As Filed with the Securities and Exchange Commission on April 30, 1998
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. [ ]
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [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 Jorden Burt Boros Cicchetti
125 High Street, 13th Floor Berenson & Johnson LLP
Boston, MA 02110 1025 Thomas Jefferson Street, N.W.
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
(X) on May 1, 1998 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
Title of Securities Being Registered: Variable Portion of the Contracts
Funded Through the Separate Account.
No filing fee is due because an indefinite amount of securities is deemed to
have been registered in reliance on Section 24(f) of the Investment Company
Act of 1940.
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Exhibit List on Page ____
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
Items 24 - 32
The Signatures
Exhibits
VARIABLE ACCOUNT 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. Condensed Financial Information
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
This Amendment No. 6 to the Registration Statement of Form N-4 which
initially became effective on July 15, 1997 (the "Registration Statement")
is being filed pursuant to Rule 485(b) under the Securities Act of 1933, as
amended. The prospectus, statement of additional information ("SAI") and
exhibits which are amended hereby initially became effective on July 30,
1997, in Post-Effective Amendment No. 1. This Amendment relates only to the
prospectus, SAI, and exhibits included in this Amendment and does not
otherwise delete, amend, or supersede any information contained in Post-
Effective Amendment No. 5 to the Registration Statement.
PART A
May 1, 1998 Prospectus for
LIBERTY
ADVISOR VARIABLE ANNUITY
Including Fund Prospectuses for
THE ALGER AMERICAN FUND
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
LIBERTY VARIABLE INVESTMENT TRUST
MFS VARIABLE INSURANCE TRUST
STEINROE VARIABLE INVESTMENT TRUST
Annuities are:
not insured by the FDIC;
not a deposit or other obligation of, or
guaranteed by, the depository institution;
subject to investment risks, including the
possible loss of principal amount invested.
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
Liberty Life Service Office
125 High Street, Boston, MA 02110-2712
LAVAP 11/97
____Yes.I would like to receive the Liberty Advisor Variable Annuity
Statement of Additional Information.
____Yes.I would like to receive the Statement of Additional Information for
the Eligible Funds of:
____ The Alger American Fund
____ Alliance Variable Products Series Fund, Inc.
____ Liberty Variable Investment Trust
____ MFS Variable Insurance Trust
____ SteinRoe Variable Investment Trust
Name
Address
City State Zip
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
125 HIGH STREET
BOSTON, MA 02110-9773
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
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 Certificates may be offered as individual
contracts. Unless otherwise noted or the context so requires all references
to the Certificates include the Contracts and the individual Contracts. The
Certificates are offered on a flexible payment basis.
The variable annuity Contract (form number DVA(1)NY) and the Certificates
described in this prospectus provide for accumulation of Certificate Values
on a variable basis, and also on a fixed basis, and payments of periodic
annuity payments on either a variable or a fixed basis. The Certificates
are designed for use by individuals for retirement planning purposes.
This prospectus generally describes only the variable features of the
Certificate (for a summary of the fixed features, see Appendix A on Page
28). If the Certificate Owner elects to have Certificate Values accumulated
on a variable basis, Purchase Payments will be allocated to a segregated
investment account of 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 at
their net asset value: The Alger American Fund ("Alger American Fund")-
Alger American Growth Portfolio ("Alger Growth") and Alger American Small
Capitalization Portfolio ("Alger Small Cap"); Alliance Variable Products
Series Fund, Inc. ("Alliance Series Fund") - Global Bond Portfolio
("Alliance Global Bond") and Premier Growth Portfolio ("Alliance Premier
Growth"); Liberty Variable Investment Trust ("Liberty Trust") (formerly
named Keyport Variable Investment Trust)-- Colonial Growth and Income Fund,
Variable Series ("Colonial Growth and Income"); Colonial International Fund
for Growth, Variable Series ("Colonial Int'l Fund for Growth"); Colonial
Strategic Income Fund, Variable Series ("Colonial Strategic Income");
Colonial U.S. Stock Fund, Variable Series ("Colonial U.S. Stock"); Liberty
All-Star Equity Fund, Variable Series ("Liberty All-Star Equity"); Newport
Tiger Fund, Variable Series ("Newport Tiger"); and Stein Roe Global
Utilities Fund, Variable Series ("Stein Roe Global Utilities"); MFS Variable
Insurance Trust ("MFS Trust") -- MFS Emerging Growth Series ("MFS Emerging
Growth") and MFS Research Series ("MFS Research"); and SteinRoe Variable
Investment Trust ("SteinRoe Trust") -- Stein Roe Balanced Fund, Variable
Series ("Stein Roe Balanced"); Stein Roe Growth Stock Fund, Variable Series
("Stein Roe Growth Stock"); Stein Roe Money Market Fund, Variable Series
("Stein Roe Money Market"); Stein Roe Mortgage Securities Fund, Variable
Series ("Stein Roe Mortgage Securities"); and Stein Roe Special Venture
Fund, Variable Series ("Stein Roe Special Venture").
The Variable Account may offer other forms of the Contracts and Certificates
with features, and fees and charges which vary from the Certificates, and
provide for investment in other Sub-accounts which may invest in different
or additional mutual funds. Other Contracts and Certificates will be
described in separate prospectuses and statements of additional information.
The agent selling the Contracts and Certificates has information concerning
the eligibility for and the availability of the other forms of the Contracts
and Certificates.
A Statement of Additional Information dated the same as this prospectus has
been filed with the Securities and Exchange Commission and is herein
incorporated by reference. It is available, at no charge, by writing 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. A table of contents for the Statement of
Additional Information is on Page 27.
The Certificates may be sold by or through banks or other depository
institutions. The Contract and Certificates: are not insured by the FDIC;
are not a deposit or other obligation of, or guaranteed by, the depository
institution; and are subject to investment risks, including the possible
loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD
KNOW BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED BY
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 May 1, 1998
TABLE OF CONTENTS
Page
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 7
Condensed Financial Information 8
Performance Information 8
Liberty Life and the Variable Account 9
Year 2000 Matters 10
Purchase Payments and Applications 10
Investments of the Variable Account 10
Allocations of Purchase Payments 10
Eligible Funds 11
Transfer of Variable Account Value 13
Substitution of Eligible Funds and Other Variable
Account Changes 14
Deductions 14
Deductions for Certificate Maintenance Charge 14
Deductions for Mortality and Expense Risk Charge 15
Deductions for Daily Distribution Charge 15
Deductions for Contingent Deferred Sales Charge 15
Deductions for Transfers of Variable Account Value 16
Deductions for Premium Taxes 16
Deductions for Income Taxes 17
Total Variable Account Expenses 17
Other Services 17
The Certificates 18
Variable Account Value 18
Valuation Periods 18
Net Investment Factor 19
Modification of the Certificate 19
Right to Revoke 19
Death Provisions for Non-Qualified Certificates 19
Death Provisions for Qualified Certificates 20
Certificate Ownership 21
Assignment 21
Partial Withdrawals and Surrender 21
Annuity Provisions 21
Annuity Benefits 21
Income Date and Annuity Option 22
Change in Income Date and Annuity Option 22
Annuity Options 22
Variable Annuity Payment Values 23
Proof of Age, Sex, and Survival of Annuitant 23
Suspension of Payments 23
Tax Status 23
Introduction 23
Taxation of Annuities in General 24
Qualified Plans 25
Tax-Sheltered Annuities 25
Individual Retirement Annuities 26
Corporate Pension and Profit-Sharing Plans 26
Deferred Compensation Plans with Respect to Service
for State and Local Governments 26
Variable Account Voting Privileges 26
Sales of the Certificates 26
Legal Proceedings 27
Inquiries by Certificate Owners 27
Table of Contents_Statement of Additional Information 27
Appendix A_The Fixed Account (also known as the Modified
Guaranteed Annuity Account) 28
Appendix B_Telephone Instructions 31
GLOSSARY OF SPECIAL TERMS
Accumulation Unit: An accounting unit of measure used to calculate Variable
Account Value.
Annuitant: The Annuitant is the natural person to whom any annuity payments
will be made starting on the Income Date. The Annuitant may not be over age
90 on the Certificate Date (age 75 for Qualified Certificates and age 90 for
Roth IRA Qualified Certificates).
Certificate Anniversary: The same month and day as the Certificate Date in
each subsequent year of the Certificate.
Certificate Date: The effective date of the Certificate; it is shown on
the Certificate Schedule.
Certificate Owner: The person (or persons in the case of joint ownership)
who possesses all the ownership rights under the Certificate. The primary
Certificate Owner may not be over age 90 on the Certificate Date (age 75 for
Qualified Certificates, age 90 for Roth IRA Qualified Certificates and age
90 for a joint Owner).
Certificate Value: The sum of the Variable Account Value and the Fixed
Account Value.
Certificate Withdrawal Value: The Certificate Value increased or decreased
by a limited Market Value Adjustment less any premium taxes and Certificate
Maintenance Charge and applicable Contingent Deferred Sales Charges.
Certificate Year: Any period of 12 months commencing with the Certificate
Date and each Certificate Anniversary thereafter shall be a Certificate
Year.
Covered Person: The person(s) identified on the Certificate Schedule whose
death may result in an Adjustment of Certificate Value, a waiver of any
Contingent Deferred Sales Charges and a waiver of any Market Value
Adjustment or whose medically necessary stay in a hospital or nursing
facility may allow the Certificate Owner to be eligible for either a total
or partial waiver of the Contingent Deferred Sales Charge.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint
Certificate Owner. The Designated Beneficiary will be the first person
among the following who is alive on the date of death: primary Certificate
Owner; joint Certificate Owner; primary beneficiary; contingent beneficiary;
and if none of the above is alive, the primary Certificate Owner's estate.
If the primary Certificate Owner and joint Certificate Owner are both alive,
they will be the Designated Beneficiary together.
Eligible Funds: The mutual funds that are eligible investments for the
Variable Account under the Certificates.
Fixed Account: Part of Liberty Life's general account to which Purchase
Payments may be allocated or Certificate Values may be transferred.
Fixed Account Value: The value of all Fixed Account amounts accumulated
under the Certificate prior to the Income Date.
Guarantee Period Anniversary: An anniversary of a Guarantee Period's Start
Date.
Guarantee Period Month: The first Guarantee Period Month is the monthly
period which begins on the Start Date. Subsequent Guarantee Period Months
begin on the same day in the ensuing months.
Guarantee Period Year: The first Guarantee Period Year is the annual period
which begins on the Start Date. Subsequent Guarantee Period Years begin on
each Guaranteed Period Anniversary.
