43 4.86 4.64 60 6.06 5.58 77 8.65 8.07 93 10.39 10.33
44 4.91 4.67 61 6.17 5.67 78 8.82 8.27 94 10.43 10.37
45 4.95 4.70 62 6.29 5.77 79 8.98 8.47 96 10.45 10.41
46 5.00 4.74 63 6.41 5.87
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 3 FOR EACH
$1,000 APPLIED
COMBINATION OF AGES
FEMALE AGE
30 35 40 45 50 55 60 65 70 75 80 85 90 95
30 $4.24$4.28$4.31$4.34$4.36$4.38$4.40$4.42$4.43$4.44$4.45 $4.45 $4.45 $4.46
35 4.26 4.30 4.35 4.39 4.43 4.47 4.50 4.52 4.54 4.56 4.57 4.57 4.58 4.58
40 4.28 4.33 4.39 4.45 4.51 4.56 4.61 4.65 4.68 4.71 4.73 4.74 4.75 4.75
M 45 4.29 4.35 4.42 4.50 4.58 4.66 4.74 4.80 4.86 4.90 4.93 4.96 4.97 4.98
A 50 4.30 4.37 4.46 4.55 4.66 4.77 4.88 4.98 5.07 5.14 5.20 5.23 5.25 5.27
L 55 4.31 4.39 4.48 4.59 4.73 4.87 5.03 5.18 5.32 5.44 5.53 5.59 5.63 5.65
E 60 4.32 4.40 4.50 4.63 4.78 4.97 5.18 5.40 5.61 5.80 5.96 6.07 6.13 6.17
65 4.33 4.41 4.52 4.65 4.83 5.05 5.31 5.61 5.92 6.23 6.50 6.70 6.83 6.90
A 70 4.33 4.42 4.53 4.68 4.87 5.11 5.42 5.80 6.23 6.70 7.14 7.50 7.75 7.90
G 75 4.34 4.42 4.54 4.69 4.89 5.16 5.50 5.95 6.50 7.15 7.83 8.45 8.92 9.23
E 80 4.34 4.43 4.54 4.70 4.91 5.19 5.56 6.06 6.71 7.55 8.52 9.50 10.34 10.93
85 4.34 4.43 4.55 4.71 4.92 5.21 5.60 6.13 6.86 7.85 9.10 10.52 11.87 12.93
90 4.34 4.43 4.55 4.71 4.93 5.22 5.62 6.18 6.96 8.06 9.55 11.39 13.34 15.05
95 4.34 4.43 4.55 4.71 4.93 5.23 5.64 6.21 7.02 8.20 9.86 12.09 14.69 17.20
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A FOR EACH $1,000
APPLIED
Years Payment Years Payment Years Payment Years Payment
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18 5.96
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH $1,000
APPLIED
Age Male Female Age Male Female Age Male Female Age Male Female
30 $3.12 $2.99 47 $3.82 $3.53 64 $5.40 $4.83 80 $8.15 $7.66
31 3.15 3.01 48 3.88 3.58 65 5.55 4.96 81 8.32 7.86
32 3.18 3.03 49 3.94 3.63 66 5.69 5.08 82 8.47 8.06
33 3.21 3.06 50 4.01 3.68 67 5.85 5.22 83 8.61 8.25
34 3.24 3.08 51 4.08 3.74 68 6.01 5.37 84 8.75 8.43
35 3.27 3.11 52 4.15 3.80 69 6.18 5.52 85 8.87 8.60
36 3.31 3.13 53 4.23 3.86 70 6.35 5.68 86 8.98 8.75
37 3.34 3.16 54 4.31 3.93 71 6.52 5.85 87 9.08 8.88
38 3.38 3.19 55 4.39 4.00 72 6.70 6.03 88 9.18 9.01
39 3.42 3.22 56 4.48 4.07 73 6.89 6.21 89 9.26 9.12
40 3.46 3.25 57 4.58 4.15 74 7.07 6.41 90 9.33 9.21
41 3.51 3.29 58 4.68 4.23 75 7.26 6.61 91 9.40 9.30
42 3.55 3.32 59 4.78 4.32 76 7.44 6.81 92 9.45 9.37
43 3.60 3.36 60 4.89 4.41 77 7.63 7.02 93 9.49 9.43
44 3.65 3.40 61 5.01 4.50 78 7.81 7.23 94 9.53 9.47
45 3.71 3.44 62 5.14 4.61 79 7.98 7.45 95 9.55 9.51
46 3.76 3.49 63 5.27 4.72
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
FEMALE AGE
30 35 40 45 50 55 60 65 70 75 80 85 90 95
30 $2.88$2.93$2.97$3.01$3.04$3.07$3.08$3.10$3.11$3.12$3.12 $3.12 $3.13 $3.13
35 2.91 2.97 3.03 3.09 3.14 3.18 3.21 3.23 3.25 3.26 3.27 3.27 3.28 3.28
40 2.93 3.01 3.09 3.17 3.24 3.30 3.35 3.39 3.42 3.44 3.46 3.46 3.47 3.47
45 2.95 3.04 3.14 3.24 3.34 3.43 3.51 3.58 3.63 3.66 3.69 3.71 3.72 3.72
M 50 2.96 3.06 3.17 3.30 3.43 3.56 3.68 3.79 3.87 3.94 3.98 4.01 4.03 4.03
A 55 2.97 3.07 3.20 3.34 3.50 3.68 3.85 4.02 4.16 4.27 4.34 4.39 4.42 4.44
L 60 2.98 3.09 3.22 3.38 3.56 3.78 4.01 4.25 4.47 4.66 4.80 4.89 4.95 4.98
E 65 2.98 3.09 3.23 3.40 3.61 3.86 4.15 4.48 4.81 5.12 5.37 5.55 5.66 5.72
70 2.99 3.10 3.24 3.42 3.64 3.92 4.26 4.67 5.13 5.60 6.04 6.38 6.60 6.73
A 75 2.99 3.10 3.25 3.43 3.66 3.96 4.34 4.81 5.39 6.06 6.75 7.35 7.79 8.07
G 80 2.99 3.11 3.25 3.44 3.68 3.99 4.39 4.92 5.60 6.45 7.44 8.42 9.23 9.79
E 85 2.99 3.11 3.26 3.44 3.69 4.00 4.42 4.98 5.73 6.74 8.01 9.44 10.77 11.81
90 2.99 3.11 3.26 3.45 3.69 4.01 4.44 5.02 5.82 6.93 8.43 10.29 12.25 13.95
95 2.99 3.11 3.26 3.45 3.70 4.02 4.45 5.04 5.87 7.05 8.73 10.97 13.58 16.11
Endorsements
To be inserted only by Us
POLICY DESCRIPTION
This is a GROUP VARIABLE ANNUITY CONTRACT with limited purchase payment
flexibility. This Contract is non participating with no dividends.
<PAGE>
EXHIBIT 4(h)
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Read this Certificate carefully. This document is a description of the
legal contract between the Group Contract Owner and Us.
You may return this Certificate within 10 days after You receive it by
delivering or mailing it to Our Office. The return of this Certificate by
mail will be effective when the postmark is affixed to a properly addressed
and postage prepaid envelope. This returned Certificate will be treated as if
We never issued it and We will refund the Certificate Value plus any amount
deducted from Your purchase payment before it was allocated to the Variable
Account. The Certificate Value will be determined as of the date of surrender
(i.e., for a mailed contract, the postmark date).
This Certificate describes the benefits and provisions of the Group
Contract. The Group Contract, as issued to the Group Contract Owner by Us
with any riders or endorsements, alone makes up the agreement under which
benefits are paid. The Group Contract may be inspected at the office of the
Group Contract Owner. In consideration of any application for this
Certificate and the payment of purchase payments, We agree, subject to the
terms and conditions of the Group Contract, to provide the benefits described
in this Certificate to the Certificate Owner.
If this Certificate is In Force on the Income Date, We will begin making
income payments to the Annuitant. We will make such payments according to
the terms of the Certificate and Group Contract.
Signed for the Company on the Issue Date at Our Home Office, 175
Berkeley Street, Boston, Massachusetts 02117:
_________________________ _________________________
Secretary President
POLICY DESCRIPTION
This is a GROUP VARIABLE ANNUITY CERTIFICATE with limited purchase
payment flexibility. This contract is nonparticipating with no dividends.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CERTIFICATE, WHEN
BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND
ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. VARIABLE ANNUITY PAYMENTS WILL NOT
DECREASE OVER TIME IF THE SEPARATE ACCOUNT (AFTER DEDUCTION OF THE ANNUAL
[1.55%] ASSET CHARGE) HAS AN ANNUALIZED INVESTMENT RETURN OF AT LEAST 5.0%.
SEE PAGES 12-13 AND 19 FOR FURTHER EXPLANATION. CERTIFICATE ASSETS ALLOCATED
TO THE SEPARATE ACCOUNT INCUR CHARGES OF [1.55%] BEFORE ANNUITY PAYMENTS
BEGIN AND [1.40%] ONCE ANNUITY PAYMENTS BEGIN. INCOME, CAPITAL GAINS, AND/OR
LOSSES WHETHER OR NOT REALIZED, FROM ASSETS ALLOCATED TO THE SEPARATE ACCOUNT
ARE CREDITED TO OR CHARGED AGAINST THE SEPARATE ACCOUNT WITHOUT REGARD TO
INCOME, CAPITAL GAINS, AND/OR LOSSES ARISING OUT OF ANY OTHER BUSINESS THE
COMPANY MAY CONDUCT.
Table of Contents
Page
Right to Examine Certificate 1
Certificate Schedule 2
Definitions 3
General Provisions 5
Variable Account Provisions 10
Transfers 13
Partial Withdrawals and Total Surrender 14
Death Provisions 15
Annuity Provisions 16
Endorsements (if any) are before page 22
Definitions
Accumulation Period: The period prior to the Income Date during which
Purchase Payments may be made by a Certificate Owner.
Accumulation Unit: An accounting unit used to calculate a Certificate Owner's
interest in a Sub-account of the Variable Account during the Accumulation
Period.
Adjusted Certificate Value: The Certificate Value less any applicable taxes
relating to a Certificate and Certificate Maintenance Charge. This amount is
applied to the applicable Annuity Tables to determine Annuity Payments.
Annuitant: The natural person on whose life Annuity Payments are based, and
to whom any Annuity Payments will be made starting on the Income Date.
Annuity Options: Options available for Annuity Payments.
Annuity Payments: The series of payments made to the Annuitant, starting on
the Income Date, under the Annuity Option selected.
Annuity Period: The period after the Income Date during which Annuity
Payments are made.
Annuity Unit: An accounting unit used to calculate Variable Annuity Payments
during the Annuity Period.
Beneficiary: The person(s) or entity(ies) who controls the Certificate if
any Certificate Owner dies before the Income Date.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
175 Berkeley Street, Boston, MA 02117
Service Office
125 High Street, 11th Floor
Boston, MA 02110
Certificate Schedule
CERTIFICATE OWNER: John Doe, male, 1/1/40
JOINT CERTIFICATE OWNER: Jane Doe, female, 2/29/40
ANNUITANT: John Doe, male, 1/1/40
CONTINGENT ANNUITANT: None
CERTIFICATE NUMBER: 99999999
INITIAL PURCHASE PAYMENT: $10,000
MINIMUM INITIAL PAYMENT: $5,000
MINIMUM ADDITIONAL PAYMENT: $1,000
CERTIFICATE DATE: 7/1/96
ISSUE STATE:
IRS PLAN TYPE: Non-Qualified
INCOME DATE: 11/1/2010
Charges
Distribution Charge: None
Administrative Charge: None
Mortality and Expense Risk Charge: We deduct .000957% of the assets in each
Variable Account Sub-account on a daily basis (equivalent to an annual rate
of 0.35%) for Our mortality and expense risks.
Certificate Maintenance Charge: We charge $35 to cover a portion of Our
ongoing Certificate maintenance expenses. The charge is incurred at the
beginning of the Certificate Year and is deducted on each Certificate
Anniversary and at the time of total surrender.
Transfer Charge: Currently none, however we reserve the right to charge $25
for a transfer if You make more than 12 transfers per Certificate Year.
Surrender Charge: None
Initial Purchase Payment Allocation
Currently, You may select 7 Sub-accounts. We reserve the right to increase
or decrease the number of available Sub-accounts. The minimum You may
allocate to any Sub-account is 10% of any Purchase Payment. Your initial
Purchase Payment has been invested as follows:
Manning & Napier Moderate Growth x%
Manning & Napier Growth x%
Manning & Napier Maximum Horizon x%
Manning & Napier Equity x%
Manning & Napier Small Cap x%
Manning & Napier Bond x%
SteinRoe Cash Income Fund x%
Transfer Guidelines
Number of Transfers and Transfer Charge: Currently, You are permitted 12
transfers per Certificate Year during the Accumulation Period and 1 transfer
every 6 months during the Annuity Period. We reserve the right to change,
upon notice, the frequency of transfers You may make. However, you will not
be limited to fewer than 4 transfers per Certificate Year during the
Accumulation Period and 1 transfer per Certificate Year during the Annuity
Period. We also reserve the right to impose a charge for any transfer in
excess of 12 per Certificate Year. The maximum transfer charge we may impose
is $25 for any one transfer. The transfer charge is shown in the Charges
section of the Schedule.