In Force: The status of the Certificate before the Income Date so long as it
is not totally surrendered, the Certificate Value under a Certificate does
not go to zero, and there has not been a death of the Annuitant or any
Certificate Owner that will cause the Certificate to end within at most five
years of the date of death.
Income Date: The date on which annuity payments are to begin.
Non-Qualified Certificate: Any Certificate that is not issued under a
Qualified Plan.
Office: Liberty Life's executive office, which is 175 Berkeley Street,
Boston, Massachusetts 02117.
Qualified Certificate: Certificates issued under Qualified Plans.
Qualified Plan: A retirement plan established pursuant to the provisions of
Sections 401, 403(b), 408(b), or 408A of the Internal Revenue Code.
Liberty Life treats Section 457 plans as Qualified Plans.
Service Office: Liberty Life's Service Office which is 125 High Street,
Boston, Massachusetts 02110.
Start Date: The date an amount is first allocated to a Guarantee Period.
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 Service 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): 7%1
Years from Date of Payment Sales Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or later 0%
Maximum Total Certificate Owner Transaction Expenses2
(as a percentage of Purchase Payments): 7%
Annual Certificate Maintenance Charge3 $36
The Certificate Maintenance Charge will be waived before the Income Date if:
(i) it is the first Certificate Anniversary;
(ii) the Certificate Value is greater than or equal to $40,000 on the
Certificate Anniversary date this charge is imposed, or
(iii) Purchase Payments of at least $2,000 have been made in the prior
Certificate Year and there has been no partial withdrawal in the prior
Certificate Year.
The Certificate Maintenance Charge will be waived on and after the Income
Date for the current year if:
(i) variable annuity Option A (Income for a Fixed Number of Years) is
applicable; and
(ii) at the time of the first payment of the year, the present value of
all the remaining payments (see "Option A" on Page 28) is greater than or
equal to $40,000.
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: 1.25%
Distribution Charge: .15%
Total Variable Account Annual Expenses: 1.40%
Alger American Fund, Alliance Series Fund, Liberty Trust,
MFS Trust, and SteinRoe Trust Annual Expenses4
(as a percentage of average net assets)
Total Fund
Operating
Expenses After
Management Other Any Expense
Fund Fees Expenses Reimbursements5
Alger Growth .75% .04% .79%
Alger Small Cap .85% .04% .89%
Alliance Global Bond .56% .38% .94%(1.03%)5
Alliance Premier Growth 1.00% .08% 1.08%5
Colonial Growth & Income .65% .14% .79%
Colonial Int'l Fund for Growth .90% .44% 1.34%
Colonial Strategic Income .65% .15% .80%(.82%)5
Colonial U.S. Stock .80% .14% .94%
Liberty All-Star Equity .80% .20% 1.00%(1.45%)5
Newport Tiger .90% .35% 1.25%
Stein Roe Global Utilities .65% .18% .83%
MFS Emerging Growth .75% .25% .87%
MFS Research .75% .25% .88%
Stein Roe Balanced .45% .21% .66%
Stein Roe Growth Stock .50% .21% .71%
Stein Roe Money Market .35% .25% .60%
Stein Roe Mortgage Securities .40% .30% .70%
Stein Roe Special Venture .50% .23% .73%
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE FUNDS.
LIBERTY LIFE HAS NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
Example #1 _ Assuming surrender of the Certificate at the end of the periods
shown.6
A $1,000 investment in each Sub-Account listed would be subject to the
expenses shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
Alger Growth $ 93 $122 $162 $319
Alger Small Cap 94 125 167 331
Alliance Global Bond 94 127 170 338
Alliance Premier Growth 94 127 171 340
Colonial Growth & Income 93 122 162 319
Colonial Int'l Fund for Growth 99 141 195 395
Colonial Strategic Income 93 123 162 321
Colonial U.S. Stock 94 127 171 340
Liberty All-Star Equity 94 127 170 337
Newport Tiger 97 137 188 379
Stein Roe Global Utilities 93 123 163 322
MFS Emerging Growth 95 129 174 346
MFS Research 95 129 174 346
Stein Roe Balanced 91 119 155 304
Stein Roe Growth Stock 92 120 159 312
Stein Roe Money Market 91 118 154 301
Stein Roe Mortgage Securities 92 120 157 308
Stein Roe Special Venture 92 121 160 314
Example #2 _ Assuming annuitization of the Certificate at the end of the
periods shown.6
A $1,000 investment in each Sub-Account listed would be subject to the
expenses shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
Alger Growth 23 73 132 319
Alger Small Cap 24 76 137 331
Alliance Global Bond 24 78 140 338
Alliance Premier Growth 24 78 141 340
Colonial Growth & Income 23 73 132 319
Colonial Int'l Fund for Growth 29 93 165 395
Colonial Strategic Income 23 74 132 321
Colonial U.S. Stock 24 78 141 340
Liberty All-Star Equity 24 78 140 337
Newport Tiger 27 88 158 379
Stein Roe Global Utilities 23 74 133 322
MFS Emerging Growth 25 80 144 346
MFS Research 25 80 144 346
Stein Roe Balanced 21 70 125 304
Stein Roe Growth Stock 22 71 129 312
Stein Roe Money Market 21 69 124 301
Stein Roe Mortgage Securities 22 70 127 308
Stein Roe Special Venture 22 72 130 314
Example #3 _ Assuming the Certificate stays in force through the periods
shown.
A $1,000 investment in each Sub-Account listed would be subject to the same
expenses shown in Example #2, assuming 5% annual return on assets.
1Contingent Deferred Sales Charges are deducted only if the Certificate is
totally or partially surrendered. A surrender will not incur the Charge
percentage shown as follows:
1. In any Certificate Year, Certificate Owners may withdraw an aggregate
amount, not to exceed, at the time of withdrawal, the Certificate's
earnings, which equal: (a) the Certificate Value, less (b) the portion of
the Purchase Payments not previously withdrawn.
2. In any Certificate Year after the first, Certificate Owners may withdraw,
in addition to the amount available in 1., the amount by which 10% of the
Certificate Value as of the preceding Certificate Anniversary exceeds the
amount available in 1.
2Liberty 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.
3This charge will be waived on the first Certificate Anniversary and in
certain other instances (see "Deductions for Certificate Maintenance
Charge").
4All Trust and Fund expenses are for 1997, except for Alliance Premier
Growth which has been restated to reflect current charges. The Alliance
Series Fund (Alliance Global Bond only) and, Liberty Trust (Colonial
Strategic Income and Liberty All-Star Equity only) expenses reflect such
Fund's or Trust's adviser's agreement to reimburse expenses above certain
limits (see footnote 5).
5Expense information shown for Alliance Global Bond is net of any voluntary
expense reimbursements. The Alliance Series Fund Adviser has agreed to
continue such reimbursements for the foreseeable future. The percentage
shown in the parentheses is what the total expenses would be in the absence
of expense reimbursement: for Alliance Global Bond - 1.03%. For Alliance
Premier Growth, the fees have been restated to reflect the discontinuation
of expense reimbursements effective 5/1/98 (see footnote 4). The expenses
for 1997 were .95% and, in the absence of expense reimbursement, total
expenses would have been 1.10%.
Liberty Trust's manager has agreed until 4/30/99 to reimburse all expenses,
including management fees, in excess of the following percentage of the
average annual net assets of each Fund, so long as such reimbursement would
not result in the Fund's inability to qualify as a regulated investment
company under the Internal Revenue Code: 1.00% for Colonial Growth & Income,
Stein Roe Global Utilities, Liberty All-Star Equity and Colonial U.S. Stock;
1.75% for Colonial Int'l Fund for Growth and Newport Tiger; and .80% for
Colonial Strategic Income. Each percentage shown in the parentheses is what
the total expenses would have been in the absence of expense reimbursement:
for Colonial Strategic Income - .82%; and for Liberty All-Star Equity -
1.45%.
MFS Trust's Adviser has agreed to bear, subject to reimbursement, expenses
for each of the two Eligible Funds shown such that each Fund's total
operating expenses shall not exceed, on an annualized basis, 1.25% of the
average daily net assets of the Fund from January 1, 1997 through December
31, 1998, and 1.50% of the average daily net assets of the Fund from January
1, 1999 through December 31, 2004; provided however, that this obligation
may be terminated or revised at any time.
SteinRoe Trust's adviser has voluntarily agreed until 4/30/99 to reimburse
all expenses, including management fees, in excess of the following
percentage of the average annual net assets of each Fund, so long as such
reimbursement would not result in the Fund's inability to qualify as a
regulated investment company under the Internal Revenue Code: .80% for Stein
Roe Special Venture and Stein Roe Growth Stock; .65% for Stein Roe Money
Market; .75% for Stein Roe Balanced; and .70% for Stein Roe Mortgage
Securities.
6The annuity is designed for retirement planning purposes. Surrenders prior
to the Income Date are not consistent with the long-term purposes of the
Certificate and the applicable tax laws.
The examples should not be considered a representation of past or future
expenses and charges of the Sub-Accounts. Actual expenses may be greater or
less than those shown. Similarly, the assumed 5% annual rate of return is
not an estimate or a guarantee of future investment performance. See
"Deductions" in this prospectus, "Management of the Fund" in the
prospectuses for Alger American Fund and the Alliance Series Fund, "Trust
Management Organizations" and "Expenses of the Funds" in the prospectus for
Liberty Trust, "Management of the Series" and "Expenses" in the prospectus
for MFS Trust, and "How the Funds are Managed" in the prospectus for
SteinRoe Trust.
SYNOPSIS
The following Synopsis should be read in conjunction with the detailed
information in this prospectus and the Statement of Additional Information.
Please refer to the Glossary of Special Terms for the meaning of certain
defined terms. Variations from the information appearing in this prospectus
due to individual state requirements are described in supplements which are
attached to this prospectus, or in endorsements to the Certificates, as
appropriate.
The Certificate allows Certificate Owners to allocate Purchase Payments to
the Variable Account and also to the Fixed Account. The Variable Account is
a separate investment account maintained by Liberty Life. The Fixed Account
is part of Liberty Life's "general account", which consists of all Liberty
Life's assets except the Variable Account and the assets of other separate
investment accounts maintained by Liberty Life. Certificate Owners may
allocate payments to, and receive annuity payments from the Variable Account
and/or the Fixed Account. If the Certificate Owner allocates payments to
the Variable Account, the accumulation values and annuity payments will
fluctuate according to the investment experience of the Sub-Accounts chosen.
If the Certificate Owner allocates payments to the Fixed Account, the
accumulation values will increase at guaranteed interest rates and annuity
payments will be of a fixed amount. Fixed Account Values are subject to a
limited market value adjustment. (See Appendix A on Page 28 for more
information on the Fixed Account.) If the Certificate Owner allocates
payments to both Accounts, then the accumulation values and annuity payments
will be variable in part and fixed in part.
The Certificate permits Purchase Payments to be made on a flexible Purchase
Payment basis. The minimum initial payment is $5,000 and $2,000 for
individual retirement annuities. The minimum amount for each subsequent
payment is $1,000 or such lesser amount as Liberty Life may permit from time
to time (currently $250). (See "Purchase Payments and Applications" on Page
10.)
There are no deductions made from Purchase Payments for sales charges at the
time of purchase. A Contingent Deferred Sales Charge may be deducted in the
event of a total or partial surrender (see "Partial Withdrawals and
Surrender" on Page 21). The Contingent Deferred Sales Charge is based on a
graded table of charges. The charge will not exceed 7% of that portion of
the amount surrendered that represents Purchase Payments made during the
seven years immediately preceding the request for surrender. (See
"Deductions for Contingent Deferred Sales Charge" on Page 15.)
Liberty Life deducts a Mortality and Expense Risk Charge, which is equal on
an annual basis to 1.25% of the average daily net asset values in the
Variable Account attributable to the Certificates. (See "Deductions for
Mortality and Expense Risk Charge" on Page 15.) Liberty Life also deducts a
daily distribution charge which is equal on an annual basis to .15% of the
same values. (See "Deductions for Daily Distribution Charge" on Page 15.)
Liberty Life deducts an annual Certificate Maintenance Charge (currently
$36.00) 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. Liberty Life will in certain instances waive this charge.
(See "Deductions for Certificate Maintenance Charge" on Page 14.)
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.
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 16.)
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 23.)
The Certificate allows the Certificate Owner to revoke the Certificate
generally within 10 days of delivery (see "Right to Revoke" on Page 19).
Since Liberty Life will refund the Certificate Value, the Certificate Owner
will bear the investment risk during the revocation period.
CONDENSED FINANCIAL INFORMATION
Accumulation Unit Values*
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
Beginning End Units End
Sub-Account of Year** of Year of Year Year
Alger Growth $12.580 $12.277 1,481 1997
Alger Small Cap 11.601 11.057 3,014 1997
Alliance Global Bond 9.611 9.811 4,572 1997
Alliance Premier Growth 13.555 13.463 2,627 1997
Colonial Growth & Income 18.458 19.354 4,782 1997
Colonial Int'l Fund for 11.480 9.660 10,712 1997
Growth
Colonial Strategic Income 13.269 13.616 14,297 1997
Colonial U.S. Stock 20.288 20.781 2,949 1997
Newport Tiger 13.097 8.526 1,844 1997
Liberty All-Star Equity Not available until February 1998
Stein Roe Global Utilities 13.064 15.358 1,708 1997
MFS Emerging Growth 11.648 11.681 4,623 1997
MFS Research 12.077 11.834 5,729 1997
Stein Roe Balanced 24.289 24.497 2,652 1997
Stein Roe Growth Stock 34.787 35.538 1,069 1997
Stein Roe Money Market 13.566 13.780 3,567 1997
Stein Roe Mortgage 17.376 17.874 3,818 1997
Securities
Stein Roe Special Venture 32.779 31.085 1,383 1997
* Accumulation Unit Values are rounded to the nearest tenth of a cent and
numbers of accumulation units are rounded to the nearest whole number.
** Each unit value is as of July 30, 1997, which is the date the Fund Sub-
Account first became available, except for Liberty All-Star Equity which
became available in February, 1998.
The full financial statements for the Variable Account and 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.
Certain of the Eligible Funds have been available for Liberty Life and/or
non-Liberty Life variable annuity contracts for periods prior to the
commencement of the offering of the Certificates described in this
prospectus. Any performance information for such periods will be based on
the historical results of the Eligible Funds being applied to the
Certificate for the specified time periods.
Performance information is not intended to indicate either past performance
under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods
of time. Total return performance information is based on the overall
percentage change in value of a hypothetical investment in the specific Sub-
Account over a given period of time.
Average annual total return information shows the average percentage change
in the value of an investment in the Sub-Account from the beginning date of
the measuring period to the end of that period. This standardized version
of average annual total return reflects all historical investment results,
less all charges and deductions applied against the Sub-Account and a
Certificate (including any Contingent Deferred Sales Charge that would apply
if a Certificate Owner surrendered the Certificate at the end of each period
indicated). Average total return does not take into account any premium
taxes and would be lower if these taxes were included.
In order to calculate average annual total return, 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.
First, the Sub-Accounts may present total return information computed on the
same basis as described above, except deductions will not include the
Contingent Deferred Sales Charge. This presentation assumes that the
investment in the Certificate continues beyond the period when the
Contingent Deferred Sales Charge applies, consistent with the long-term
investment and retirement objectives of the Certificate. The total return
percentage will thus be higher under this method than the standard method
described above.
Second, the Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a
specified time period by the Accumulation Unit value of that Sub-Account at
the beginning of the period. This computation results in a 12-month change
rate or, for longer periods, a total rate for the period which 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 Contingent Deferred Sales Charge, the Certificate
Maintenance Charge and premium tax charges. The percentages would be lower
if these charges were included.
The Stein Roe Money Market Sub-Account is a money market Sub-Account that
also may advertise yield and effective yield information. The yield of the
Sub-Account refers to the income generated by an investment in the Sub-
Account over a specifically identified 7-day period. This income is
annualized by assuming that the amount of income generated by the investment
during that week is generated each week over a 52-week period and is shown
as a percentage. The yield reflects the deduction of all charges assessed
against the Sub-Account and a Certificate but does not take into account
Contingent Deferred Sales Charges and premium tax charges. The yield would
be lower if these charges were included.
The effective yield of the Stein Roe Money Market Sub-Account is calculated
in a similar manner but, when annualizing such yield, income earned by the
Sub-Account is assumed to be reinvested. This compounding effect causes
effective yield to be higher than yield.
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 Certificates 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" for Liberty Life's obligations after certain
deaths to increase the Certificate Value if it is less than the Death
Benefit Amount or otherwise enhance the death benefit with interest).
Liberty Life is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and membership in IMSA in
advertisements. Being a member means that Liberty Life has chosen to
participate in IMSA's Life Insurance Ethical Market Conduct Program.
Liberty Life is a wholly-owned indirect 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 is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. Such
registration does not involve supervision of the management of the Variable
Account or Liberty Life by the Securities and Exchange Commission.
Obligations under the Certificates 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.
YEAR 2000 MATTERS
Liberty Life has been addressing Year 2000 matters since late 1995. Liberty
Life has allocated significant resources, both internal and external, to an
on-going, carefully planned and managed effort to examine all relevant
internal computing systems to identify areas that may require changes.
Liberty Life has been and is continuing to make such changes in existing
systems as Liberty Life believes necessary, targeting December 31, 1998 as
the expected completion date. Liberty Life has established Year 2000
compliance standards for all new internal systems. Liberty Life intends to
provide uninterrupted service to all of its policyholders and customers
through and beyond 2000.
Liberty Life believes that the timetable for implementing any required
changes will be met and that the Year 2000 issue will not pose significant
operational problems for its computer systems.
Liberty Life does not expect that the cost of addressing the Year 2000 issue
will be material to its financial condition or its results of operations.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $5,000 and $2,000 for individual retirement
annuities. 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 (currently
$250). Liberty Life may reject any Purchase Payment.
If the application for a Certificate is in good order and it calls for
amounts to be allocated to the Variable Account, 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, Liberty Life will issue a Certificate that is
replacing an existing life insurance or annuity policy that was issued by
Liberty Life or an affiliated company without having previously received a
signed application from the applicant. Certain dealers or other authorized
persons such as employers and Qualified Plan fiduciaries will inform 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 or must specify the asset
allocation model selected. (See "Other Services, the Programs" on Page 17).
The percentage for each Sub-Account, if not zero, must be at least 5% and
must be a whole number. A Certificate Owner may change the allocation
percentages without fee, penalty or other charge. Allocation changes must
be made by Written Request unless the Certificate Owner has by Written
Request authorized 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 B and
Certificate Owners authorizing telephone allocation instructions will be
notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. Eligible Funds and Sub-Accounts may be added
or withdrawn as permitted by applicable law. The Sub-Accounts in the
Variable Account and the corresponding Eligible Funds currently are as
follows:
Eligible Funds of Alger American Fund Sub-Accounts
Alger Growth Alger Growth Sub-Account
Alger Small Cap Alger Small Cap Sub-Account
Eligible Funds of Alliance Series Fund Sub-Accounts
Alliance Global Bond Alliance Global Bond Sub-
Account
Alliance Premier Growth Alliance Premier Growth Sub-
Account
Eligible Funds of Liberty Trust Sub-Accounts
Colonial Growth & Income Colonial Growth & Income
Sub-Account
Colonial Int'l Fund for Growth Colonial Int'l Fund for
Growth Sub-Account
Colonial Strategic Income Colonial Strategic Income
Sub-Account
Colonial U.S. Stock Colonial U.S. Stock Sub-
Account
Liberty All-Star Equity Liberty All-Star Equity Sub-
Account
Newport Tiger Newport Tiger Sub-Account
Stein Roe Global Utilities Stein Roe Global Utilities
Sub-Account
Eligible Funds of MFS Trust Sub-Accounts
MFS Emerging Growth MFS Emerging Growth Sub-
Account
MFS Research MFS Research Sub-Account
Eligible Funds of SteinRoe Trust Sub-Accounts
Stein Roe Balanced Stein Roe Balanced Sub-
Account
Stein Roe Growth Stock Stein Roe Growth Stock Sub-
Account
Stein Roe Money Market Stein Roe Money Market Sub-
Account
Stein Roe Mortgage Securities Stein Roe Mortgage
Securities Sub-Account
Stein Roe Special Venture Stein Roe Special Venture
Sub-Account
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable
Account are the separate funds listed above of Alger American Fund, Alliance
Series Fund, Liberty Trust, MFS Trust and 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.
Fred Alger Management, Inc. ("Alger Management") is the investment manager
for both Eligible Funds of Alger American Fund. Alger Management has been in
the business of providing investment advisory services since 1964.
Alliance Capital Management L.P. is the investment advisor for both Eligible
Funds of Alliance Series Fund. AIGAM International Limited serves as sub-
adviser for Alliance Global.