Minimum amount to be transferred: None
Minimum amount which must remain in a Sub-account after transfer: None
Partial Withdrawals
You may make partial withdrawals during the Accumulation Period without
incurring a surrender charge.
Minimum withdrawal amount: $300, unless the withdrawal is made pursuant to
Our systematic withdrawal program, in which case the minimum withdrawal is $100.
Minimum Certificate Value which must remain after a partial withdrawal:
$2,500.
Death Benefits
Adjustment of Certificate Value:
When We receive due proof of death of the Certificate Owner, or the Annuitant
if the Certificate Owner is a non-natural Person, We will compare, as of the
date of death, the Certificate Value to the Death Benefit amount defined in
this Schedule. If the Certificate Value is less than the Death Benefit, We
will increase the current Certificate Value by the amount of the difference.
Any amount credited will be allocated to the Variable Account based on the
Purchase Payment allocation selection that is in effect when We receive due
proof of death.
Death Benefit Amount:
On the Certificate Date the Death Benefit is the initial Purchase Payment.
On subsequent Valuation Dates, the Death Benefit is calculated as follows:
(1) Start with the Death Benefit from the prior Valuation Date;
(2) Add to (1) any additional Purchase Payments paid during the current
Valuation Period and subtract from (1) any Partial Withdrawals
(including any associated surrender charge incurred) made during
the current Valuation Period.
The Variable Separate Account
Sub-accounts investing in shares of mutual funds:
Variable Account A is a unit investment trust variable separate account,
organized in and governed by the laws of the State of Rhode Island. Variable
Account A is divided into Sub-accounts. Each Sub-account listed below
invests in shares of the corresponding Portfolio of the Eligible Fund shown.
Sub-account Eligible Fund and Portfolio
Manning & Napier Insurance Fund, Inc.
Moderate Growth Manning & Napier Moderate Growth Portfolio -
Sub-account seeks with equal emphasis long-term growth and
preservation of capital.
Growth Sub-account Manning & Napier Growth Portfolio - seeks long-
term growth of capital. The secondary
objective is the preservation of capital.
Maximum Horizon Manning & Napier Maximum Horizon Portfolio -
account seeks to achieve the high level of long-term
capital growth typically associated with the
stock market.
Small Cap Sub- Manning & Napier Small Cap Portfolio - seeks to
account achieve long term growth of capital by
investing principally in the equity securities
of small issuers.
Equity Sub-account Manning & Napier Equity Portfolio - seeks long-
term growth of capital.
Bond Sub-account Manning & Napier Bond Portfolio - seeks to
maximize total return in the form of both
income and capital appreciation by
investing in fixed income securities without
regard to maturity.
SteinRoe Variable Investment Trust
CIF Sub-account Cash Income Fund - seeks high current income
("Money Market" Sub-account) from short-term money market investments while
emphasizing preservation of capital and
maintaining excellent liquidity.
Sub-accounts investing directly in securities: None
The Fixed Account: None
Definitions (continued)
Certificate: The document issued to a Certificate Owner to evidence a
Certificate Owner's participation under the Group Contract. The Certificate
summarizes the benefits and provisions of the Group Contract.
Certificate Anniversary: An anniversary of the Certificate Date.
Certificate Date: The date a Certificate is issued to a Certificate Owner.
The Certificate Date is shown on the Certificate Schedule.
Certificate Owner: The person who owns a Certificate under the Group
Contract. Any Joint Certificate Owners and the Certificate Owner own the
Certificate equally with rights of survivorship.
Certificate Value: The sum of the Certificate Owner's interest in the Sub-
accounts of the Variable Account and the Fixed Account during the
Accumulation Period.
Certificate Year: The first Certificate Year is the annual period which
begins on the Certificate Date. Subsequent Certificate Years begin on each
Certificate Anniversary.
Eligible Fund: An investment entity shown on the Certificate Schedule.
Fixed Account: The account We establish to support Fixed Allocations. The
Certificate Schedule shows whether the Fixed Account is available under the
Certificate.
Fixed Account Value: The value of all Fixed Account amounts accumulated
under this Certificate prior to the Income Date.
Fixed Allocation: An amount allocated to the Fixed Account that is credited
with a Guaranteed Interest Rate for a specified Guarantee Period.
Fixed Annuity: An annuity with a series of payments made during the Annuity
Period which are guaranteed as to dollar amount by Us.
General Account: Our general investment account which contains all of Our
assets except those in the Variable Account and Our other separate accounts.
Group Contract Owner: The person or entity to which the Group Contract is
issued.
Guaranteed Interest Rate: The effective annual interest rate which We will
credit for a specified Guarantee Period.
Guarantee Period: The period of year(s) a rate of interest is guaranteed to
be credited within the Fixed Account.
Income Date: The date on which Annuity Payments begin. The Income Date is
shown on the Certificate Schedule.
In Force: The status of a Certificate before the Income Date so long as it
has not been totally surrendered and there has not been a death of a
Certificate Owner or Joint Certificate Owner that will cause the Certificate
to end within five years of the date of death.
Office: Our service office shown on the Certificate Schedule.
Person: A human being, trust, corporation, or any other legally recognized
entity.
Portfolio: A series of an Eligible Fund which constitutes a separate and
distinct class of shares.
Purchase Payment: A payment made by or on behalf of a Certificate Owner with
respect to a Certificate.
Sub-account: Variable Account assets are divided into Sub-accounts. Assets
of each Sub-account will be invested in shares of a Portfolio of an Eligible
Fund, or directly in portfolio securities.
Valuation Date: Each day on which We and the New York Stock Exchange
("NYSE") are open for business, or any other day that the Securities and
Exchange Commission requires that mutual funds, unit investment trusts or
other investment portfolios be valued.
Valuation Period: The period of time beginning at the close of business of
the NYSE on each Valuation Date and ending at the close of business on the
next succeeding Valuation Date.
Variable Account: Our Variable Account(s) shown on the Certificate Schedule.
Variable Annuity: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-accounts of the
Variable Account.
We, Us, Our: Liberty Life Assurance Company of Boston.
Written Request: A request in writing, in a form satisfactory to Us, and
received by Us at Our Office.
You, Your: The Certificate Owner and any Joint Certificate Owners.
General Provisions
Purchase Payments
The initial Purchase Payment is due on the Certificate Date. It must be paid
at Our Office in United States currency. Coverage under a Certificate does
not take effect until We have accepted the initial Purchase Payment during
Your lifetime. Each Purchase Payment after the Certificate Date must be at
least the amount shown on the Certificate Schedule. Provided the Certificate
Value under a Certificate does not go to zero, a Certificate will stay in
force until the Income Date even if You make no payments after the initial
one. We reserve the right to reject any subsequent Purchase Payment.
Allocation of Purchase Payments
Your initial Purchase Payment is allocated to the Sub-accounts of the
Variable Account, and to the Fixed Account if available, in accordance with
the selections made by You at the Certificate Date. Unless otherwise changed
by You, subsequent Purchase Payments are allocated in the same manner as the
initial Purchase Payment. Allocation of Purchase Payments is subject to the
terms and conditions imposed by Us. We reserve the right to allocate initial
Purchase Payments to the Money Market Sub-account until the expiration of the
Right to Examine Certificate period set forth on the first page of the
Certificate.
The Contract
The Group Contract, including the application, if any, and any attached rider
or endorsement constitute the entire contract between the Group Contract
Owner and Us. All statements made by the Group Contract Owner, any
Certificate Owner or any Annuitant will be deemed representations and not
warranties. No such statement will be used in any contest unless it is
contained in the application signed by the Group Contract Owner or in a
written instrument signed by the Certificate Owner, a copy of which has been
furnished to the Certificate Owner, the Beneficiary or to the Group Contract
Owner.
Only Our President or Secretary may agree to change any of the terms of the
Group Contract. Any changes must be in writing. Any change to the terms of
a Certificate must be in writing and with Your consent, unless provided
otherwise by the Group Contract and the Certificate.
To assure that the Group Contract and the Certificate will maintain their
status as a variable annuity under the Internal Revenue Code, We reserve the
right to change the Group Contract and any Certificate issued thereunder to
comply with future changes in the Internal Revenue Code, any regulations or
rulings issued thereunder, and any requirements otherwise imposed by the
Internal Revenue Service. The Group Contract Owner and the affected
Certificate Owner will be sent a copy of any such amendment.
We reserve the right, subject to the approval of the New York Superintendent
of Insurance and compliance with U.S. laws as currently applicable or
subsequently changed, to: (a) operate the Variable Account in any form
permitted under the Investment Company Act of 1940, as amended, (the "1940
Act"), or in any other form permitted by law; (b) take any action necessary
to comply with or obtain and continue any exemptions from the 1940 Act, or to
comply with any other applicable law; (c) transfer any assets in any Sub-
account to another Sub-account, or to one or more separate investment
accounts, or the General Account; or to add, combine or remove Sub-accounts
in the Variable Account; and (d) change the way We assess charges, so long as
We do not increase the aggregate amount beyond that currently charged to the
Variable Account and the Eligible Funds in connection with this Certificate.
If the shares of any of the Eligible Funds should become unavailable for
investment by the Variable Account or if in Our judgment further investment
in such Portfolio shares should become inappropriate in view of the purpose
of the Certificate, We may add or substitute shares of another mutual fund
for the Portfolio shares already purchased under the Certificate. No
substitution of Portfolio shares in any Sub-account may take place without
prior approval of the Securities and Exchange Commission and notice to the
affected Certificate Owners, to the extent required by the 1940 Act.
Certificate Owner
You are the Certificate Owner of this Certificate. You have all rights and
may receive all benefits under a Certificate. A Certificate Owner is the
person designated as such on the Certificate Date, unless changed. You may
exercise all rights of this Certificate while it is In Force, subject to the
rights of (a) any assignee under an assignment filed with Us, and (b) any
irrevocably named Beneficiary.
Joint Certificate Owner
A Certificate can be owned by Joint Certificate Owners. Upon the death of
any Certificate Owner or Joint Certificate Owner, the surviving owner(s) will
be the primary Beneficiary(ies). Any other beneficiary designation will be
treated as a Contingent Beneficiary unless otherwise indicated in a Written
Request filed with Us.
Annuitant
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated by You at the Certificate Date, unless
changed prior to the Income Date. Any change of Annuitant is subject to Our
underwriting rules then in effect. The Annuitant may not be changed in a
Certificate which is owned by a non-natural person. You may name a
Contingent Annuitant. The Contingent Annuitant becomes the Annuitant if the
Annuitant dies while this Certificate is In Force. If the Annuitant dies
and no Contingent Annuitant has been named, We will allow You sixty days to
designate someone other than Yourself as Annuitant. You will be the
Contingent Annuitant unless You name someone else. If the Certificate is
owned by a non-natural person, the death of the Annuitant will be treated as
the death of the Certificate Owner and a new Annuitant may not be designated.
Beneficiary
The Beneficiary is the person who controls the Certificate if any Certificate
Owner dies prior to the Income Date. If the Certificate is owned by Joint
Certificate Owners, upon the death of any Certificate Owner or Joint
Certificate Owner, the surviving owner(s) will become the primary
Beneficiary. Any other beneficiary designation will be treated as a
Contingent Beneficiary unless otherwise indicated in a Written Request filed
with Us. If You name more than one Person as Primary Beneficiary or as
Contingent Beneficiary, and do not state otherwise on an application or in a
Written Request to Us, any non-survivors will not receive a benefit. The
survivors will receive equal shares. Subject to the rights of any
irrevocable Beneficiary(ies), You may change primary or contingent
Beneficiary(ies). A change must be made by Written Request and will be
effective as of the date the Written Request is signed. We will not be
liable for any payment We make or action We take before We receive the
Written Request.
Group Contract Owner
The Group Contract Owner has title to the Group Contract. The Group Contract
and any amount accumulated under any Certificate are not subject to the
claims of the Group Contract Owner or any of its creditors. The Group
Contract Owner may transfer ownership of this Group Contract. Any transfer
of ownership terminates the interest of any existing Group Contract Owner.
It does not change the rights of any Certificate Owner. Nothing in the Group
Contract shall invalidate or impair any right granted to the Certificate
Owner by the Certificate or New York law.
Change of Certificate Owner, Beneficiary or Contingent Annuitant
While this Certificate is In Force, You may by Written Request change the
primary Certificate Owner, Joint Certificate Owner, primary Beneficiary,
Contingent Beneficiary, Contingent Annuitant, or in certain instances, the
Annuitant. An irrevocably named Person may be changed only with the written
consent of such Person. The change will be effective, following Our receipt
of the Written Request, as of the date the Written Request is signed. The
change will not affect any payments We make or actions We take prior to the
time We receive the Written Request.
Assignment of the Certificate
You may assign this Certificate at any time while it is In Force. The
assignment must be in writing and a copy must be filed at Our Office. Your
rights and those of any revocably named Person will be subject to the
assignment. An assignment will not affect any payments We make or actions We
take before We receive the assignment. We are not responsible for the
validity of any assignment.
Misstatement of Age or Sex
If the age or sex of the Annuitant or any payee has been misstated, We will
compute the amount payable based on the correct age and sex. If Annuity
Payments have begun, any underpayment(s) that have been made plus interest
thereon at a rate of 5% per year will be paid in full with the next Annuity
Payment. Any overpayment plus interest thereon at a rate of 5% per year,
unless repaid to Us in one sum, will be deducted from future Annuity Payments
otherwise due until We are repaid in full.