Liberty Advisory Services Corp. ("LASC")(formerly named Keyport Advisory
Services Corp.), an affiliate of Liberty Life, is the manager for Liberty
Trust and its Eligible Funds. Colonial Management Associates, Inc.
("Colonial"), an affiliate of Liberty Life, serves as sub-adviser for the
Eligible Funds (except for Newport Tiger, Stein Roe Global Utilities and
Liberty All-Star Equity). Colonial has provided investment advisory services
since 1931. Newport Fund Management, Inc., an affiliate of Liberty Life,
serves as sub-adviser for Newport Tiger. Liberty Asset Management Company,
an affiliate of Liberty Life, serves as sub-adviser for Liberty All-Star
Equity and the current portfolio managers are J.P. Morgan Investment
Management Inc., Oppenheimer Capital, Wilke/Thompson Capital Management
Inc., Westwood Management Corp. and Palley-Needelman Asset Management, Inc.
Massachusetts Financial Services Company ("MFS") is the investment advisor
for both Eligible Funds of MFS Trust. MFS is America's oldest mutual fund
organization. MFS and its predecessor organizations have a history of money
management dating from 1924 and the founding of the first mutual fund in the
United States, Massachusetts Investors Trust.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser for
each Eligible Fund of SteinRoe Trust and sub-adviser for Stein Roe Global
Utilities. In 1986, Stein Roe was organized and succeeded to the business of
Stein Roe & Farnham, a partnership. Stein Roe is an affiliate of 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 fund for investing. The prospectus is
available, at no charge, from a salesperson or by writing Liberty Life's
Service Office at the address shown on Page 1 or by calling (800) 437-4466.
Eligible Funds of Alger
American Fund and Variable Account
Sub-Accounts Investment Objective
Alger Growth Long-term capital appreciation
(Alger Growth Sub-Account)
Alger Small Cap Long-term capital appreciation.
(Alger Small Cap Sub-Account)
Eligible Funds of Alliance Series
Fund and Variable Account
Sub-Accounts Investment Objective
Alliance Global Bond A high level of return from a
(Alliance Global Bond combination of current income and
Sub-Account) capital appreciation by investing
in a globally diversified portfolio
of high quality debt securities
denominated in the U.S. Dollar and
a range of foreign currencies.
Alliance Premier Growth Growth of capital rather than
(Alliance Premier Growth current income.
Sub-Account)
Eligible Funds of Liberty Trust
and Variable Account
Sub-Accounts Investment Objective
Colonial Growth & Income Primarily income and long-term
(Colonial Growth & Income capital growth and, secondarily,
Sub- Account)(formerly named preservation of capital.
Colonial-Keyport Growth and
Income Fund)
Colonial Int'l Fund for Growth Long-term capital growth, by
(Colonial Int'l Fund for Growth investing primarily in non-U.S.
Sub-Account)(formerly named equity securities.
Colonial-Keyport Int'l Fund for
Growth)
Colonial Strategic Income A high level of current income, as
(Colonial Strategic Income is consistent with prudent risk and
Sub-Account)(formerly named maximizing total return, by
Colonial-Keyport Strategic diversifying investments primarily
Income Fund) in U.S. and foreign government and
high yield, high risk corporate debt
securities.
Colonial U.S. Stock Long-term capital growth by
(Colonial U.S. Stock Sub Account) investing primarily in large
(formerly named Colonial-Keyport capitalization equity securities.
U.S. Stock Fund)
Liberty All-Star Equity Total investment return, comprised
(Liberty All-Star Equity Sub-Account) of long-term capital appreciation
and current income, through
investment primarily in a
diversified portfolio of equity
securities.
Newport Tiger
(Newport Tiger Sub-Account)(formerly Long term capital growth by
named Newport-Keyport Tiger Fund) investing primarily in equity
securities of companies located in
the nine Tigers of Asia (Hong Kong,
Singapore, South Korea, Taiwan,
Malaysia, Thailand, Indonesia, China
and the Philippines).
Stein Roe Global Utilities
(Stein Roe Global Utilities Current income and long-term growth
Sub-Account) of capital and income.
(formerly named Colonial-Keyport
Utilities Fund)
Eligible Funds of MFS Trust
and Variable Account
Sub-Accounts Investment Objective
MFS Emerging Growth Long-term growth of capital.
(MFS Emerging Growth Sub-Account)
MFS Research Long-term growth of capital and
(MFS Research Sub-Account) future income.
Eligible Funds of SteinRoe Trust
and Variable Account
Sub-Accounts Investment Objective
Stein Roe Balanced High total investment return
(Stein Roe Balanced through investment in a changing
Sub-Account) (formerly named SteinRoe mix of securities.
Managed Assets Fund)
Stein Roe Growth Stock Long-term growth of capital through
(Stein Roe Growth Stock investment primarily in common
Sub-Account)(formerly named SteinRoe stocks.
Managed Growth Stock Fund)
Stein Roe Money Market High current income from short-term
(Stein Roe Money Market money market instruments while
Sub-Account)(formerly named SteinRoe emphasizing preservation of capital
Cash Income Fund) and maintaining excellent
liquidity.
Stein Roe Mortgage Securities Highest possible level of current
(Stein Roe Mortgage Securities income consistent with safety of
Sub-Account)(formerly named SteinRoe principal and maintenance of
Mortgage Securities Income Fund) liquidity through investment
primarily in mortgage-backed
securities.
Stein Roe Special Venture Capital growth by investing
(Stein Roe Special Venture primarily in common stocks,
Sub-Account)(formerly named SteinRoe convertible securities, and other
Capital Appreciation Fund) securities selected for prospective
capital growth.
There is no assurance that the Eligible Funds will achieve their stated
objectives.
All the Eligible Funds are funding vehicles for variable annuity contracts
and variable life insurance policies offered by separate accounts of 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 Eligible Fund prospectuses under the following captions: Alger
American Fund - "Participating Insurance Companies and Plans"; Alliance
Series Fund - "Introduction to the Fund"; Liberty Trust - "The Trust"; MFS
Trust - "Investment Concept of the Trust"; and SteinRoe Trust - "The Trust".
Transfer of Variable Account Value
Certificate Owners may transfer Variable Account Value from one Sub-Account
to another Sub-Account and/or to the Fixed Account.
The Certificate allows 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 of $25 for each transfer in
excess of 12 per Certificate Year. For transfers under different
Certificates that are being requested under powers of attorney with a common
attorney-in-fact or that are, in 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 or such shorter period as
Liberty Life may permit.
Liberty Life is also limiting each transfer to a maximum of $500,000 or such
greater amount as Liberty Life may permit. All transfers requested for a
Certificate on the same day will be treated as a single transfer and the
total combined transfer amount will be subject to the $500,000 limitation.
If the $500,000 limitation is exceeded, no amount of the transfer will be
executed by 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 $25.
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 B and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any
changes. Written transfer requests may be made by a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by 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. 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 makes a Certificate Maintenance Charge for such
services during the accumulation and annuity payment periods. At the
present time the Certificate Maintenance Charge is $36 per Certificate Year.
PRIOR TO THE INCOME DATE THE CERTIFICATE MAINTENANCE CHARGE IS NOT
GUARANTEED AND MAY BE CHANGED BY LIBERTY LIFE.
The Certificate Maintenance Charge will be waived before the Income Date if:
(i) it is the first Certificate Anniversary,
(ii) the Certificate Value is greater than or equal to $40,000 on the
Certificate Anniversary date this charge is imposed, or
(iii) Purchase Payments of at least $2,000 have been made in the prior
Certificate Year and there has been no partial withdrawal in the prior
Certificate Year.
The Certificate Maintenance Charge will be waived on and after the Income
Date for the current year if:
(i) variable annuity Option A is applicable; and
(ii) at the time of the first payment of the year, the present value of all
of the remaining payments (see "Option A" on Page 28) is greater than or
equal to $40,000.
Prior to the Income Date, the full amount of the charge will be deducted
from the Variable Account Value on each Certificate Anniversary and on the
date of any total surrender not falling on the Certificate Anniversary. On
the Income Date, a pro-rata portion of the charge due on the next
Certificate Anniversary will be deducted from the Variable Account Value.
This pro-rata charge covers the period from the prior Certificate
Anniversary to the Income Date. For example, if the Income Date occurs 73
days after that prior anniversary, then one-fifth (i.e., 73 days/365 days)
of the annual charge would be deducted on the Income Date. The charge will
be deducted from each Sub-Account in the proportion that the value of each
bears to the Variable Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost of
the Certificate Maintenance Charge for a payee's annuity will be the same as
the yearly amount in effect immediately before the annuity payments begin.
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 Benefits"). 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 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 1.25% of the average daily
net asset value of the Sub-Account. The charge is deducted during both the
accumulation and annuity periods (i.e., both before and after the Income
Date). Less than the full charge will be deducted from Sub-Account values
attributable to Certificates issued to employees of Liberty Life and other
persons specified in "Sales of the Certificates".
Deductions for Daily Distribution Charge
Liberty Life also deducts from each Sub-Account each Valuation Period a
daily Distribution Charge equal on an annual basis to 0.15% of the average
daily net asset value of the Sub-Account. This charge compensates Liberty
Life for certain sales distribution expenses relating to the Certificate.
This charge will not be deducted from Sub-Account values attributable to
Certificates that have reached the maximum cumulative distribution charge
limit defined below and to Certificates issued to employees of Liberty Life
and other persons specified in "Sales of the Certificates". The charge is
also not deducted from Sub-Account values attributable to Annuity Units.
Liberty Life may decide not to deduct the charge from Sub-Account values
attributable to a Certificate issued in an internal exchange or transfer of
an annuity contract of Liberty Life's general account.
Deductions for Contingent Deferred Sales Charge
A sales charge is not deducted from the Certificate's Purchase Payments when
initially received. However, a Contingent Deferred Sales Charge may be
deducted upon a surrender.
In order to determine whether a Contingent Deferred Sales Charge will be due
upon a partial or total surrender, Liberty Life maintains a separate set of
records. These records identify the date and amount of each Purchase
Payment made to the Certificate and the Certificate Value over time.
Certificate Owners will be permitted to make partial surrenders during the
Accumulation Period without incurring a Contingent Deferred Sales Charge, as
follows:
1. In any Certificate Year, Certificate Owners may withdraw an aggregate
amount not to exceed, at the time of the withdrawal, the Certificate's
earnings, which equal: (a) the Certificate Value, less (b) the portion of
the Purchase Payments not previously withdrawn.
2. In any Certificate Year after the first, Certificate Owners may withdraw,
in addition to the amount available in 1., the amount by which 10% of the
Certificate Value as of the preceding Certificate Anniversary exceeds the
amount available in 1.