Non-Participating
This Certificate does not participate in Our divisible surplus.
Evidence of Death, Age, Sex or Survival
If a Certificate provision relates to the death of a natural Person, We will
require proof of death before We will act under that provision. Proof of
death shall be: (a) a certified death certificate; or (b) a certified decree
of a court of competent jurisdiction as to the finding of death; or (c) a
written statement by a medical doctor who attended the deceased; or (d) any
other document constituting due proof of death under applicable state law.
If Our action under a Certificate provision is based on the age, sex, or
survival of any Person, We may require evidence of the particular fact before
We act under that provision.
Protection of Proceeds
No Beneficiary or payee may commute or assign any payments under a
Certificate before they are due. To the extent permitted by law, no payments
shall be subject to the debts of any Beneficiary or payee or to any judicial
process for payment of those debts.
Reports
We will send Certificate Owners a report that shows the Certificate Value at
least once each Certificate Year. We will send any other reports that may be
required by law.
Taxes
Any taxes paid to any governmental entity relating to a Certificate will be
deducted from the Purchase Payments or Certificate Value. We may, in Our
sole discretion, delay the deduction until a later date. By not deducting
tax payments at the time of Our payment, We do not waive any right We may
have to deduct amounts at a later date. We will, in Our sole discretion,
determine when taxes relate to a Certificate or to the operation of the
Variable Account. We reserve the right to establish a provision for federal
income taxes if We determine, in Our sole discretion, that We will incur a
tax as a result of the operation of the Variable Account. Such a provision
will be reflected in the Accumulation and Annuity Unit Values. We will
deduct for any income taxes incurred by Us as a result of the operation of
the Variable Account whether or not there was a provision for taxes and
whether or not it was sufficient. We will deduct from any payment under this
Certificate any withholding taxes required by applicable law.
Regulatory Requirements
All values payable under a Certificate will not be less than the minimum
benefits required by the laws and regulations of the states in which the
Certificate is delivered.
Suspension or Deferral of Payments
We reserve the right to suspend or postpone payments for a withdrawal,
transfer, surrender or death benefit for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings); or
(2) trading on the New York Stock Exchange is restricted; or
(3) an emergency exists as a result of which valuation or disposal of
the assets and securities of the Variable Account is not reasonably
practicable; or
(4) the Securities and Exchange Commission, by order or pronouncement,
so permits for the protection of Certificate Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission govern as to whether the conditions described in (2) and (3) above
exist.
We reserve the right to delay payment of amounts allocated to the Fixed
Account for up to six months.
Variable Account Provisions
The Variable Account
The Variable Account(s) is designated on the Certificate Schedule and
consists of assets set aside by Us, which are kept separate from Our general
assets and all other variable account assets We maintain. We own the assets
of the Variable Account. Variable Account assets equal to reserves and other
contract liabilities will not be chargeable with liabilities arising out of
any other business We may conduct. We may transfer to Our General Account
assets which exceed the reserves and other liabilities of the Variable
Account. Income and realized and unrealized gains or losses from assets in
the Variable Account are credited to or charged against the account without
regard to other income, gains or losses in Our other investment accounts.
The Variable Account assets are divided into Sub-accounts. The Sub-accounts
which are available under the Certificate are shown on the Certificate
Schedule. The assets of the Sub-accounts of the unit investment trust
variable separate account are allocated to the Eligible Fund(s) and the
Portfolio(s), if applicable, within an Eligible Fund shown on the Certificate
Schedule. The assets of the Sub-accounts of the investment company variable
separate account, if applicable, are invested in portfolios of securities
designed to meet the objectives of the Sub-Account shown on the Certificate
Schedule. We may, from time to time, add additional Sub-accounts, Eligible
Funds or Portfolios to those shown on the Certificate Schedule. You may be
permitted to transfer Certificate Values or allocate Purchase Payments to the
additional Sub-Accounts, Eligible Funds or Portfolios. However, the right to
make such transfers or allocations will be limited by the terms and
conditions imposed by Us.
We also have the right to eliminate Sub-accounts from the Variable Account,
to combine two or more Sub-accounts or to substitute a new Portfolio for the
Portfolio in which a Sub-account invests. A substitution may become
necessary if, in Our discretion, a Portfolio or Sub-account no longer suits
the purposes of the Group Contract. This may happen: due to a change in
laws or regulations or a change in a Portfolio's investment objectives or
restrictions; because the Portfolio or Sub-account is no longer available for
investment; or for some other reason. We will obtain any prior approvals
that may be required from the insurance department of Our state of domicile,
the New York Superintendent of Insurance and from the SEC or any other
governmental entity before making such a substitution.
When permitted by law, We reserve the right to:
(1) Deregister a Variable Account under the 1940 Act;
(2) Operate a Variable Account as a management company under the 1940
Act, if it is operating as a unit investment trust;
(3) Operate a Variable Account as a unit investment trust under the 1940
Act, if it is operating as a management company;
(4) Restrict or eliminate any voting rights as to the account;
(5) Combine the Variable Account with any other variable account.
Valuation of Assets
The assets of the Variable Account are valued at their fair market value in
accordance with Our procedures.
Accumulation Units
Your Variable Account value will fluctuate in accordance with the investment
results of the Sub-accounts to which You have allocated Your Purchase
Payments or Certificate Value. In order to determine how these fluctuations
affect Your Certificate Value, We use an Accumulation Unit value.
Accumulation Units are used to account for all amounts allocated to or
withdrawn from the Sub-accounts of the Variable Account as a result of
Purchase Payments, partial withdrawals, transfers, or charges deducted from
the Certificate Value. We determine the number of Accumulation Units of a
Sub-account purchased or canceled by dividing the amount allocated to, or
withdrawn from, the Sub-account by the dollar value of one Accumulation Unit
of the Sub-account as of the end of the Valuation Period during which We
receive the request for the transaction.
Accumulation Unit Value
The Accumulation Unit Value for each Sub-account was initially set at $10.
Subsequent Accumulation Unit Values for each Sub-account are determined by
multiplying the Accumulation Unit Value for the immediately preceding
Valuation Period by a net investment factor for the Sub-account for the
current period. This factor may be greater or less than 1.0; therefore, the
Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
We calculate the net investment factor for each Sub-account investing in
shares of mutual funds by dividing (a) by (b) and then subtracting (c) where:
(a) is equal to:
(i) the net asset value per share of the Portfolio in which the
Sub-account invests at the end of the Valuation Period; plus
(ii) any dividend per share declared for the Portfolio that has an
ex-dividend date within the current Valuation Period.
(b) is the net asset value per share of the Portfolio at the end of the
preceding Valuation Period.
(c) is equal to:
(i) the sum of each Valuation Period equivalent of the annual rate
for the Mortality and Expense Risk Charge, for the
Administrative Charge, and for the Distribution Charge, if any,
which are shown on the Certificate Schedule; plus
(ii) a charge factor, if any, for any tax provision established by
Us a result of the operation of the Sub-account.
We calculate the net investment factor for each Sub-account investing
directly in securities with the same formula, except:
(a) is equal to:
(i) the value of the assets in the Sub-account at the end of the
preceding Valuation Period; plus
(ii) any investment income and capital gains, realized or
unrealized, credited to the assets during the current Valuation
Period; less
(iii) any capital losses, realized or unrealized, charged against the
assets during the current Valuation Period; less
(iv) all operating and investment expenses relating to the assets
that are incurred during the current Valuation Period.
(b) is the value of the assets in the Sub-account at the end of the
preceding Valuation Period.
Mortality and Expense Risk Charge
Each Valuation Period We deduct a Mortality and Expense Risk Charge from each
Sub-account of the Variable Account which is equal, on an annual basis, to
the amount shown on the Certificate Schedule. The Mortality and Expense Risk
Charge compensates Us for assuming the mortality and expense risks with
respect to the Certificates We issue. We guarantee the dollar amount of each
Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
Administrative Charge
Each Valuation Period We deduct an Administrative Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Administrative Charge compensates Us for the costs
associated with administration of the Variable Account and the Certificates
We issue.
Distribution Charge
Each Valuation Period We deduct a Distribution Charge from the Variable
Account which is equal, on an annual basis, to the amount shown on the
Certificate Schedule. The Distribution Charge compensates Us for the costs
associated with the distribution of the Certificates We issue.
Certificate Maintenance Charge
We deduct a Certificate Maintenance Charge from the Certificate Value by
canceling Accumulation Units from each applicable Sub-account to reimburse
Us for expenses relating to the maintenance of the Certificate. We will
deduct the Certificate Maintenance Charge from the Sub-accounts of the
Variable Account in the same proportion that the amount of Certificate Value
in each Sub-account bears to the Certificate Value. The Certificate
Maintenance Charge is shown on the Certificate Schedule. The Certificate
Maintenance Charge will be deducted from the Certificate Value on each
Certificate Anniversary during the Accumulation Period.
If a total surrender is made on a date other than a Certificate Anniversary,
the Certificate Maintenance Charge will be deducted at the time of surrender.
During the Annuity Period, the Certificate Maintenance Charge will be
deducted on a pro-rata basis from each Annuity Payment.
Transfers
Subject to any limitation We impose on the number of transfers permitted in a
Certificate Year, You may transfer all or part of Your Certificate Value
among the Sub-accounts and the Fixed Account, if any, by Written Request or
by telephone without the imposition of any fees or charges. Transfers among
the Sub-accounts and the Fixed Account are permitted only during the
Accumulation Period. The number of permitted transfers, and the charge for
transfers in excess of that number, are shown on the Certificate Schedule.
All transfers are subject to the following:
(1) If more than the number of free transfers, shown on the Certificate
Schedule, are made in a Certificate Year, We will deduct a transfer charge,
shown on the Certificate Schedule, for each subsequent transfer. The
transfer fee will be deducted from the Sub-account from which the transfer is
made. However, if You transfer Your entire interest in a Sub-account, the
transfer fee will be deducted from the amount transferred. If You make a
transfer from more than one Sub-account, any transfer fee will be allocated
pro-rata among such Sub-accounts in proportion to the amount transferred from
each. The deduction of any fees We impose on such transfers will not exceed
the maximum listed on page 3.
(2) During the Annuity Period, transfers of values between Sub-accounts
will be made by converting the number of Annuity Units being transferred to
the number of Annuity Units in the Sub-account to which a transfer is made,
so that the next Annuity Payment, if it were made at that time, would be the
same amount that it would have been without the transfer. Thereafter,
Annuity Payments will reflect changes in the value of the new Annuity Units.
(3) The minimum amount which can be transferred is shown on the
Certificate Schedule. The minimum amount which must remain in a Sub-account
after a transfer is shown on the Certificate Schedule.
(4) If 100% of the value of any Sub-account is transferred and the
current allocation for Purchase Payments includes that Sub-account, the
allocation for future Purchase Payments will change to reflect Your
allocation of Certificate Value following the transfer.
(5) We reserve the right, at any time and without prior notice to any
party, to terminate, suspend or modify the transfer privileges described
above.
We will not be liable for transfers made in accordance with Your
instructions. All amounts and Accumulation Units will be determined as of
the end of the Valuation Period in which We receive the request for
transfer.
Partial Withdrawals and Total Surrender
Partial Withdrawals
During the Accumulation Period while the Certificate is In Force, You may,
upon Written Request, make a partial withdrawal, subject to the provisions
and limitations shown on the Certificate Schedule. For purposes of
determining whether a surrender charge is applicable to Your partial
withdrawal:
(1) Your partial withdrawal will first be taken from the portion of Your
Certificate Value which is in excess of Your Purchase Payments, and
then from Your Purchase Payments; and
(2) We will allocate partial withdrawals to Purchase Payments in the
order in which the Purchase Payments were made, starting with the
first.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-account in the ratio that Your interest in the Sub-account
bears to Your Certificate Value in all the Sub-accounts. You must specify by
Written Request in advance if You want Accumulation Units to be canceled in a
manner other than the method described above. If there is no value or
insufficient value in the Variable Account, then the amount withdrawn, or the
insufficient portion, will be deducted from the Fixed Account. If You have
multiple Guarantee Periods, We will deduct such amount from each Guarantee
Period's values in the ratio that each Period's values bears to the total
Fixed Account Value. You must specify by Written Request in advance if You
want multiple Guarantee Periods to be reduced in a manner other than the
method described above. Any amount deducted from the Fixed Account Value may
be subject to a market value adjustment, if applicable.
Each partial withdrawal must be for an amount not less than the amount shown
on the Certificate Schedule. The Certificate Value which must remain in a
Certificate is shown on the Certificate Schedule. The Certificate Schedule
also shows any charge.
Total Surrender
During the Accumulation Period while the Certificate is In Force, You may,
upon Written Request, make a total surrender of the Certificate Withdrawal
Value. The Certificate Withdrawal Value is:
(1) the Certificate Value as of the end of the Valuation Period during
which We receive a Written Request for a withdrawal or surrender;
less
(2) any applicable taxes not previously deducted; less
(3) any Surrender Charge; less
(4) any Certificate Maintenance Charge.
The Fixed Account Value, which is a component of the Certificate Value, may
be subject to a market value adjustment, if applicable.
We will pay the amount of any withdrawal or surrender within seven days
unless the Suspension or Deferral of Payments Provision is in effect.
Death Provisions
Death of Certificate Owner
These provisions apply if, during the Accumulation Period while the
Certificate is In Force, the Certificate Owner or any Joint Certificate Owner
dies (whether or not the decedent is also the Annuitant) or the Annuitant
dies under a Certificate owned by a non-natural Person. The "designated
beneficiary" will control the Certificate after such a death. This
"designated beneficiary" will be the first Person among the following who is
alive on the date of death: Certificate Owner; Joint Certificate Owner;
primary Beneficiary; Contingent Beneficiary; and Certificate Owner's estate.
If the Certificate Owner and Joint Certificate Owner are both alive, they
shall be the "designated beneficiary" together.
If the decedent's surviving spouse (if any) is the sole "designated
beneficiary", the surviving spouse will automatically become the new sole
Certificate Owner as of the date of the death. And, if the Annuitant is the
decedent, the new Annuitant will be any living Contingent Annuitant,
otherwise the surviving spouse. The Certificate may stay in force until
another death occurs (i.e., until the death of the Certificate Owner or Joint
Certificate Owner). Except for this paragraph, all of "Death Provisions" will
apply to that subsequent death.
In all other cases, the Certificate may stay in force up to five years from
the date of death. During this period, the "designated beneficiary" may
exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to surrender the Certificate for its
Certificate Withdrawal Value. If this Certificate is still in force at the
end of the five-year period, We will automatically end it then by paying to
the "designated beneficiary" the Certificate Withdrawal Value without the
deduction of any applicable surrender charges. If the "designated
beneficiary" is not alive then, We will pay any Person(s) named by the
"designated beneficiary" in a Written Request; otherwise the "designated
beneficiary's" estate.
Death of Annuitant
These provisions apply if during the Accumulation Period while the
Certificate is In Force, (a) the Annuitant dies, (b) the Annuitant is not an
Owner, and (c) the Owner is a natural person. The Certificate will continue
In Force after the Annuitant's death. The new Annuitant will be any living
Contingent Annuitant, otherwise the Certificate Owner.
Payment of Benefits
Instead of receiving a lump sum, You or any "designated beneficiary" may by
Written Request direct that We pay any benefit of $2,000 or more under an
Annuity Option that meets the following: (a) the first payment to the
"designated beneficiary" must be made no later than one year after the date
of death; (b) payments must be made over the life of the "designated
beneficiary" or over a period not extending beyond that person's life
expectancy; and (c) any Annuity Option that provides for payments to continue
after the death of the "designated beneficiary" will not allow the successor
payee to extend the period of time over which the remaining payments are to
be made.
Annuity Provisions
General
If the Certificate is In Force on the Income Date, the Adjusted Certificate
Value will be applied under the Annuity Option selected by You. Annuity
Payments may be made on a fixed or variable basis or both.
Income Date
The Income Date may be selected by You. It is shown on the Certificate
Schedule. The Income Date can be any time after the Certificate Date for
variable payments and any time after the first Certificate Anniversary for
fixed payments. The Income Date may not be later than the earlier of when
the Annuitant reaches attained age 90 or that required under state law. If
no Income Date is selected, it will be the earlier of when the Annuitant
reaches attained age 90 or the maximum date permitted under state law, if
any.
Prior to the Income Date, You may change the Income Date by Written Request.
Any change must be requested at least 30 days prior to the new Income Date.
Selection of an Annuity Option
An Annuity Option may be selected by You. If no Annuity Option is selected,
Option B will automatically be applied. Prior to the Income Date, You may
change the Annuity Option selected by Written Request. Any change must be
requested at least 30 days prior to the Income Date.
Frequency and Amount of Annuity Payments
Annuity Payments are paid in monthly installments unless quarterly, semi-
annual or annual payments are chosen. The Adjusted Certificate Value is
applied to the Annuity Table for the Annuity Option selected. If the
Adjusted Certificate Value to be applied under an Annuity Option is less than
$2,000, We reserve the right to make a lump sum payment in lieu of Annuity
Payments. If the Annuity Payment would be or becomes less than $100, We will
reduce the frequency of payments to a longer interval which will result in
each payment being at least $100.
Annuity Options
The following Annuity Options or any other Annuity Option acceptable to Us
may be selected:
OPTION A. ANNUITY FOR A FIXED NUMBER OF YEARS: Annuity Payments for a
chosen number of years, not less than 5. If the payee dies during the
payment period and the Beneficiary does not desire payments to continue for
the remainder of the period, he/she may elect to have the present value of
the remaining payments commuted and paid in a lump sum. During the payment
period of a Variable Annuity, the payee may elect by Written Request to
receive the following amount: (a) the present value of the remaining payments
commuted; less (b) any surrender charge that may be due by treating the value
defined in (a) as a surrender. Instead of receiving a lump sum, the payee
may elect another Annuity Option. The amount applied to that Option would
not be reduced by the charge defined in (b).
OPTION B. LIFE ANNUITY WITH PERIOD CERTAIN OF 10 YEARS: Annuity Payments
during the lifetime of the payee and in any event for 10 years certain. If
the payee dies during the guaranteed payment period and the Beneficiary does
not desire payments to continue for the remainder of the guaranteed period,
he/she may elect to have the present value of the guaranteed payments
remaining commuted and paid in a lump sum.
OPTION C. JOINT AND SURVIVOR ANNUITY: Annuity Payments payable during
the joint lifetime of the payee and a designated second natural person and
then during the lifetime of the survivor.
Unless the Annuity Option provides for commutation by the payee, a payee may
not withdraw or otherwise end an Annuity Option after it begins. Payments
will end upon the payee's death unless the Annuity Option provides for
payments continuing to a successor payee. No successor payee may extend the
period of time over which the remaining payments are to be made.
Annuity
If You select a Fixed Annuity, the Adjusted Certificate Value is allocated to
the General Account and the Annuity is paid as a Fixed Annuity. If You
select a Variable Annuity, the Adjusted Certificate Value will be allocated
to the Sub-accounts of the Separate Account in accordance with the selection
You make, and the Annuity will be paid as a Variable Annuity. You can also
select a combination of a Fixed and Variable Annuity and the Adjusted
Certificate Value will be allocated accordingly. If You don't select between
a Fixed Annuity and a Variable Annuity, any Adjusted Certificate Value in the
Variable Account will be applied to a Variable Annuity and any Adjusted
Certificate Value in the Fixed Account will be applied to a Fixed Annuity.
The Adjusted Certificate Value will be applied to the applicable Annuity
Table contained in the Certificate based upon the Annuity Option You select.
If, as of the Income Date, the current Annuity Option rates applicable to the
class of Certificates issued under the Group Contract provide an initial
Annuity Payment greater than the initial Annuity Payment guaranteed under the
applicable Annuity Table in the Certificate, the greater payment will be
made.
Fixed Annuity
The minimum dollar amount of each Fixed Annuity Payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. After the initial
Fixed Annuity payment, the payments will not change regardless of investment,
mortality or expense experience.
Variable Annuity
Variable Annuity Payments reflect the investment performance of the Variable
Account in accordance with the allocation of the Adjusted Certificate Value
to the Sub-accounts during the Annuity Period. Variable Annuity payments are
not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity payment for each $1,000 of
Adjusted Certificate Value is shown in the Annuity Tables. The dollar amount
of Variable Annuity payments for each applicable Sub-account after the first
Variable Annuity Payment is determined as follows:
(1) the dollar amount of the first Variable Annuity payment is divided
by the value of an Annuity Unit for each applicable Sub-account as of the
Income Date. This sets the number of Annuity Units for each monthly payment
for the applicable Sub-account. The number of Annuity Units for each
applicable Sub-account remains fixed during the Annuity Period;
(2) the fixed number of Annuity Units per payment in each Sub-account
is multiplied by the Annuity Unit Value for that Sub-account for the
Valuation Period for which the payment is due. This result is the dollar
amount of the payment for each applicable Sub-account.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account Variable Annuity payments reduced by the applicable portion of
the Certificate Maintenance Charge.
Annuity Unit
The value of any Annuity Unit for each Sub-Account of the Separate Account
was initially set at $10.
The Sub-account Annuity Unit Value at the end of any subsequent Valuation
Period is determined as follows:
(1) the net investment factor calculated as set forth on pages 11-12
(but without the Distribution Charge, if any) for the current Valuation
Period is multiplied by the value of the Annuity Unit for the Sub-account for
the immediately preceding Valuation Period.
(2) the result in (1) is then divided by the Assumed Investment Rate
Factor which equals 1.00 plus the Valuation Period equivalent of the Assumed
Investment Rate for the number of days in the current Valuation Period. The
Assumed Investment Rate is equal to 5% per year.
The value of an Annuity Unit may increase or decrease from Valuation Period
to Valuation Period.
Using the Tables
Tables 2, 3, 5, and 6 are age-dependent. The amount of the first annuity
payment will be based on an age a specified number of years younger than the
person's then-attained age (i.e., age last birthday). This age setback is as
follows:
Date of First Payment Age Setback
1996-1999 1 year
2000-2009 2 years
2010-2019 4 years
2020-2029 5 years
2030 or later 6 years
We will calculate the amount for a payment frequency other than monthly and
for any ages not shown in Tables 2, 3, 5, and 6 in accordance with the next
section. Upon request, We will tell You any such amount.
Basis of Calculation
Tables 1 and 4 are based on interest at 5% and 3%, respectively. Tables 2,
3, 5, and 6 are based on the 1983 Individual Annuity Valuation Tables (sex
distinct) with interest at 5% (Tables 2 and 3) and 3% (Tables 5 and 6),
projected dynamically with Projection Scale G.