Contingent Deferred Sales Charges, as discussed below, will be deducted with
respect to withdrawals in excess of these amounts.
In computing the applicable charge amounts, the amount of any surrender in
any Certificate Year after the first as set forth in 2. above, will be
deducted from the Purchase Payments in chronological order from the oldest
to the most recent until the amount is fully deducted. Any amount so
deducted will not be subject to a charge.
The following additional amounts will be deducted from the Purchase Payments
in the same chronological order: the amount of any surrender in the first
Certificate Year in excess of the amount set forth in 1. above and the
amount of any surrender in any later Certificate Year in excess of the
combined amount set forth in 1. and 2. above. The Contingent Deferred Sales
Charge for each Purchase Payment from which a deduction is made will be
equal to (a) multiplied by (b), where:
(a) is the amount so deducted; and
(b) is the applicable percentage for the number of years that have
elapsed from the date of that payment to the date of surrender.
Years are measured from the month and day of payment to the same
month and day in each subsequent calendar year. The percentages
applicable to each Purchase Payment during the seven years after
the date of its payment are: 7% during year 1; 6% during year 2; 5%
during year 3; 4% during year 4; 3% during year 5; 2% during year
6; 1% during year 7; and 0% thereafter.
The applicable Contingent Deferred Sales Charges for each Purchase Payment
are then totaled. The lesser of this total amount and the Certificate's
maximum cumulative distribution charge will be deducted from the Certificate
Value in the same manner as the surrender amount. The maximum cumulative
distribution charge is equal to (a) less (b), where (a) is 9% of the total
Purchase Payments made to the Certificate and (b) is the sum of all prior
Contingent Deferred Sale Charge deductions from the Certificate Value and
all prior Variable Account daily distribution charges applicable to the
Certificate from the 0.15% distribution charge factor. After each
surrender, Liberty Life's records will be adjusted to reflect any deductions
made from the applicable Purchase Payments.
Example: Two Purchase Payments were made one year apart for $5,000 and
$7,000. The Certificate Value has grown to an assumed $13,200 when the
Certificate Owner decides to withdraw $8,000. The Certificate Value at the
beginning of the Certificate Year of surrender was $13,000. The Contingent
Deferred Sales Charge percentages at the time of surrender are an assumed 5%
for the $5,000 payment and 6% for the $7,000 payment. The portion of the
surrender representing the Certificate's earnings ($13,200 less $12,000, or
$1,200) would not be subject to charges. Since $1,200 is less than the
amount guaranteed not to have charges (10% of $13,000, or $1,300), an
additional $100 would not be subject to charges. This $100 would be
deducted from the oldest Purchase Payment, reducing it from $5,000 to
$4,900. The $1,200 increase in value plus the additional $100 leaves $6,700
($8,000 - 1,200 - 100) to be deducted. This $6,700 would be deducted from
the $4,900 of the first payment still left and $1,800 of the second payment.
The total Contingent Deferred Sales Charge would be $4,900 multiplied by the
applicable 5% and $1,800 times the applicable 6%, or a total of $353. The
distribution charge records would now reflect $0 for the 1st payment and
$5,200 for the 2nd payment. The $8,000 requested plus the $353 charge would
be deducted from Certificate Values under the rules specified in "Partial
Withdrawals and Surrender" on Page 21.
The Contingent Deferred Sales Charge, when it is applicable, will be used to
cover the expenses of selling the Certificate, including compensation paid
to selling dealers and the cost of sales literature. Any expenses not
covered by the charge will be paid from Liberty Life's general account,
which may include monies deducted from the Variable Account for the
Mortality and Expense Risk Charge. A dealer selling the Certificate may
receive up to 6.00% of Purchase Payments with additional compensation later
based on the Certificate Value of those payments. During certain time
periods selected by Liberty Life and Keyport Financial Services Corp., the
percentage may increase to 6.25%.
The Contingent Deferred Sales Charge will be waived in the event a Covered
Person is confined in a medical facility in accordance with the provisions
and conditions of an endorsement relating to such confinements.
The Contingent Deferred Sales Charge will be eliminated under Certificates
issued to employees of Liberty Life and other persons specified in "Sales of
the Certificates".
Liberty Life may reduce or change to 0% any Contingent Deferred Sales Charge
percentage under a Certificate issued in an internal exchange or transfer of
an annuity contract of Liberty Life's general account.
Liberty Life may allow, under the Systematic Withdrawal Program and under
other permitted circumstances, all or part of the amount in 2. above to also
be available in the first Certificate Year. If so, the amount in 2. above
will be calculated by substituting the initial Purchase Payment for the
Certificate Value.
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 $25.
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. 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" and "Tax-
Sheltered Annuities".
Total Variable Account Expenses
The Variable Account's total expenses in relation to the Certificate will be
the Certificate Maintenance Charge, the Mortality and Expense Risk Charge,
and the Daily Sales Charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid out
of the assets of the Eligible Funds. These deductions and expenses are
described in the Eligible Fund prospectuses.
OTHER SERVICES
The Programs. Liberty Life offers several investment related programs which
are available only prior to the Income Date: Asset Allocation; Dollar Cost
Averaging; Systematic Investment; and Systematic Withdrawal Programs. A
Rebalancing Program is available prior to and after the Income Date. Under
each Program that utilizes transfers, the related transfers between and
among Sub-Accounts and the Fixed Account are not counted as one of the
twelve free transfers. Each of the Programs has its own requirements, as
discussed below. Liberty Life reserves the right to terminate any Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. For those Programs
involving transfers, Owners may change instructions by telephone with regard
to which Sub-Accounts or the Fixed Account Certificate Value may be
transferred. The current conditions and procedures are described in
Appendix B.
Dollar Cost Averaging Program. Liberty Life offers a Dollar Cost Averaging
program that Certificate Owners may participate in by Written Request. The
program periodically transfers Accumulation Units from the Stein Roe Money
Market Sub-Account or the One-Year Guarantee Period of the Fixed Account to
other Sub-Accounts selected by the Certificate Owner. The program allows a
Certificate Owner to invest in Variable Sub-Accounts over time rather than
having to invest in those Sub-Accounts all at once. The program is
available for initial and subsequent Purchase Payments and for Certificate
Value transferred into the Stein Roe Money Market Sub-Account or the One-
Year Guarantee Period. Under the program, Liberty Life makes automatic
transfers on a periodic basis out of the Stein Roe Money Market Sub-Account
or the One-Year Guarantee Period into one or more of the other available Sub-
Accounts (Liberty Life reserves the right to limit the number of Sub-
Accounts the Certificate Owner may choose but there are currently no
limits).
The Certificate Owner by Written Request must specify the Stein Roe Money
Market Sub-Account or the One Year Guarantee Period from which the transfers
are to be made, the monthly amount to be transferred (minimum $100) and the
Sub-Account(s) to which the transfers are to be made. The first transfer
will occur at the close of the Valuation Period that includes the 30th day
after the receipt of the Certificate Owner's Written Request. Each
succeeding transfer will occur one month later (e.g., if the 30th day after
the receipt date is April 8, the second transfer will occur at the close of
the Valuation Period that includes May 8). When the remaining value is less
than the monthly transfer amount, that remaining value will be transferred
and the program will end. Before this final transfer, the Certificate Owner
may extend the program by allocating additional Purchase Payments to the
Stein Roe Money Market Sub-Account or the One Year Guarantee Period or by
transferring Certificate Value to the Stein Roe Money Market Sub-Account or
the One Year Guarantee Period. The Certificate Owner may, by Written
Request or by telephone, change the monthly amount to be transferred, change
the Sub-Account(s) to which the transfers are to be made, or end the
program. The program will automatically end if the Income Date occurs.
Liberty Life reserves the right to end the program at any time by sending
the Certificate Owner a notice one month in advance.
Written or telephone instructions must be received by Liberty Life by the
end (currently 4:00 PM Eastern Time) of the business day preceding the next
scheduled transfer in order to be in effect for that transfer. Telephone
instructions are subject to the conditions and procedures established by
Liberty Life from time to time. The current conditions and procedures
appear in Appendix B, and Certificate Owners in a dollar cost averaging
program will be notified, in advance, of any changes.
Asset Allocation Program. Certificate Owners may select from five asset
allocation model portfolios separately developed by Ibbotson Associates and
Standard & Poor's (Model A - Capital Preservation, Model B - Income and
Growth, Model C - Moderate Growth, Model D - Growth, and Model E -
Aggressive Growth). If a Certificate Owner elects one of the models, initial
and subsequent Purchase Payments will automatically be allocated among the
Sub-Accounts in the model. Only one model may be used in a Certificate at a
time. Certificate Owners may use a questionnaire and scoring system to
determine the model which corresponds to their risk tolerance and time
horizons.
Periodically Ibbotson Associates and Standard & Poor's will review the
models and may determine that a reconfiguration of the Sub-Accounts and
percentage allocations among those Sub-Accounts is appropriate. Certificate
Owners will receive notification prior to any reconfiguration.
The Fixed Account is not available in any asset allocation model. A
Certificate Owner may allocate initial or subsequent Purchase Payments, or
Certificate Value, between an asset allocation model and the Fixed Account.
Rebalancing Program. In accordance with the Certificate Owner's election
of the relative Purchase Payment percentage allocations, Liberty Life will
automatically rebalance the Certificate Value of each Sub-Account either
monthly, quarterly, semi-annually, or annually. On the last day of the
period selected, Liberty Life will automatically rebalance the Certificate
Value in each of the Sub-Accounts to match the current Purchase Payment
percentage allocations. The Program may be terminated at any time and the
percentages may be altered by Written Request. The requested change must be
received at the Service Office ten (10) days prior to the end of the period
selected. Certificate Value allocated to the Fixed Account is not subject
to automatic rebalancing. After the Income Date, automatic rebalancing
applies only to variable annuity payments and Liberty Life will rebalance
the number of Annuity Units in each Sub-Account. Annuity Units are used to
calculate the amount of each Sub-Account annuity payment; see "Variable
Annuity Benefits" in the Statement of Additional Information.
Systematic Investment Program. Purchase Payments under Non-Qualified
Certificates may be made by monthly deductions from the bank account or
payroll of any Certificate Owner who has completed and returned to Liberty
Life a Systematic Investment Program application and authorization form.
The application and authorization form may be obtained from Liberty Life or
from the sales representative. Each Systematic Investment Program Purchase
Payment is subject to a current minimum of $50.