TABLE 1: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 1 FOR EACH
$1,000 APPLIED
Years Payment Years Payment Years Payment Years Payment
5 $18.74 12 $9.16 19 $6.71 25 $5.76
6 15.99 13 8.64 20 6.51 26 5.65
7 14.02 14 8.20 21 6.33 27 5.54
8 12.56 15 7.82 22 6.17 28 5.45
9 11.42 16 7.49 23 6.02 29 5.36
10 10.51 17 7.20 24 5.88 30 5.28
11 9.77 18 6.94
TABLE 2: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 2 FOR EACH
$1,000 APPLIED
Age Male Female Age Male Female Age Male Female Age Male Female
30 $4.45 $4.34 47 $5.05 $4.78 64 $6.54 $5.98 80 $9.14 $8.67
31 4.47 4.35 48 5.11 4.82 65 6.68 6.10 81 9.29 8.86
32 4.50 4.37 49 5.17 4.87 66 6.82 6.22 82 9.44 9.05
33 4.52 4.39 50 5.23 4.92 67 6.97 6.35 83 9.57 9.23
34 4.55 4.41 51 5.29 4.97 68 7.12 6.49 84 9.69 9.40
35 4.57 4.43 52 5.36 5.02 69 7.28 6.63 85 9.81 9.55
36 4.60 4.45 53 5.43 5.08 70 7.44 6.79 86 9.91 9.69
37 4.63 4.47 54 5.50 5.13 71 7.61 6.95 87 10.01 9.82
38 4.67 4.49 55 5.58 5.20 72 7.78 7.12 88 10.10 9.94
39 4.70 4.52 56 5.67 5.27 73 7.95 7.30 89 10.17 10.04
40 4.74 4.55 57 5.76 5.34 74 8.12 7.48 90 10.24 10.13
41 4.78 4.57 58 5.85 5.41 75 8.30 7.67 91 10.30 10.21
42 4.82 4.60 59 5.95 5.49 76 8.47 7.87 92 10.35 10.27
43 4.86 4.64 60 6.06 5.58 77 8.65 8.07 93 10.39 10.33
44 4.91 4.67 61 6.17 5.67 78 8.82 8.27 94 10.43 10.37
45 4.95 4.70 62 6.29 5.77 79 8.98 8.47 96 10.45 10.41
46 5.00 4.74 63 6.41 5.87
TABLE 3: FIRST MONTHLY PAYMENT PAYABLE UNDER VARIABLE OPTION 3 FOR EACH
$1,000 APPLIED
COMBINATION OF AGES
FEMALE AGE
30 35 40 45 50 55 60 65 70 75 80 85 90 95
30 $4.24$4.28$4.31$4.34$4.36$4.38$4.40$4.42$4.43$4.44$4.45 $4.45 $4.45 $4.46
35 4.26 4.30 4.35 4.39 4.43 4.47 4.50 4.52 4.54 4.56 4.57 4.57 4.58 4.58
40 4.28 4.33 4.39 4.45 4.51 4.56 4.61 4.65 4.68 4.71 4.73 4.74 4.75 4.75
M 45 4.29 4.35 4.42 4.50 4.58 4.66 4.74 4.80 4.86 4.90 4.93 4.96 4.97 4.98
A 50 4.30 4.37 4.46 4.55 4.66 4.77 4.88 4.98 5.07 5.14 5.20 5.23 5.25 5.27
L 55 4.31 4.39 4.48 4.59 4.73 4.87 5.03 5.18 5.32 5.44 5.53 5.59 5.63 5.65
E 60 4.32 4.40 4.50 4.63 4.78 4.97 5.18 5.40 5.61 5.80 5.96 6.07 6.13 6.17
65 4.33 4.41 4.52 4.65 4.83 5.05 5.31 5.61 5.92 6.23 6.50 6.70 6.83 6.90
A 70 4.33 4.42 4.53 4.68 4.87 5.11 5.42 5.80 6.23 6.70 7.14 7.50 7.75 7.90
G 75 4.34 4.42 4.54 4.69 4.89 5.16 5.50 5.95 6.50 7.15 7.83 8.45 8.92 9.23
E 80 4.34 4.43 4.54 4.70 4.91 5.19 5.56 6.06 6.71 7.55 8.52 9.50 10.34 10.93
85 4.34 4.43 4.55 4.71 4.92 5.21 5.60 6.13 6.86 7.85 9.10 10.52 11.87 12.93
90 4.34 4.43 4.55 4.71 4.93 5.22 5.62 6.18 6.96 8.06 9.55 11.39 13.34 15.05
95 4.34 4.43 4.55 4.71 4.93 5.23 5.64 6.21 7.02 8.20 9.86 12.09 14.69 17.20
TABLE 4: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION A FOR EACH $1,000
APPLIED
Years Payment Years Payment Years Payment Years Payment
5 $17.91 12 $8.24 19 $5.73 25 $4.71
6 15.14 13 7.71 20 5.51 26 4.59
7 13.16 14 7.26 21 5.32 27 4.47
8 11.68 15 6.87 22 5.15 28 4.37
9 10.53 16 6.53 23 4.99 29 4.27
10 9.61 17 6.23 24 4.84 30 4.18
11 8.86 18 5.96
TABLE 5: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION B FOR EACH $1,000
APPLIED
Age Male Female Age Male Female Age Male Female Age Male Female
30 $3.12 $2.99 47 $3.82 $3.53 64 $5.40 $4.83 80 $8.15 $7.66
31 3.15 3.01 48 3.88 3.58 65 5.55 4.96 81 8.32 7.86
32 3.18 3.03 49 3.94 3.63 66 5.69 5.08 82 8.47 8.06
33 3.21 3.06 50 4.01 3.68 67 5.85 5.22 83 8.61 8.25
34 3.24 3.08 51 4.08 3.74 68 6.01 5.37 84 8.75 8.43
35 3.27 3.11 52 4.15 3.80 69 6.18 5.52 85 8.87 8.60
36 3.31 3.13 53 4.23 3.86 70 6.35 5.68 86 8.98 8.75
37 3.34 3.16 54 4.31 3.93 71 6.52 5.85 87 9.08 8.88
38 3.38 3.19 55 4.39 4.00 72 6.70 6.03 88 9.18 9.01
39 3.42 3.22 56 4.48 4.07 73 6.89 6.21 89 9.26 9.12
40 3.46 3.25 57 4.58 4.15 74 7.07 6.41 90 9.33 9.21
41 3.51 3.29 58 4.68 4.23 75 7.26 6.61 91 9.40 9.30
42 3.55 3.32 59 4.78 4.32 76 7.44 6.81 92 9.45 9.37
43 3.60 3.36 60 4.89 4.41 77 7.63 7.02 93 9.49 9.43
44 3.65 3.40 61 5.01 4.50 78 7.81 7.23 94 9.53 9.47
45 3.71 3.44 62 5.14 4.61 79 7.98 7.45 95 9.55 9.51
46 3.76 3.49 63 5.27 4.72
TABLE 6: MINIMUM MONTHLY PAYMENT PAYABLE UNDER FIXED OPTION C FOR EACH $1,000
APPLIED
COMBINATION OF AGES
FEMALE AGE
30 35 40 45 50 55 60 65 70 75 80 85 90 95
30$2.88$2.93$2.97$3.01$3.04$3.07$3.08$3.10$3.12$3.12$3.12 $3.12 $3.13$ 3.13
35 2.91 2.97 3.03 3.09 3.14 3.18 3.21 3.23 3.25 3.26 3.27 3.27 3.28 3.28
40 2.93 3.01 3.09 3.17 3.24 3.30 3.35 3.39 3.42 3.44 3.46 3.46 3.47 3.47
M 45 2.95 3.04 3.14 3.24 3.34 3.43 3.51 3.58 3.63 3.66 3.69 3.71 3.72 3.72
A 50 2.96 3.06 3.17 3.30 3.43 3.56 3.68 3.79 3.87 3.94 3.98 4.01 4.03 4.03
L 55 2.97 3.07 3.20 3.34 3.50 3.68 3.85 4.02 4.16 4.27 4.34 4.39 4.42 4.44
E 60 2.98 3.09 3.22 3.38 3.56 3.78 4.01 4.25 4.47 4.66 4.80 4.89 4.95 4.98
65 2.98 3.09 3.23 3.40 3.61 3.86 4.15 4.48 4.81 5.12 5.37 5.55 5.66 5.72
A 70 2.99 3.10 3.24 3.42 3.64 3.92 4.26 4.67 5.13 5.60 6.04 6.38 6.60 6.73
G 75 2.99 3.10 3.25 3.43 3.66 3.96 4.34 4.81 5.39 6.06 6.75 7.35 7.79 8.07
E 80 2.99 3.11 3.25 3.44 3.68 3.99 4.39 4.92 5.60 6.45 7.44 8.42 9.23 9.79
85 2.99 3.11 3.26 3.44 3.69 4.00 4.42 4.98 5.73 6.74 8.01 9.44 10.77 11.81
90 2.99 3.11 3.26 3.45 3.69 4.01 4.44 5.02 5.82 6.93 8.43 10.29 12.25 13.95
95 2.99 3.11 3.26 3.45 3.70 4.02 4.45 5.04 5.87 7.05 8.73 10.97 13.58 16.11
Endorsements
To be inserted only by Us
POLICY DESCRIPTION
This is a GROUP VARIABLE ANNUITY CERTIFICATE with limited purchase payment
flexibility. This certificate is nonparticipating with no dividends.
<PAGE>
EXHIBIT 8(b)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MANNING & NAPIER INSURANCE FUND, INC.
MANNING & NAPIER INVESTOR SERVICES, INC.
MANNING & NAPIER ADVISORS, INC.
AND
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
This Agreement, made and entered into this day of , 1996 by
and among Liberty Life Assurance Company of Boston, a Massachusetts
corporation, (referred to as the "Company"), each on its own behalf and on
behalf of its Separate Account, which is a segregated asset account of the
Company; Manning & Napier Insurance Fund, Inc. (the "Fund"), a Maryland
Corporation; Manning & Napier Investor Services, Inc. ("Distributor"), a New
York corporation; Manning & Napier Advisors, Inc. ("Advisor"), a New York
corporation.
WHEREAS, the Fund engages in business as an open-end investment manage
ment company and is available to act as the investment vehicle for separate
accounts established for variable life insurance policies and variable
annuity contracts ("Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Distributor substantially identical to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares (such series being hereinafter referred to individually as a
"Portfolio" or collectively as the "Portfolios") as shown on Schedule A
attached hereto; and
WHEREAS, the Fund currently intends to apply for an order from the
Securities and Exchange Commission ("SEC"), granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act of 1940, as amended (hereinafter the "1940 Act")
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity
separate and variable life insurance accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end investment management
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Manning & Napier Advisors, Inc. (the "Advisor") is duly
registered as an investment advisor under the federal Investment Advisors Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, the Company has established a duly organized, and validly
existing segregated asset account as shown on Schedule B attached hereto (the
"Separate Account") established by resolution of the Boards of Directors of
the Company, and divided such Separate Account into subaccounts to set aside
and invest assets attributable to aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register the certain
Separate Account as a unit investment trust under the 1940 Act; and
WHEREAS, Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, Keyport Financial Services Corporation ("KFSC") the underwriter
for the individual variable annuity and the variable life policies, is
registered as a broker-dealer with the SEC under the 1934 Act and is a member
in good standing of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on
behalf of the Separate Account to fund certain Variable Insurance Products.
Distributor is authorized to sell such shares to unit investment trusts such
as the Separate Account at net asset value, and acts as distributor of the
Portfolio shares.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 Distributor shall sell to the Company those shares of the Fund
which the Separate Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee
of the order for shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from the
Separate Account and receipt by such designee shall constitute receipt by the
Fund provided that the Company receives the order by 4:00 p.m. New York
time and the Fund receives notice from the Company, as the Company and Fund
may agree, by 9:00 a.m. New York time on the next Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for
regular trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2 The Fund agrees subject to the terms of this Agreement, to make its
shares available indefinitely for purchase at the applicable net asset value
per share by the Company and its Separate Account on those days on which the
Fund calculates its net asset value pursuant to rules of the SEC . The Fund
shall use reasonable efforts to calculate such net asset value on each day on
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole discretion
of the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts which have
agreed to participate in the Fund to fund their Separate Accounts and/or
certain qualified plans, all in accordance with the requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended (hereinafter "Code")
and Treasury Regulation 1.817-5. No shares of any Portfolio will be sold to
the general public.
1.4 The Fund and Distributor will not sell Fund shares to any insurance
company or separate account unless an agreement containing substantially
similar provisions as Articles I, III, V, VI and Sections 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5 The Fund will redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt by the
Fund or its designee of redemption requests. For purposes of this Section
1.5, the Company shall be the designee of the Fund for receipt of requests
for redemption from the Separate Account, and receipt by such designee should
constitute receipt by the Fund; provided that the Company receives the
request for redemption by 4:00 p.m. New York time, and the Fund receives
notice from the Company, as the Company and Fund may agree, by 9:00 a.m. New
York time on the next Business Day.
Subject to the applicable rules and regulations, if any, of the SEC, the
Fund may pay the redemption price for shares of any Portfolio in whole or in
part by a distribution in kind of securities from the Portfolio of the Fund
allocated to such Portfolio in lieu of money, valuing such securities at
their value employed for determining net asset value governing such
redemption price, and selecting such securities in a manner the Board may
determine in good faith to be fair and equitable.
1.6 The Fund may suspend the redemption of any full or fractional
shares of the Fund (1) for any period (a) during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings) or (b)
during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal
by the Fund of securities owned by it is not reasonably practicable or (b) it
is not reasonably practicable for the Fund fairly to determine the value of
its net assets; or (3) for such other periods as the SEC may by order permit
for the protection of shareholders of the Fund.
1.7 The Company will purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus and statement of additional information ("SAI")
(collectively referred to as "Prospectus," unless otherwise provided). The
Company agrees that all net amounts available under the Variable Insurance
Products with the form number(s) that are listed on Schedule B attached
hereto and incorporated herein by this reference, as such Schedule B may be
amended from time to time hereafter by mutual written agreement of all the
parties hereto (the "Contracts"), shall be invested in the Fund, in such
other Funds advised by Stein, Roe & Farnham Incorporated or the Advisor as
may be mutually agreed to in writing by the parties hereto, or in the
Company's general accounts, or in such other funds as the parties hereto
agree in writing.
1.8 The Company shall pay for Fund shares on the same Business Day as
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire,
or may otherwise be provided by separate agreement. For purpose of Section
2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
1.9 Issuance and transfer of the Funds' shares will be by book entry
only. Stock certificates will not be issued to the Company or the Separate
Account. Shares ordered from the Fund will be recorded in an appropriate
title for the Separate Account or the appropriate subaccount of the Separate
Account.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of any Portfolio. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and
to receive all such income, dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as
payment of such income, dividends and capital gains distributions.
1.11 The Fund shall make the net asset value per share for each Series
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available by 7 p.m., New York
time.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act to the extent required by the 1933 Act; that
the Contracts will be issued and distributed in compliance in all material
respects with all applicable federal and state laws and that the sale of the
Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that
it is an insurance company duly organized and in good standing under
applicable law and that prior to any issuance or sale of any Contract it has
legally and validly established the Separate Account as a segregated asset
account under the applicable state insurance laws and has registered or,
prior to any issuance or sale of the Contracts, will register the Separate
Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2 The Company represents and warrants that KFSC, the underwriter for
the individual variable annuity and the variable life policies, is a member
in good standing of the NASD and is a registered broker-dealer with the SEC.
The Company represents and warrants that the Company and KFSC will issue and
distribute such policies in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.3 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and
all applicable federal and any state securities laws and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or Distributor.
2.4 The Fund represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future. The Fund represents and warrants
that each Portfolio will comply with the diversification requirements set
forth in Section 817(h) of the Code, and the rules and regulations
thereunder, including without limitation Treasury Regulation 1.817-5, and
will notify the Company immediately upon having a reasonable basis for
believing any Fund has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Fund to
achieve compliance within the grace period afforded by Regulation 1.817-5.
The Fund acknowledges that any failure to qualify as a Regulated Investment
Company will eliminate the ability of the subaccounts to avail themselves of
the "look through" provisions of section 817(h) of the Code, and that as a
result the Contracts will almost certainly fail to qualify as annuity
contracts under section 817(h) of the Code.
2.5 The Company represents that the Contracts are currently treated as
endowment or annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Fund and Distributor immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that it is currently in compliance and
shall at all times remain in compliance with the applicable insurance laws of
the domiciliary states of the Participating Insurance Companies to the extent
that the Participating Insurance Companies advise the Fund, in writing, of
such laws or any changes in such laws.
2.7 Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
Distributor further represents that it will sell and distribute the Fund's
shares in accordance with applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9 The Fund represents and warrants that the Advisor is and shall
remain duly registered under all applicable federal and state securities laws
and that the Advisor shall perform its obligations for the Fund in compliance
in all material respects with the applicable laws of the State of New York
and any applicable state and federal securities laws.
2.10 The Fund represents and warrants that all of its Directors,
officers, employees, investment advisors, and other individuals/entities
dealing with the money and/or to securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage in an amount not less than the minimal coverage as required
currently by Rule 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisors, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, in an amount
not less than ten million dollars ($10,000,000) with no deductible amount.
The aforesaid bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable fidelity insurance company. The Company agrees
to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the
Fund and Distributor in the event such coverage no longer applies.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1 The Fund and the Advisor shall provide the Company with as many
copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request in connection with delivery
of the prospectus to shareholders and purchasers of Variable Insurance
Products. If requested by Company in lieu thereof, the Fund or the Advisor
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of Company, as a diskette in the
form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if
the prospectus for the shares is supplemented or amended) to have the
prospectus for the Variable Insurance Products and the prospectus for the
Fund shares printed together in one document. The expenses of such printing
will be apportioned between the Company and the Fund as the parties agree to
in writing. In the event that the Company requests that the Fund or the
Advisor provide the Fund's prospectus in a "camera ready" or diskette format,
the Fund shall be responsible for providing the prospectus in the format in
which it is accustomed to formatting prospectuses and shall bear the expense
of providing the prospectus in such format (e.g. typesetting expenses) and
the Company shall bear the expense of adjusting or changing the format to
conform with any of its prospectus.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from Distributor and the Company, and
at its expense, shall provide a final copy of such Statement of Additional
Information to Distributor for duplication and provision to any Owner of a
Variable Insurance Product or prospective owner who requests it.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy materials, reports to shareholders and other communications (except
for prospectus and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distribution to owners of Variable Insurance Products
(hereinafter "Owners").
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote the Fund shares in accordance with instructions
received from Owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular Separate Account in the same
proportion as Fund shares of such Portfolio for which
instructions have been received in that Separate Account,
so long and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
Separate Accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards to be provided in writing to the
Participating Insurance Companies.
3.5 The Fund shall comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well
as with Section 16(a) and, if and when applicable, 16(b). Further, the Fund
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, the form of each piece of sales literature or other
promotional material in which the Fund or its investment advisor is named, at
least ten (10) Business Days prior to its use. No such material shall be used
if the Fund or its designee reasonably objects to such use within five (5)
Business Days after receipt of its material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of Variable Insurance Products other than the
information or representations contained in the registration statement or
Prospectus for the Fund shares, as such registration statement and Prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee, except with the permission of the Fund
or its designee.
4.3 The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Separate
Account(s), are named at least ten (10) Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects
to such use within five (5) Business Days after receipt of such material.
4.4 The Fund shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, each
Separate Account, or the Variable Insurance Products other than the
information or representations contained in or accurately derived from a
registration statement or prospectus for such Variable Insurance Products, as
such registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for such Separate Account which
are in the public domain or approved by the Company for distribution to
Owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
4.5 The Fund shall provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
4.6 The Company shall provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Variable Insurance Products or any Separate Account, contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature ( i. e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the 1933 Act, the 1940 Act
or NASD rules.
ARTICLE V. Fees and Expenses
5.1 The Fund shall pay no fee or other compensation to the Company
under this Agreement (except for items covered in Article III), except that
if the Fund or any Portfolio adopts and implements a plan pursuant to Rule
12b-1 to finance distribution expenses, then Distributor may make payments to
the Company for the Variable Insurance Products if and in amounts agreed to
by Distributor in writing and such payments will be made out of existing fees
payable to Distributor, past profits of Distributor or other resources
available to Distributor. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and if and to the extent deemed advisable by the Fund,
in accordance with applicable state laws prior to their sale. The Fund shall
bear the expenses of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement,
proxy materials and reports, setting the prospectus in type, setting in type
and printing the proxy materials and reports to shareholders (including the
costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state
law, and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
proxy materials and reports to Owners.
ARTICLE VI. Potential Conflicts
6.1 The parties acknowledge that the Fund presently intends to file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary
to permit the Fund shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. It is anticipated that
the Exemptive Order, when and if issued, shall require the Fund and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 6. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 6,
the conditions and undertakings imposed by the Exemptive Order shall govern
this Agreement and the parties hereto agree to amend this Agreement
consistent with the Exemptive Order. The Fund will not enter into a
participation agreement with any other Participating Insurance Company unless
it imposed the same conditions and undertakings as are imposed on the
Company.
6.2 The Board shall monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Owners of separate
accounts of Participating Insurance Companies investing in the Fund. A
material irreconcilable conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance policy Owners; (f) a decision by
an insurer to disregard the voting instructions of Owners; or (g) if
applicable, a decision of a Qualified Plan to disregard the voting
instructions of plan participants. The Board shall promptly inform the
Company if it determines that a material irreconcilable conflict exists and
the implications thereof.
6.3 The Company will report any potential or existing conflicts
(including the occurrence of any event specified in paragraph 6.1 which may
give rise to such a conflict) of which it is aware to the Board. The Company
will assist the Board in carrying out their responsibilities under the Shared
Funding Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Board whenever Owner voting instructions are disregarded. The
responsibilities of the Company will be carried out with a view to the
interests of the Owners.
6.4 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the
separate accounts of Participating Insurance Companies from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting
the question whether such segregation should be implemented to a vote of all
affected Owners and, as appropriate, segregating the assets of any particular
group ( i. e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Owners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
6.5 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall be required, at the Fund's election, to withdraw the affected Separate
Account's (or subaccount's) investment in the Fund and terminate this
Agreement with respect to such Separate Account (or subaccount); provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. The responsibility to
take such remedial action shall be carried out with a view only to the
interests of the Owners. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision
is being implemented, and until the end of that six (6) month period
Distributor and the Fund shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Fund.
6.6 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in
writing that it has determined that such decision has created a
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six (6)
month period, Distributor and the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund.
6.7 For purposes of Sections 6.4 through 6.7 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Variable Insurance Products. The Company shall not be
required by Section 6.4 to establish a new funding medium for the Variable
Insurance Products if an offer to do so has been declined by vote of a
majority of Owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then
the Company shall withdraw the affected Separate Account's investment in the
Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested Members of the Board.
6.8 If and to the extent that Rule 6e-2 or Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such Rules are applicable; and (b) Sections 3.4, 3.5, 6.2, 6.3,
6.4, 6.5, and 6.6 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
7.1 Indemnification By the Company
7.1(a) The Company shall indemnify and hold harmless the Distributor,
the Advisor, the Fund and each member of the Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale of the Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Variable Insurance
Products or in the sales literature for the Variable Insurance
Products (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by or on
behalf of the Fund for use in the registration statement or
prospectus for the Variable Insurance Products or in the sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Insurance Products or Fund
shares; or
(ii) arise out of or are based upon statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct
of the Company or persons under its control, with respect to the
sale or distribution of the Variable Insurance Products; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the
Fund by or on behalf of the Company; or
(iv) arise as a result from any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company, as limited by and in accordance
with the provisions of Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Fund, whichever is applicable.
7.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the election of one or both of the Company to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and the Company will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Company of
the commencement of any litigation or proceeding against them in connection
with the issuance or sale of Variable Insurance Products or the operation of
the Fund. This indemnification shall be in addition to any liability which
the Company may otherwise have.
7.2 Indemnification By the Advisor
7.2(a) The Advisor shall indemnify and hold harmless the Company, and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the operations of the Fund and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus or sales literature for the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Advisor, Distributor
or the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in the sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of Fund shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Variable Insurance Products not supplied by the Advisor,
Distributor or persons under its control) or wrongful conduct of
one or both of the Fund or the Advisor or persons under its
control, with respect to the sale or distribution of Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Variable Insurance Products,
or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Company by
or on behalf of the Fund; or
(iv) arise out of or result from any failure by the Advisor to
provide the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the diversifica
tion requirements specified in Article II of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b) The Advisor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, Distributor or each
Separate Account, whichever is applicable.
7.2(c) The Advisor 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 Advisor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Advisor
of any such claim shall not relieve the Advisor from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against and Indemnified Party, the Advisor will be
entitled to participate, at its own expense, in the defense thereof. The
Advisor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Advisor
to such party of the Advisor'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 Advisor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.2(d) The Company agrees promptly to notify the Advisor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with this Agreement, the issuance or sale
of the Variable Insurance Products or the operation of the Account. This
indemnification shall be in addition to any liability which the Advisor may
otherwise have.
7.3 Indemnification by the Distributor
7.3(a) The Distributor shall indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 7.3) against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Variable Insurance Products not supplied by the Distributor,
Advisor, Fund or persons under its control) or wrongful conduct of
the Distributor or persons under its control, with respect to the
sale or distribution of the Fund shares; or
(ii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in sales literature of the Variable
Insurance Products, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by the Distributor, or
(iii) arise out of or result from any failure by the
Distributor to provide the services and furnish the materials under
the terms of this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Distributor;
as limited by and in accordance with the provisions of Sections 7.3(b) and
7.3(c) hereof.
7.3(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Separate Account, whichever is
applicable.
7.3(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Distributor in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the
Distributor of any such claim shall not relieve the Distributor from any
liability which it may have to the Indemnified Party against and whom such
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against an Indemnified Party,
the Distributor will be entitled to participate, at its own expense, in the
defense thereof. The Distributor also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Distributor to such party of the Distributor's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Distributor will
not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
7.3(d) The Company agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against them or any of their
respective officers or directors in connection with this Agreement, the
issuance or sale of the Variable Insurance Products or the operation of
either Account. This indemnification shall be in addition to any liability
which the Distributor may otherwise have.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of New York.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to, the Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE XI. Termination
9.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Distributor with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts or
not consistent with the Company's obligations to Owners; or
(c) termination by the Company by written notice to the Fund and
the Distributor with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investments
media of the Variable Insurance Products issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and
the Distributor with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or any independent or resulting
failure under Section 817 of the Code, or under any successor or
similar provision of either, or if the Company reasonably believe
that the Fund may fail to so qualify; or
(e) termination by either the Fund or the Distributor by written
notice to the Company, if either one or both of the Fund or the
Distributor respectively, shall determine, in their sole judgement
exercised in good faith, that the Company has suffered a material
adverse change in their business, operations, financial condition
or prospects since the date of this Agreement or are the subject of
material adverse publicity; but no termination shall be effective
under this subsection (e) until the Company has been afforded a
reasonable opportunity to respond to a statement by the Fund or the
Distributor concerning the reason for notice of termination
hereunder; or
(f) termination by the Company by written notice to the Fund and
the Distributor, if the Company shall determine, in its sole
judgement exercised in good faith, that either the Fund or the
Distributor has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; but no
termination shall be effective under this subsection (f) until the
Company has been afforded a reasonable opportunity to respond to a
statement by the Fund or the Distributor concerning the reason for
notice of termination hereunder.
(g) At the option of the Fund if the Variable Insurance Products
cease to qualify as annuity contracts or life insurance contracts,
as applicable, under the Code, of if the Fund reasonably believes
that the Variable Insurance Products may fail to so qualify.
Termination shall be effective upon receipt of notice by the
Company.
(h) At the option of the Company, upon the Fund's breach of any
material provision of this Agreement, which breach has not been
cured to the satisfaction of the Company within ten (10) days after
written notice of such breach is delivered to the Fund .
(i) At the option of the Fund, upon the Company's breach of any
material provision of this Agreement, which breach has not been
cured to the satisfaction of the Fund within ten (10) days after
written notice of such breach is delivered to the Company.
(j) At the option of the Company, if the Variable Insurance
Products are not sold in accordance with applicable federal and/or
state law by the Distributor. Termination shall be effective
immediately upon such occurrence without notice.
(k) At the option of the Fund, if the Variable Insurance Products
are not registered and issued in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon
such occurrence without notice.
9.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Distributor shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the
terms and conditions of this Agreement, for all Variable Insurance Products
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
Owners of the Existing Contracts shall be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 9.2 shall not apply to any terminations under
Article VI and the effect of such Article VI terminations shall be governed
by Article VI of this Agreement. However, in no event shall the Fund and
Distributor be required to make additional shares available to Existing
Contracts for more that six (6) months after the date of termination of the
Agreement.
9.3 The Company shall not redeem Fund shares attributable to the
Variable Insurance Products (as opposed to Fund shares attributable to the
Company's assets held in the Separate Account) except (i) as necessary to
implement Owner initiated or approved transactions, or (ii) as required by
state and/or federal laws or regulations or judicial or other legal precedent
of general application (hereinafter referred to as a "Legally Required
Redemption") or (iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. Upon request, the Company will promptly furnish to the
Fund and the Distributor the opinion of counsel for the Company (which
counsel shall be reasonably satisfactory to the Fund and the Distributor) to
the effect that any redemption pursuant to the clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Variable Insurance Products, and as may be in the best interests
of Owners, as determined by the Company, the Company shall not prevent Owners
from allocating payments to a Portfolio that was otherwise available under
the Contracts without first giving the Fund or the Distributor ninety (90)
days notice of its intention to do so.