Systematic Withdrawal Program. To the extent permitted by law, Liberty Life
will make monthly, quarterly, semi-annually 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. Systematic withdrawals may be made
from the Sub-Accounts and the One-Year Guarantee Period of the Fixed
Account. In each Certificate Year, portions of Certificate Value may be
withdrawn without the imposition of any Contingent Deferred Sales Charge
("Free Withdrawal Amount"). If withdrawals pursuant to the Program are
greater than the Free Withdrawal Amount, the amount of the withdrawals
greater than the Free Withdrawal Amount will be subject to the applicable
Contingent Deferred Sales Charge. Any unrelated voluntary partial
withdrawal a Certificate Owner makes during a Certificate Year will be
aggregated with withdrawals pursuant to the Program to determine the
applicability of any Contingent Deferred Sales Charge under the Certificate
provisions regarding partial withdrawals.
Unless the Certificate Owner specifies the Sub-Account or Sub-Accounts or
the Fixed Account from which withdrawals of Certificate Value shall be made
or if the amount in a specified Sub-Account is less than the predetermined
amount, Liberty Life will make withdrawals under the Program from the Sub-
Accounts and the Fixed Account in amounts proportionate to the amounts in
the Sub-Accounts and the Fixed Account. All withdrawals under the Program
will be effected by canceling the number of Accumulation Units equal in
value to the amount to be distributed to the Certificate Owner and any
applicable Contingent Deferred Sales Charge.
The Program may be combined with all other Programs except the Systematic
Investment Program.
It may not be advisable to participate in the Systematic Withdrawal Program
and incur a Contingent Deferred Sales Charge when making additional Purchase
Payments under the Certificate.
THE CERTIFICATES
Variable Account Value
The Variable Account Value for a Certificate is the sum of the value of each
Sub-Account to which values are allocated under a Certificate. The value of
each Sub-Account is determined at any time by multiplying the number of
Accumulation Units attributable to that Sub-Account by the Accumulation Unit
value for that Sub-Account at the time of determination. The Accumulation
Unit value is an accounting unit of measure used to determine the change in
an Accumulation Unit's value from Valuation Period to Valuation Period.
Each Purchase Payment that is made results in additional Accumulation Units
being credited to the Certificate and the appropriate Sub-Account
thereunder. The number of additional units for any Sub-Account will equal
the amount allocated to that Sub-Account divided by the Accumulation Unit
value for that Sub-Account at the time of investment.
Valuation Periods
The Variable Account is valued each Valuation Period using the net asset
value of the Eligible Fund shares. A Valuation Period is the period
commencing at the close of trading on the New York Stock Exchange on each
Valuation Date and ending at the close of trading for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock
Exchange is open for business. The New York Stock Exchange is currently
closed on weekends, New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Net Investment Factor
Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, 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 Mortality and Expense Risk
Charge; plus
(ii) the Valuation Period equivalent of the daily Distribution Charge;
plus
(iii) a charge factor, if any, for any tax provision established by
Liberty Life as a result of the operations of that Sub-Account.
If a Certificate ever reaches the maximum cumulative sales charge limit
defined in "Deductions for Contingent Deferred Sales Charge", Unit values
without (c)(ii) above will be used thereafter. For Certificates issued to
employees of Liberty Life and other persons specified in "Sales of the
Certificates", Unit values with .35% in (c)(i) above and without (c)(ii)
above will be used. Unit values without (c)(ii) above may be used for
certain Certificates issued in an internal exchange or transfer (see
"Deductions for Daily Distribution Charge").
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 Liberty Life's Service
Office. The return of the Certificate by mail will be effective when the
postmark is affixed to a properly addressed and postage-prepaid envelope.
The returned Certificate will be treated as if 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 death. And, if the
Annuitant is the decedent, the new Annuitant will be any living contingent
annuitant, otherwise the surviving spouse. The Certificate may continue
until another death occurs (i.e., until the death of the Annuitant, primary
Certificate Owner or joint Certificate Owner). Except for this paragraph,
all of "Death Provisions" will apply to that subsequent death.
In all other cases, the Certificate may continue up to five years from the
date of death. During this period, the Designated Beneficiary may exercise
all ownership rights, including the right to make transfers or partial
surrenders or the right to totally surrender the Certificate for its
Surrender Value. If the Certificate is still in effect at the end of the
five-year period, Liberty Life will automatically end it then by paying the
Certificate Value to the Designated Beneficiary. If the Designated
Beneficiary is not then alive, 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 decedent if he or she
is the first to die of the primary Certificate Owner, Joint Certificate
Owner, Annuitant, or, if there is a non-natural Certificate Owner such as a
trust, the Annuitant shall be the Covered Person. If the Covered Person
dies, the Certificate Value will be increased, as provided below, if it is
less than the Death Benefit Amount ("DBA"). The DBA is:
The DBA at issue is the initial Purchase Payment. Thereafter, the DBA is
calculated for each Valuation Period by adding any additional Purchase
Payments, and deducting any partial withdrawals, including any applicable
surrender charge. This resulting amount is the "net Purchase Payment death
benefit". The Certificate Value for each Certificate Anniversary (the
"Anniversary Value") before the 81st birthday of the Covered Person is
determined. Each Anniversary Value is increased by any Purchase Payments
made after that anniversary. This resultant value is then decreased by an
amount calculated at the time of any partial withdrawal made after that
anniversary. The amount is calculated by taking the amount of any partial
withdrawal, and dividing by the Certificate Value immediately preceding the
partial withdrawal, and then multiplying by the Anniversary Value
immediately preceding the withdrawal. The greatest Anniversary Value, as so
adjusted, (the "greatest Anniversary Value") is the DBA unless the net
Purchase Payment death benefit is higher. The net Purchase Payment death
benefit will be the DBA if such amount is higher than the greatest
Anniversary Value.
When 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 and/or the Fixed Account based on the Purchase Payment
allocation selection that is in effect when Liberty Life receives due proof
of death. Whether or not the Certificate Value is increased because of this
minimum death provision, the Designated Beneficiary may, by the later of the
90th day after the Covered Person's death and the 60th day after Liberty
Life is notified of the death, surrender the Certificate for the Certificate
Withdrawal Value without any applicable Contingent Deferred Sales Charge
being deducted. For a surrender after the applicable 90 or 60 day period
and for a surrender at any time after the death of a non-Covered Person, any
applicable Contingent Deferred Sales Charge would be deducted. If the
Certificate is not surrendered, it will continue for the time period
specified above.
Payment of Benefits. Instead of receiving a lump sum, the Certificate Owner
or any Designated Beneficiary may direct by Written Request that 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 after
the Annuitant's death. The new Annuitant will be any living contingent
annuitant, otherwise the primary Certificate Owner. If the Annuitant is the
first to die of the Certificate's primary Certificate Owner, Joint
Certificate Owner and Annuitant, then the Annuitant is the Covered Person
and the Certificate Value will be increased, as provided below, if it is
less than the Death Benefit Amount ("DBA"), as defined above. When 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 and/or the Fixed Account based on the Purchase Payment allocation
selection that is in effect when Liberty Life receives due proof of death.
Whether or not the Certificate Value is increased because of this minimum
death provision, the Certificate Owner may surrender the Certificate within
90 days of the date of the Annuitant's death for the Certificate Withdrawal
Value without any applicable Contingent Deferred Sales Charge being
deducted. For a surrender after 90 days, any applicable Contingent Deferred
Sales Charge would be deducted.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
Death of Annuitant. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the
Certificate after such a death. The Certificate Value will be increased, as
provided below, if it is less than the Death Benefit Amount ("DBA") as
defined above. When 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 and/or the Fixed Account based on
the Purchase Payment allocation selection that is in effect when Liberty
Life receives due proof of death. Whether or not the Certificate Value is
increased because of this minimum death provision, the Designated
Beneficiary may, by the later of the 90th day after the Annuitant's death
and the 60th day after Liberty Life is notified of the death, surrender the
Certificate for the Certificate Withdrawal Value without any applicable
Contingent Deferred Sales Charge being deducted. For a surrender after the
applicable 90 or 60 day period, any applicable Contingent Deferred Sales
Charge would be deducted.
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the
particular Qualified Plan. During this period, the Designated Beneficiary
may exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to totally surrender the Certificate for
its Certificate Withdrawal Value. If the Certificate is still in effect at
the end of the period, Liberty Life will automatically end it then by paying
the Certificate Withdrawal Value (without the deduction of any applicable
Contingent Deferred Sales Charge) to the Designated Beneficiary. If the
Designated Beneficiary is not alive then, 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 Systematic 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. The amount withdrawn will include any applicable Contingent
Deferred Sales Charge and therefore the amount actually withdrawn may be
greater than the amount of the surrender check requested. Unless the
request specifies otherwise, the total amount withdrawn will be deducted
from all Sub-Accounts of the Variable Account in the ratio that the value in
each Sub-Account bears to the total Variable Account Value. If there is no
value, or insufficient value, in the Variable Account, then the amount
surrendered, or the insufficient portion, will be deducted from the Fixed
Account in the ratio that each Guarantee Period's value bears to the total
Fixed Account Value.
The Certificate Owner may totally surrender the Certificate by making a
Written Request. Surrendering the Certificate will end it. Upon surrender,
the Certificate Owner will receive the Certificate Withdrawal Value.
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 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 increased or decreased by a limited Market
Value Adjustment of Fixed Account Value described in Appendix A (less any
premium taxes not previously deducted and less any applicable Certificate
Maintenance Charge) on the Income Date in accordance with the option
selected.
Income Date and Annuity Option
The Certificate Owner may select an Income Date and an Annuity Option at the
time of application. If the Certificate Owner does not select an Annuity
Option, Option B will automatically be designated. If the Certificate Owner
does not select an Income Date for the Annuitant, the Income Date will
automatically be the earlier of (i) the later of the Annuitant's 90th
birthday and the 10th Certificate Anniversary and (ii) any maximum date
permitted under state law.
Change in Income Date and Annuity Option
The Certificate Owner may choose or change an Annuity Option or the Income
Date by making a Written Request to 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 earlier of (i) the later of the Annuitant's 90th birthday and
the 10th Certificate Anniversary and (ii) any maximum date permitted under
state law.
Annuity Options
The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available
in two forms -- as a variable annuity for use with the Variable Account and
as a fixed annuity for use with Liberty Life's general account Fixed
Account. Variable annuity payments will fluctuate while fixed annuity
payments will not. The dollar amount of each fixed annuity payment will be
determined by deducting from the Certificate Value increased or decreased by
a limited Market Value Adjustment described in Appendix A any premium taxes
not previously deducted and any applicable Certificate Maintenance Charge
and then dividing the remainder by $1,000 and multiplying the result by the
greater of: (a) the applicable factor shown in the appropriate table in the
Certificate; or (b) the factor currently offered by 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 applicable premium taxes not previously deducted and less any applicable
Certificate Maintenance Charge will be applied to a variable annuity option
and Fixed Account Value increased or decreased by a limited Market Value
Adjustment described in Appendix A less any premium taxes not previously
deducted will be applied to a fixed annuity option. Whether variable or
fixed, the same Certificate Value applied to each option will produce a
different initial annuity payment as well as different subsequent payments.