9.4 Notwithstanding any termination of this Agreement for any reason,
the terms and conditions of the following provisions of this Agreement shall
remain in effect with respect to any Existing Contract, for so long as such
Existing Contract has assets invested in the Fund: Section 1.3 to 1.10 of
Article I (governing the pricing and redemption of shares); Article II
(Representations and Warranties); Sections 3.1 through 3.3 and 3.5 of Article
III (Prospectus and Proxy Statements, and Voting); Articles IV and VIII
(Sales Material and Information; Fees and Expenses, Diversification;
Potential Conflicts; Indemnification; and Applicable Law); Article X
(Notices); and Sections 11.1, 11.2, and 11.5 through 11.8 of Article XI
(Miscellaneous). Further, notwithstanding any termination of this Agreement
for any reason, the terms and conditions of the following provisions of this
Agreement shall remain in effect with regard to Variable Insurance Products
previously invested in the Fund: Article II (Representations and Warranties);
and Article VIII (Indemnification).
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
c/o Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Corporate Secretary
If to the Company:
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Attention: General Counsel
If to Distributor:
Manning & Napier Investor Services, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Secretary
ARTICLE XI. Miscellaneous
11.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for any
obligations entered into on behalf of the Fund.
11.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
11.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
11.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
11.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
11.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
11.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Distributor may assign the Agreement or
any rights or obligations hereunder to any affiliate of or company under
common control with the Distributor (but in such event the Distributor shall
continue to be liable under Article VII of this Agreement for any indemnifi
cation due to the Company, and assignee shall also be liable), if such
assignee is duly licensed and registered to perform the obligations of the
Distributor under this Agreement.
11.9 No provision of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Fund, the Distributor and the Company.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
By its authorized officer,
By: ________________________________
Title: _____________________________
Date: ______________________________
MANNING & NAPIER INVESTOR SERVICES, INC.
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
MANNING & NAPIER INSURANCE FUND, INC.
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
MANNING & NAPIER ADVISORS, INC.
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
Schedule A
Manning & Napier Insurance Fund
Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
Schedule B
Separate Accounts Selected Funds
Variable Account J Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
____________________________________________________________________________
Contract - Form Number
DVA(1) (Group Master Contract)
DVA(1)/CERT (Group Certificate)
DVA(1)/IND (Individual Contract)
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EXHIBIT 8(c)
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PARTICIPATION AGREEMENT
AMONG
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON,
STEINROE VARIABLE INVESTMENT TRUST
and
KEYPORT FINANCIAL SERVICES CORP.
This Agreement, made and entered into as of this 15th day of May, 1992
by and among Liberty Life Assurance Company of Boston (the "Company"), on its
own behalf and on behalf of its Separate Accounts, each of which is a
segregated asset account of the Company, SteinRoe Variable Investment Trust
(the "Trust"), and Keyport Financial Services Corp. (the "Underwriter").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, representing the interest in a particular managed portfolio
of securities and other assets (such series being hereinafter referred to
individually as a "Series" or collectively as the "Series"); and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, Stein Roe & Farnham Incorporated (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law; and
WHEREAS, Liberty Investment Services, Inc. ("LIS") (the "Administrator")
serves as transfer agent and provides administrative services to the Trust;
and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, the Company has established duly organized, validly existing
segregated asset accounts (the "Separate Accounts") by resolution of the
Board of Directors of the Company; and
WHEREAS, the Company has registered or will register certain Separate
Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Company relies on certain provisions of the 1940 Act and
1933 Act that exempt certain Separate Accounts and Variable Insurance
Products from the registration requirements of the Acts in connection with
the sale of Variable Insurance Products under certain tax-advantaged
retirement programs, described in Article II., Section 2.12. and as provided
for by Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Trust on behalf of
each Separate Account to fund certain Variable Insurance Products and the
Underwriter is authorized to sell such shares to unit investment trusts such
as each Separate Account at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter will sell to the Company those shares of the Trust
which each Separate Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Separate Accounts of
purchase payments or for the business day on which transactions under
Variable Insurance Products are effected by the Separate Accounts. For
purposes of this Section 1.1., LIS shall be the designee of the Trust for
receipt of such orders from each Separate Account and receipt by such
designee shall constitute receipt by the Trust. "Business Day" shall mean
any day on which the New York Stock Exchange is open for regular trading and
any other day on which the Trust calculates its net asset value pursuant to
the rules of the SEC.
1.2. The Trust shall make shares of each of its Series available
indefinitely for purchase at the applicable net asset value per share by the
Company and its Separate Accounts on those days on which the Trust calculates
its net asset value pursuant to rules of the SEC and the Trust shall use
reasonable efforts to calculate such net asset value on each Business Day.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Trustees") may refuse to sell shares of any Series to any person, or suspend
or terminate the offering of shares of any Series if such action is required
by law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Series.
1.3. The Trust and the Underwriter agree that shares of the Trust will
be sold only to Participating Insurance Companies and their Separate
Accounts. No shares of any Series will be sold to the general public.
1.4. The Trust and the Underwriter will not sell Trust shares to any
insurance company or separate account unless an agreement containing the same
provisions as Articles I., III., V., VII. and Sections 2.5., 2.12. and 2.13.
of Article II. of this Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Company's request, any full
or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Separate Accounts of redemption requests or for the Business Day on
which transactions under Variable Insurance Products are effected by the
Separate Accounts. For purposes of this Section 1.5., LIS shall be the
designee of the Trust for receipt of requests for redemption for each
Separate Account.
Notwithstanding the above, and subject to the applicable rules and
regulations, if any, of the SEC, the Trust may elect to pay the redemption
price for shares of any Series in whole or in part by a distribution in kind
of securities from the portfolio of the Trust allocated to such Series in
lieu of money, valuing such securities at their value employed for
determining net asset value governing such redemption price, and selecting
such securities in a manner the Trustees may determine in good faith to be
fair and equitable.
1.6. The Trust may suspend the redemption of any full or fractional
shares of the Trust (1) for any period (a) during which the New York Stock
Exchange is closed (other than customary weekend and holiday closings) or (b)
during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal
by the Trust of securities owned by it is not reasonably practicable or (b)
it is not reasonably practicable for the Trust fairly to determine the value
of its net assets; or (3) for such other periods as the SEC may by order
permit for the protection of shareholders of the Trust.
1.7. The Company may purchase and redeem the shares of each Series
offered by the then current prospectus of the Trust and in accordance with
the provisions of such prospectus and statement of additional information
("S.A.I.") (collectively referred to as "Prospectus," unless otherwise
provided). The Company agrees that all net amounts available under the
Variable Insurance Products with the form number(s) that are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto (the "Contracts"), shall be invested in
the Trust, in such other investment companies advised by the Adviser as may
be mutually agreed to in writing by the parties hereto, or in the Company's
general accounts, provided that such amounts may also be invested in an
investment company other than the Trust if (a) such other investment company,
or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of each
of the Series of the Trust; or (b) the Company gives the Trust and the
Underwriter forty-five (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 was available as a funding vehicle for the
Contracts prior to 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 KFSC consents to the use of such other investment company.
1.8. The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1. hereof. Payment shall be in federal funds
transmitted by wire, or may otherwise be provided by separate agreement.
1.9. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to either the Company or the
Separate Accounts. Shares ordered from the Trust will be recorded in an
appropriate title for each Separate Account or the appropriate subaccount of
each Separate Account.
1.10. The Trust, through its designee LIS, shall furnish same day
notice (by wire or telephone, followed by written confirmation) to the
Company of any income dividends or capital gain distributions payable on the
shares of any Series. The Company hereby elects to receive all such income,
dividends and capital gain distributions as are payable on the shares of each
Series in additional shares of that Series. The Company reserves the right
to revoke this election and to receive all such income, dividends and capital
gain distributions in cash. The Trust shall notify the Company through its
designee, LIS, of the number of shares so issued as payment of such income
dividends and capital gains distributions.
1.11. The Trust shall make the net asset value per share for each
Series available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m.,
Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act to the extent required by the 1933 Act; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable Federal and state laws and that the sale of the Contracts
shall comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law
and that prior to any issuance or sale of any Contract it has legally and
validly established each Separate Account as a segregated asset account under
Section 132G of Chapter 175 of the Massachusetts General Laws and has
registered or, prior to any issuance or sale of the Contracts, will register
each Separate Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts, to the extent required by the 1940 Act.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act to the extent
required by the 1933 Act, duly authorized for issuance and sold in compliance
with the laws of the Commonwealth of Massachusetts and all applicable Federal
and any state securities laws and that the Trust is and shall remain
registered under the 1940 Act to the extent required by the 1940 Act. The
Trust shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify the
shares for sale in accordance with the laws of the various states only if and
to the extent deemed advisable by the Trust or the Underwriter.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment and
that it will notify the Trust and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future consistent with applicable
law. To the extent that it decides to finance distribution expenses pursuant
to Rule 12b-1, the Trust undertakes to have its Trustees, a majority of whom
are not interested persons of the Trust, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Trust represents that it is currently in compliance
and shall at all times remain in compliance with the applicable insurance
laws of the domiciliary states of the Participating Insurance Companies to
the extent that the Participating Insurance Company advises the Trust, in
writing, of such laws or any changes in such laws.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Trust's
shares in accordance with the laws of the Commonwealth of Massachusetts and
all applicable state and Federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material aspects with the 1940 Act.
2.9. The Trust represents and warrants that it shall retain the Adviser
so long as it remains duly registered as an investment adviser in all
material aspects under all applicable Federal and state securities laws and
performs its obligations for the Trust in compliance in all material respects
with the applicable laws of the Commonwealth of Massachusetts and any
applicable state and Federal securities laws.
2.10. The Trust represents and warrants that all of its trustees,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a joint fidelity bond in an amount not less than
$3,750,000 with no deductible amount. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
fidelity insurance company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
having access to securities or funds of the Trust are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Trust, in an amount not less than $10,000,000 with no
deductible amount. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable fidelity insurance company.
2.12. The Company represents and warrants that it will not, without the
prior written consent of the Underwriter, purchase Trust shares with Separate
Account assets derived from the sale of Variable Insurance Products to
individuals or entities which qualify under current or future state or
Federal law for any type of tax advantage (whether by a reduction or deferral
of, deduction or exemption from, or credit against income or otherwise).
Examples of such types of tax-advantaged programs under current law include:
any tax-advantaged retirement program, whether maintained by an individual,
employer, employee association or otherwise (including, without limitation,
retirement programs which qualify under Sections 401(a), 401(k), 403(a),
403(b), 408 and 457 of the Code), and any retirement programs maintained for
employees of the Government of the United States or by the government of any
state or political subdivision thereof, or by any agency or instrumentality
of any of the foregoing.
2.13. The Company represents and warrants that it will not transfer
or otherwise convey shares of the Trust, without the prior written consent of
the Underwriter.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many copies of
the Trust's current prospectus, excluding the S.A.I., as the Company may
reasonably request in connection with delivery of the prospectus, excluding
the S.A.I., to shareholders, owners or participants of Variable Insurance
Products or Contracts ("Owners") and purchasers of the Contracts. If
requested by the Company in lieu thereof, the Trust shall provide such
documentation (including a current copy of the new prospectus, excluding the
S.A.I., as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Trust is amended) to have the prospectus
for the Contracts and the Trust's prospectus, excluding the S.A.I., printed
together in one document (such printing to be at the Company's expense).
3.2. The Trust's prospectus shall state that the S.A.I. for the Trust is
available from the Underwriter and the Trust, at its expense, shall print and
provide such S.A.I. free of charge to the Company and to any Owner or
prospective purchaser who requests the S.A.I.
3.3. The Trust, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to Owners.
3.4. If and to the extent required by law the Trust and, so long as and
to the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for Owners, the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with
instructions received from Owners; and
(iii) vote Trust shares for which no instructions
have been received in the same proportion as Trust shares of
such Series for which instructions have been received.
The Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each
of their Separate Accounts participating in the Trust calculates voting
privileges in a manner consistent with the standards to be provided in
writing to the Participating Insurance Companies.
3.5. The Trust shall comply with all provisions of the 1940 Act
requiring voting by shareholders. The Trust reserves the right to take all
actions, including but not limited to the dissolution, merger, and sale of
all assets of the Trust upon the sole authorization of its Trustees, to the
extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Underwriter, or the Trust or its designee, each piece of sales literature or
other promotional material in which the Trust or the Adviser or the
Underwriter is named, at least fifteen (15) days prior to its use. No such
material shall be used if the Underwriter, or Trust or its designee, object
to such use within fifteen (15) days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
or the Underwirter in connection with the sale of the Contracts other than
the information or representations contained in the registration statement or
Prospectus for the Trust shares, as such registration statement and
Prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Trust, or in sales literature or other promotional
material approved by the Trust or its designee or by the Underwriter, except
with the permission of the Trust or the Underwriter or the designee of
either.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designees, each piece of sales literature or
other promotional material in which the Company and/or its Separate
Account(s), is named at least fifteen (15) days prior to its use. No such
material shall be used if the Company or its designee object to such use
within fifteen (15) days after receipt of such material.
4.4. The Trust and the Underwriter shall not give any information or
make any representations or statements on behalf of the Company or concerning
the Company, any Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for such Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in published reports for
such Separate Account which are in the public domain or approved by the
Company for distribution to Owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy of
all registration statements, prospectuses, S.A.I.s, reports, proxy
statements, sales literature and other promotional materials, applications
for exemption, requests for no-action letters, and all amendments to any of
the above, that relate to the Trust or its shares, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
4.6. The Company shall provide to the Trust at least one complete copy
of all registration statements, prospectuses, S.A.I.s, reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemption, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or any Separate
Account, contemporaneously with the filing of such document with the SEC.
4.7. For purposes of this Article IV., the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, S.A.I.s, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Trust or any Series
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
Underwriter for the Variable Insurance Products if and in amounts agreed to
by the Underwriter in writing and such payments shall be made out of existing
fees payable to the Underwriter by the Trust for this purpose. No such
payments shall be made directly by the Trust. Currently, no such plan
pursuant to Rule 12b-1 or payments are contemplated.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable Federal law and if and to the extent deemed advisable by the Trust
or the Underwriter, in accordance with applicable state laws prior to their
sale. The Trust shall bear the expenses of registration and qualification of
the Trust's shares, preparation and filing of the Trust's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by
any Federal or state law, and all taxes on the issuance or transfer of the
Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
proxy materials and reports to Owners.
ARTICLE VI. Diversification
6.1. The Trust shall at all times invest money from the Variable
Insurance Products in such a manner as to ensure that, insofar as such
investment is required for such treatment, the Variable Insurance Products
will be treated as variable contracts under the Code and the regulations
issued thereunder. Without limiting the scope of the foregoing, the Trust
will at all times comply with Section 817(h) of the Code and Regulation
Section 1.817-5 relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations.
ARTICLE VII. Potential Conflicts
7.1. The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Owners of
separate accounts of Participating Insurance Companies investing in the
Trust. A material irreconcilable conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable Federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretive letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision
in any relevant proceeding; (d) the manner in which the investments of any
Series are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance policy owners; or (f) a
decision by an insurer to disregard the voting instructions of Owners. The
Trustees shall promptly inform the Company if it determines that a material
irreconcilable conflict exists and the implications thereof.
7.2. The Trustees shall require the Adviser to report any potential or
existing conflicts (including the occurrence of any event specified in
paragraph 7.1. which may give rise to such a conflict) of which it is aware
to the Trustees.
7.3. The Company shall report any potential or existing conflicts
(including the occurrence of any event specified in paragraph 7.1. which may
give rise to such a conflict) of which they are aware to the Trustees. The
Company shall assist the Trustees in carrying out their responsibilities
under the Shared Funding Exemptive Order, by providing the Trustees with all
information reasonably necessary for the Trustees to consider any issues
raised. This includes, but is not limited to, an obligation by the Company
to inform the Trustees whenever Owner voting instructions are disregarded.
7.4. If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested Trustees), take whatever steps are necessary to remedy
or eliminate the material irreconcilable conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts of
Participating Insurance Companies from the Trust or any Series and
reinvesting such assets in a different investment medium, including (but not
limited to) another Series of the Trust, or submitting the question whether
such segregation should be implemented to a vote of all affected Owners and,
as appropriate, segregating the assets of any particular group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Owners the option of making such a
change; (2) establishing a new registered management investment company or
managed separate account; and (3) obtaining SEC approval of any such remedial
action.
7.5. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
shall be required, at the Trust's election, to withdraw the affected Separate
Account's investment in the Trust and terminate this Agreement; provided,
however that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and termination
must take place within six (6) months after the Trust gives written notice
that this provision is being implemented, and until the end of that six (6)
month period the Underwriter and Trust shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Trust.
7.6. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company shall withdraw the
affected Separate Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company in
writing that they have determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of the foregoing six (6) month period, the
Underwriter and the Trust shall continue to accept and implement orders by
one or both of the Companies for the purchase and redemption of shares of the
Trust.
7.7. For purposes of Sections 7.4. through 7.7. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
event will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Owners materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then the Company shall withdraw the affected Separate 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.
7.8. All reports received by the Trustees of any potential or existing
conflicts, determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and dtermining whether any proposed action
adequately remedies a conflict shall be properly recorded in the minutes of
the Trustee's meeting or other appropriate records, and such minutes and
other records shall be made available to the SEC upon request.
7.9. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) or terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4.,
3.5., 7.1., 7.2., 7.3., 7.4., 7.5., 7.6. and 7.8. of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By the Company
8.1.(a). The Company shall indemnify and hold harmless the Trust
and each of its Trustees and Officers and each person, if any, who controls
the Trust within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1.) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including legal and
other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation are related to the sale or
acquisition of the Trust's shares by the Company 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 or prospectus for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the
Trust for use in the registration statement or prospectus for
the Contracts or in the Contracts or sales literature (or any
amendment or supplement to any ot the foregoing) or otherwise
for use in connection with the sale of the Contracts or Trust
shares; or
(ii) arise out of or are based upon statements or
representations (other than statements or representations
contained in the registration statement, Prospectus or sales
literature of the Trust not supplied by the Company, or
persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, Prospectus, or sales literature of the
Trust or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished in
writing to the Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the
Company to provide the services and furnish the materials
contemplated by this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
8.1.(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Trust, whichever is applicable.
8.1.(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision. In
case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Company to such party of the 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 shall not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1.(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust's shares or the Contracts
or the operation of the Trust.
8.2. Indemnification By the Trust
8.2.(a). The Trust will indemnify and hold harmless the 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 8.2.) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation at common law or otherwise, insofar as such
losses, claims, damages, liabilities or litigation result from the willful
misfeasance, bad faith or gross negligence of the Trustees or any member
thereof, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to
provide the services and furnish the materials under the terms
of this Agreement (including a failure to comply with the
diversification requirements specified in Article VI. of this
Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust.
8.2.(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise by subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Trust, the Underwriter or each
Separate Account, whichever is applicable.
8.2.(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such
Indemnified Party (or after such Indemnified party shall have received notice
of such service on any designated agent), but failure to notify the Trust of
any such claim shall not relieve the Trust from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Trust shall be entitled to
participate, at its own expense, in the defense thereof. The Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such party of
the Trust's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it,
and the Trustees will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable cases of
investigations.
8.2.(d). The Company and the Underwriter each 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 any Separate Account, or the sale or acquisition of shares of
the Trust.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts; provided, however, that if such laws or any of the provisions
of this Agreement conflict with applicable provisions of the 1940 Act, the
latter shall control.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to, the Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one (1) year advance written
notice to the other parties; provided, however such notice shall not be given
earlier than one (1) year following the date of this Agreement; or
(b) at the option of the Company to the extent that shares of
Series are not reasonably available to meet the requirements of the Contracts
as determined by the Company, provided however, that such termination shall
apply only to the Series not reasonably available. Prompt notice of the
election to terminate for such cause shall be furnished by the Company; or
(c) at the option of the Trust in the event that formal
administrative proceedings are instituted against the Company or the
Underwriter by the NASD, the SEC, the domiciliary state's insurance
commissioner or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Contracts, with respect to
the operation of a Separate Account, or the purchase of the Trust shares;
provided, however, that the Trust determines in its sole judgement exercised
in good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Company to perform its obligations
under this Agreement or of the Undewriter to perform its obligations under
its underwriting agreement with the Trust; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Trust or the Adviser by
the NASD, the SEC, or any state securities or insurance department or any
other regulatory body; provided, however, that the Company determines in its
sole judgement exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the Trust
to perform its obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority
to substitute the shares of another investment company for shares of the
corresponding Series of the Trust in accordance with the terms of the
Contracts for which those Series' shares had been selected to serve as the
underlying investment media. The Company shall give thirty (30) days' prior
written notice to the Trust of the date of any proposed action to replace the
Trust's shares; or
(f) at the option of the Company, in the event any of the Trust's
shares are not registered, issued or sold in accordance with applicable
Federal and any state law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by the
Company; or
(g) at the option of the Company, if the Trust ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that
the Trust may fail to so qualify; or
(h) at the option of the Company, if the Trust fails to meet the
diversification requirements specified in Article VI. hereof; or
(i) at the option of either the Trust or the Underwriter, if the
Trust or the Underwriter, respectively, shall determine, in their sole
judgement reasonably exercised in good faith, that the Company has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse publicity
will have a material adverse impact upon the business and operations of
either the Trust or the Underwriter; provided, however, that the Trust or the
Underwriter shall notify the Company in writing of such determination and its
intent to terminate this Agreement, and after considering the action taken by
the Company and any other changes in circumstances since the giving of such
notice, such determination of the Trust or the Underwriter shall continue to
apply on the sixtieth (60th) day following the giving of such notice, which
sixtieth (60th) day shall be the effective date of termination; or
(j) at the option of the Company, if the Company shall determine,
in its sole judgment reasonably exercised in good faith, that either the
Trust or the Underwriter has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and such material adverse publicity will have a material adverse
impact upon the business and operations of the Company; provided, however,
that the Company shall notify the Trust and the Underwriter in writing of
such determination and its intent to terminate the Agreement, and after
considering the actions taken by the Trust and/or the Underwriter and any
other changes in circumstances since the giving of such notice, such
determination shall continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth (60th) day shall be the effective
date of termination; or
(k) at the option of either the Trust or the Underwriter, if the
Company gives the Trust and the Underwriter the written notice specified in
Section 10.3.(a). hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1.(k).
shall be effective forty-five (45) days after the notice specified in
10.3.(a). was given.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1.(a). may be exercised
for any reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate which notice shall set forth the basis for such termination.
Furthermore,
(a) In the event that any termination is based upon the provisions
of Article VII., or the provision of Section 10.1.(a)., 10.1.(i)., 10.1.(j).
or 10.1.(k). of this Agreement, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions;
and
(b) In the event that any termination is based upon the provisions
of Section 10.1.(c). or 10.1.(d). of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of
this Agreement, the Trust and the Underwriter shall, at the option of the
Company, continue to make available additional shares of the Trust pursuant
to the terms and conditions of this Agreement, for all Contracts in effect on
the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the Owners of
the Existing Contracts shall be permitted to reallocate investments in the
Trust, redeem investments in the Trust and/or invest in the Trust upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.4. shall not apply to any terminations
under Article VII. and the effect of such Article VII. terminations shall be
governed by Article VII. of this Agreement.
10.5. The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets
held in a Separate Account) except (i) as necessary to implement Owner
initiated transactions, or (ii) as required by state and/or Federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request,
the Company will promptly furnish to the Trust and the Underwriter an 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 Owners from allocating payments to a Series that was otherwise
available under the Contracts without first giving the Trustee or the
Underwriter ninety (90) days notice of their intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Trust:
Federal Reserve Plaza
600 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Secretary
If to the Company:
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Attention: President
If to the Underwriter:
125 High Street
Boston, Massachusetts 02110
Attention: Secretary
ARTICLE XII. Miscellaneous
12.1. All persons dealing with Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust
hereunder and otherwise understand that neither the Trustees, officers,
agents or shareholders of the Trust have any personal liability for any
obligations entered into by or on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory
authority, each Party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing be any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be effected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.7. The Trust agrees that to the extent any advisory or other
fees received by the Trust, the Underwriter, the Administrator or the Adviser
are determined to be unlawful in appropriate legal or administrative
proceedings, the Trust shall indemnify and reimburse the Company for any out
of pocket expenses and actual damages the Company has incurred as a result of
any such proceeding; provided, however, that the provision of Section
8.2.(b). and 8.2.(c). of this Agreement shall apply to such indemnification
and reimbursement obligation. Such indemnification and reimbursement
obligation shall be in addition to any other indemnification and
reimbursement obligations of the Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligation, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
By its authorized officer,
By: /s/Stuart L. Lerner
Title: President
Date: May 14, 1992
STEINROE VARIABLE INVESTMENT TRUST
By its authorized officer,
By: /s/Ernest E. Dunbar
Title: Treasurer
Date: May 26, 1992
KEYPORT FINANCIAL SERVICES CORP.
By its authorized officer,
By: /s/Robert R. Baird
Title: President
Date: May 15, 1992
Schedule A
[List Policies and Contracts]
<PAGE>
EXHIBIT (9)
<PAGE>
June 27, 1997
Edmund F. Kelly, President
Liberty Life Assurance Company
175 Berkeley Street
Boston, MA 02117
RE: OPINION OF COUNSEL - VARIABLE ACCOUNT - J
Dear Mr. Kelly:
You have requested my opinion concerning the legality of the variable annuity
contracts being registered with the Securities and Exchange Commission by Pre-
Effective Amendment No. 1.
I have made such examination of the law and have examined such records and
documents as in my judgment was necessary or appropriate to enable me to
render the opinion expressed below.
I am of the opinion that the contracts will be legally issued and will
represent binding obligations of the depositor (Liberty Life Assurance
Company of Boston).
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
Sincerely,
/s/Lee W. Rabkin
Lee W. Rabkin, Esq.
<PAGE>
Exhibit 10
<PAGE>
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 report dated
February 28, 1997, with respect to the financial statements of Liberty Life
Assurance Company of Boston, included in this Pre-Effective Amendment No. 1
to the Registration Statement (Form N-4, Nos. 333-29811; 811-08269).
Boston, Massachusetts /s/Ernst & Young LLP
June 27, 1997
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Liberty Life Assurance Company:
We consent to the use of our report dated February 16, 1996 and to the
reference to our firm under the heading "Experts" in the Statement of
Additional Information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
June 27, 1997
<PAGE>
EXHIBIT(27)
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