The payee is the person who will receive the sum payable under an annuity
option. Any annuity option that provides for payments to continue after the
death of the payee will not allow the successor payee to extend the period
of time over which the remaining payments are to be made.
If the amount available to apply under any variable or fixed option is less
than $5,000, 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).
Option A is referred to as Preferred Income Plan (PIP). At any time while
variable annuity payments are being made, the payee may elect to receive the
following amount: (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); less (b) any Contingent
Deferred Sales Charge due by treating the value defined in (a) as a total
surrender. (See "Deductions for Contingent Deferred Sales Charge".) Instead
of receiving a lump sum, the payee may elect another payment option and the
amount applied to the option will not be reduced by the charge defined in
(b) above. If, at the death of the payee, Option A payments have been made
for fewer than the chosen number of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used
to create the annuity factor for this option. For the variable
annuity, this interest rate is 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.
Liberty Life has available a "level monthly" payment option that can be
chosen for variable payments under Option A. Under this option, the monthly
payment amount changes every twelve months instead of every month as would
be the case under the standard monthly payment frequency. The "level
monthly" option converts an annual payment amount into twelve equal monthly
payments as follows. Each annual payment will be determined as described
below in "Variable Annuity Payment Values". Each annual payment will then
be placed in 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. If the payments are
commuted, (1) the commutation method described above for calculating the
present value of remaining payments applies to any remaining annual payments
and (2) any unpaid monthly payments out of the current twelve will be
commuted at the interest rate that was used to determine those twelve
current monthly payments.
See "Annuity Payments" on Page 24 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 fewer than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used
to create the annuity factor for this option. For the variable
annuity, this interest rate is 5% per year, unless 3% per year was
chosen by the Payee's Written Request.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. 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 may instruct Liberty Life to change the Sub-Account(s)
used to determine the amount of the variable annuity payments unlimited
times every 12 months.
Proof of Age, Sex, and Survival of Annuitant
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 postpone surrender payments from the
Fixed Account for up to six months. 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.
Surrenders, Assignments and Gifts. A Certificate Owner who fully surrenders
his or her Certificate is taxed on the portion of the payment that exceeds
his or her cost basis in the Certificate. For Non-Qualified Certificates,
the cost basis is generally the amount of the Purchase Payments made for the
Certificate and the taxable portion of the surrender payment is taxed as
ordinary income. For Qualified Certificates, the cost basis is generally
zero and the taxable portion of the surrender payment is generally taxed as
ordinary income subject to special 5-year income averaging. A Designated
Beneficiary receiving a lump sum surrender benefit after the death of the
Annuitant or Certificate Owner is taxed on the portion of the amount that
exceeds the Certificate Owner's cost basis in the Certificate. If the
Designated Beneficiary elects to receive annuity payments within 60 days of
the decedent's death, different tax rules apply. See "Annuity Payments"
below. For Non-Qualified Certificates, the tax treatment applicable to
Designated Beneficiaries may be contrasted with the income-tax-free
treatment applicable to persons inheriting and then selling mutual fund
shares with a date-of-death value in excess of their basis.
Partial withdrawals received under Non-Qualified Certificates prior to
annuitization are first included in gross income to the extent Certificate
Value exceeds Purchase Payments. Then, to the extent the Certificate Value
does not exceed Purchase Payments, such withdrawals are treated as a non-
taxable return of principal to the Certificate Owner. For partial
withdrawals under a Qualified Certificate, payments are treated first as a
non-taxable return of principal up to the cost basis and then a taxable
return of income. Since the cost basis of Qualified Certificates is
generally zero, partial surrender amounts will generally be fully taxed as
ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount assigned or pledged and thus
is subject to taxation under the rules applicable to partial withdrawals or
surrenders. A Certificate Owner who gives away the Certificate (i.e.,
transfers it without full and adequate consideration) to anyone other than
his or her spouse is treated for income tax purposes as if he or she had
fully surrendered the Certificate.
A special computational rule applies if 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 by the total
number of expected payments while the non-taxable portion of each fixed
annuity payment is determined by an "exclusion ratio" formula which
establishes the ratio that the cost basis of the Certificate bears to the
total expected value of annuity payments for the term of the annuity. The
remaining portion of each payment is taxable. Such taxable portion is taxed
at ordinary income rates. For Qualified Certificates, the cost basis is
generally zero. With annuity payments based on life contingencies, the
payments will become fully taxable once the payee lives longer than the life
expectancy used to calculate the non-taxable portion of the prior payments.
Because variable annuity payments can increase over time and because certain
payment options provide for a lump sum right of commutation, it is possible
that the IRS could determine that variable annuity payments should not be
taxed as described above but instead should be taxed as if they were
received under an agreement to pay interest. This determination would
result in a higher amount (up to 100%) of certain payments being taxable.
With respect to the "level monthly" payment option available under Annuity
Option A, pursuant to which each annual payment is placed in 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. See "Tax-Sheltered Annuities"
(TSAs) for an alternative type of withholding that may apply to
distributions from TSAs that are eligible for rollover to another TSA or an
individual retirement annuity or account (IRA).
Section 1035 Exchanges. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of
the Code. It is 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 would be taxable to
the Certificate Owner in the year in which diversification requirements were
not satisfied, including previously non-taxable income earned in prior
years. As a further consequence, 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 several types of Qualified Plans.
The tax rules applicable to participants in such Qualified Plans vary
according to the type of plan and the terms and conditions of the plan
itself. Therefore, no attempt is made herein to provide more than general
information about the use of the Certificate with the various types of
Qualified Plans. Participants under such Qualified Plans as well as
Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned
that the rights of any person to any benefits under such Qualified Plans may
be subject to the terms and conditions of the plans themselves regardless of
the terms and conditions of the Certificate issued in connection therewith.
Following are brief descriptions of the various types of Qualified Plans and
of the use of the Certificate in connection therewith. Purchasers of the
Certificate should seek competent advice concerning the terms and conditions
of the particular Qualified Plan and use of the Certificate with that Plan.
Tax-Sheltered Annuities
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations
specified in Section 501(c)(3) of the Code to purchase annuity contracts
and, subject to certain contribution limitations, exclude the amount of
Purchase Payments from gross income for tax purposes. However, such
Purchase Payments may be subject to Social Security (FICA) taxes. This type
of annuity contract is commonly referred to as a "Tax-Sheltered Annuity"
(TSA).
Section 403(b)(11) of the Code contains distribution restrictions.
Specifically, benefits may be paid, through surrender of the Certificate or
otherwise, only (a) when the employee attains age 59-1/2, separates from
service, dies or becomes totally and permanently disabled (within the
meaning of Section 72(m)(7) of the Code) or (b) in the case of hardship. A
hardship distribution must be of employee contributions only and not of any
income attributable to such contributions. Section 403(b)(11) does not
apply to distributions attributable to assets held as of December 31, 1988.
Thus, it appears that the law's restrictions would apply only to
distributions attributable to contributions made after 1988, to earnings on
those contributions, and to earnings on amounts held as of 12/31/88. The
Internal Revenue Service has indicated that the distribution restrictions of
Section 403(b)(11) are not applicable when TSA funds are being transferred
tax-free directly to another TSA issuer, provided the transferred funds
continue to be subject to the Section 403(b)(11) distribution restrictions.
Liberty Life will notify a Certificate Owner who has requested a
distribution from a Certificate if all or part of such distribution is
eligible for rollover to another TSA or to an individual retirement annuity
or account (IRA). Any amount eligible for rollover treatment will be
subject to mandatory federal income tax withholding at a 20% rate if the
Certificate Owner receives the amount rather than directing Liberty Life by
Written Request to transfer the amount as a direct rollover to another TSA
or IRA.
Individual Retirement Annuities
Sections 408(b) and 408A of the Code permit eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" and "Roth IRA", respectively. These individual
retirement annuities are subject to limitations on the amount which may be
contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, distributions from certain types
of Qualified Plans may be placed on a tax-deferred basis into a Section
408(b) Individual Retirement Annuity.
Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of retirement plans for employees. Such retirement
plans may permit the purchase of the Certificate to provide benefits under
the plans.
Deferred Compensation Plans With Respect to Service for State and Local
Governments
Section 457 of the Code, while not actually providing for a Qualified Plan
as that term is normally used, provides for certain deferred compensation
plans that enjoy special income tax treatment with respect to service for
tax-exempt organizations, state governments, local governments, and agencies
and instrumentalities of such governments. The Certificate can be used with
such plans. Under such plans, a participant may specify the form of
investment in which his or her participation will be made. However, all
such investments are owned by and subject to the claims of general creditors
of the sponsoring employer.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with its view of present applicable law, 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.
Certificates may be sold with lower or no dealer compensation (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, an
employee of the investment adviser or sub-investment adviser of an Eligible
Fund, or an employee or associated person of an entity which has entered
into a sales agreement with the Principal Underwriter for the distribution
of Certificates, or (2) to any Qualified Plan established for such a person.
Such Certificates may be different from the Certificates sold to others in
that (1) they are not subject to the deduction for the Certificate
Maintenance Charge, the asset-based Sales charge or the Contingent Deferred
Sales Charge and (2) they have a Mortality and Expense Risk Charge of 0.35%
per year.
Certificates may be sold with lower or no dealer compensation as part of an
exchange program for other variable annuity contracts previously issued by
Liberty Life ("Old VA"). Such a Certificate will be issued with an exchange
endorsement. One effect of the endorsement is that no Contingent Deferred
Sales Charge will be assessed under the Old VA at the time of the exchange
and that any Contingent Deferred Charge assessed under the Certificate in
relation to the initial Purchase Payment (i.e., the amount exchanged) will
be calculated based on the actual time of each purchase payment under the
Old VA. The endorsement also provides that the refund amount described in
"Right to Revoke" will not be made if the Certificate is returned. Instead,
Liberty Life will return the Old VA to the owner and treat it as if no
exchange had occurred.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Principal Underwriter are a party. 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 write Liberty
Life Service Office, 125 High Street, Boston, MA 02110, or call (800) 367-
3653.
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 3
Safekeeping of Assets 4
Principal Underwriter 4
Experts 4
Investment Performance 4
Average Annual Total Return for a Certificate that is
Surrendered 5
Change in Accumulation Unit Value 7
Yields for Stein Roe Money Market Sub-Account 9
Financial Statements 10
Liberty Life Assurance Company of Boston 11
Variable Account J 41
APPENDIX A
THE FIXED ACCOUNT (ALSO KNOWN AS THE MODIFIED GUARANTEED ANNUITY ACCOUNT)
Introduction
This Appendix describes the Fixed Account option available under the
Certificate.
FIXED ACCOUNT VALUES PROVIDED BY THE CERTIFICATE ARE SUBJECT TO A MARKET
VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS TRANSFERRED AND AMOUNTS PAID (INCLUDING WITHDRAWALS,
SURRENDERS, DEATH BENEFITS, AND AMOUNTS APPLIED TO PURCHASE ANNUITY
PAYMENTS) TO A CERTIFICATE OWNER OR OTHER PAYEE. IN NO EVENT WILL THE
DOWNWARD MARKET VALUE ADJUSTMENT ELIMINATE INTEREST AT THE RATE OF 3% PER
YEAR APPLIED TO THE AMOUNT ALLOCATED TO A GUARANTEED PERIOD. PAYMENTS MADE
FROM FIXED ACCOUNT VALUES AT THE END OF THEIR GUARANTEE PERIOD ARE NOT
SUBJECT TO THE MARKET VALUE ADJUSTMENT.
Purchase Payments allocated to the Fixed Account option become part of
Liberty Life's general account. Because of applicable exemptive and
exclusionary provisions, interests in the Fixed Account options have not
been registered under the Securities Act of 1933 ("1933 Act"), nor is the
general account an investment company under the Investment Company Act.
Accordingly, neither the general account, the Fixed Account option, nor any
interest therein, is subject to regulation under the 1933 Act or the
Investment Company Act. Liberty Life understands that the Securities and
Exchange Commission has not reviewed the disclosure in the prospectus
relating to the general account and the Fixed Account option.
Investments in the Fixed Account and Capital Protection Plus
Purchase Payments will be allocated to the Fixed Account in accordance with
the selection made by the Certificate Owner in the application. Any
selection must specify that percentage of the Purchase Payment that is to be
allocated to each Guarantee Period of the Fixed Account. The percentage, if
not zero, must be at least 10%. The Certificate Owner may change the
allocation percentages without fee, penalty or other charge. Allocation
changes must be made by Written Request unless the Certificate Owner has by
Written Request authorized Liberty Life to accept telephone allocation
instructions from the Certificate Owner. 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 B and
Certificate Owners authorizing telephone allocation instructions will be
notified, in advance, of any changes.
Liberty Life currently offers Guarantee Periods of 1, 3, 5, and 7 years.
Liberty Life may change at any time the number of Guarantee Periods it
offers under newly-issued and in-force Certificates, as well as the length
of those Guarantee Periods. If Liberty Life stops offering a particular
Guarantee Period, existing Fixed Account Value in such Guarantee Period
would not be affected until the end of the Period (at that time, a Period of
the same length would not be a transfer option). Each Guarantee Period
currently offered is available for initial and subsequent Purchase Payments
and for transfers of Certificate Value.
Liberty Life offers a Capital Protection Plus program that a Certificate
Owner may request. Under this program, Liberty Life will allocate part of
the Purchase Payment to the Guarantee Period selected by the Certificate
Owner so that such part, based on that Guarantee Period's interest rate in
effect on the date of allocation, will equal at the end of the Guarantee
Period the total Purchase Payment. The rest of the Purchase Payment will be
allocated to the Sub-Account(s) of the Variable Account based on the
Certificate Owner's allocation. If any part of the Fixed Account Value is
surrendered or transferred before the end of the Guarantee Period, the Value
at the end of that Period will not equal the original Purchase Payment
amount.
For an example of Capital Protection Plus, assume Liberty Life receives a
Purchase Payment of $10,000 when the interest rate for the 7-year Guarantee
Period is 6.75% per year. Liberty Life will allocate $6,331 to that
Guarantee Period because $6,331 will increase at that interest rate to
$10,000 after 7 years. The remaining $3,669 of the payment will be
allocated to the Sub-Account(s) selected by the Certificate Owner.
Fixed Account Value
The Fixed Account Value at any time is equal to:
(a) all Purchase Payments allocated to the Fixed Account plus the
interest subsequently credited on those payments; plus
(b) any Variable Account Value transferred to the Fixed Account plus the
interest subsequently credited on the transferred value; less
(c) any prior partial withdrawals from the Fixed Account, including any
charges therefor; less
(d) any Fixed Account Value transferred to the Variable Account.
Interest Credits
Liberty Life will credit interest daily (based on an annual compound
interest rate) to Purchase Payments allocated to the Fixed Account at rates
declared by Liberty Life for Guarantee Periods of one or more years from the
month and day of allocation. Any rate set by Liberty Life will be at least
3% per year.
Liberty Life's method of crediting interest means that Fixed Account Value
might be subject to different rates for each Guarantee Period the
Certificate Owner has selected in the Fixed Account. For purposes of this
section, Variable Account Value transferred to the Fixed Account and Fixed
Account Value renewed for another Guarantee Period shall be treated as a
Purchase Payment allocation.
Application of Market Value Adjustment
Any surrender, withdrawal, transfer, or application to an Annuity Option of
Fixed Account Value from a Guarantee Period of three years or more is
subject to a limited Market Value Adjustment, unless: (1) the effective date
of the transaction is at the end of the Guarantee Period; or (2) the
effective date of a surrender is within 90 days of the date of death of the
first Covered Person to die.
If a Market Value Adjustment applies to either a surrender or the
application to an Annuity Option, then any negative Market Value Adjustment
amount will be deducted from the Certificate Value and any positive Market
Value Adjustment amount will be added to the Certificate Value. If a Market
Value Adjustment applies to either a partial withdrawal or a transfer, then
any negative Market Value Adjustment amount will be deducted from the
partial withdrawal or transfer amount after the withdrawal or transfer
amount has been deducted from the Fixed Account Value, and any positive
Market Value Adjustment amount will be added to the applicable amount after
it has been deducted from the Fixed Account Value.
No Market Value Adjustment is ever applicable to Guarantee Periods of fewer
than three years.
Effect of Market Value Adjustment
A Market Value Adjustment reflects the change in prevailing current interest
rates since the beginning of a Guarantee Period. The Market Value Adjustment
may be positive or negative, but any negative Adjustment may be limited in
amount (see Market Value Adjustment Factor below).
Generally, if the Treasury Rate for the Guarantee Period is lower than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the limited
Market Value Adjustment will result in a reduction of the amount being
surrendered, withdrawn, transferred, or applied to an Annuity Option.
Similarly, if the Treasury Rate for the Guarantee Period is higher than the
Treasury Rate for a new Guarantee Period with a length equal to the time
remaining in the Guarantee Period, then the application of the Market Value
Adjustment will result in an increase in the amount being surrendered,
withdrawn, transferred, or applied to an Annuity Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charges or applicable taxes.
Market Value Adjustment Factor
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to a Payment Option, by the
Market Value Adjustment Factor. The Market Value Adjustment Factor is
calculated as the larger of Formula (1) or (2):
(1) (1+a)/(1+b)(n/12) - 1
where:
"a" is the Treasury Rate for the number of Guarantee Period Years in the
Guarantee Period;
"b" is the Treasury Rate for a period equal to the time remaining (rounded
up to the next whole number of Guarantee Period Years) to the expiration of
the Guarantee Period; and
"n" is the number of complete Guarantee Period Months remaining before the
expiration of the Guarantee Period.
(2) (1.03)/(1+i)(y+d/#) - 1
where:
"i" is the Guaranteed Interest Rate for the Guarantee Period;
"y" is the number of complete Guarantee Period Years that have elapsed in Your
Guarantee Period;
"d" is the number of days since the last Guarantee Period Anniversary or, if
"y" is zero, the number of days since the start of the Guarantee Period; and
"#" is the number of days in the current Guarantee Period Year (i.e., the
sum of "d" and the number of days until the next Guarantee Period
Anniversary).
In Formulas (1) and (2), all references to Guarantee Period, Guarantee
Period Anniversary, Guarantee Period Month, and Guarantee Period Year relate
to the Guarantee Period from which is being taken the amount being
surrendered, withdrawn, transferred, or applied to an Annuity Option.
As stated above, the Formula (2) amount will apply only if it is greater
than the Formula (1) amount. This will occur only when the Formula (1)
amount is negative and the Formula (2) amount is a smaller negative number.
Formula (2) thus ensures that a full (normal) negative Market Value
Adjustment of Formula (1) will not apply to the extent it would decrease the
Guarantee Period's Fixed Account Value (before the deduction of any
applicable surrender charges or any applicable taxes) below the following
amount:
(a) the amount allocated to the Guarantee Period; less
(b) any prior systematic or partial withdrawal amounts; less
(c) any prior amounts transferred to the Variable Account or to
another Guarantee Period in the Fixed Account; plus
(d) interest on the above items (a) through (c) credited annually at a
rate of 3% per year.
Treasury Rates
The Treasury Rate for a Guarantee Period is the interest rate in the
Treasury Constant Maturity Series, as published by the Federal Reserve
Board, for a maturity equal to the number of years specified in "a" and "b"
in Formula (1) above. Weekly Series are published at the beginning of the
following week. To determine "a", Liberty Life uses the weekly Series first
published on or after the most recent Determination Date which occurs on or
before the Start Date for the Guarantee Period, except that if the Start
Date is the same as the Determination Date or the date of publication, or
any date in between, Liberty Life instead uses the weekly Series first
published after the prior Determination Date. To determine "b", Liberty Life
uses the Weekly Series first published on or after the most recent
Determination Date which occurs on or before the date on which the Market
Value Adjustment Factor is calculated, except that if the calculation date
is the same as the Determination Date or the date of publication, or any
date in between, Liberty Life instead uses the weekly Series first published
after the prior Determination Date. The Determination Dates are the last
business day prior to the first and fifteenth of each calendar month.
If the number of years specified in "a" or "b" is not equal to a maturity in
the Treasury Constant Maturity Series, the Treasury Rate will be determined
by straight line interpolation between the interest rates of the next
highest and next lowest maturities.
If the Treasury Constant Maturity Series becomes unavailable, Liberty Life
will adopt a comparable constant maturity index or, if such a comparable
index also is not available, Liberty Life will replicate calculation of the
Treasury Constant Maturity Series Index based on U.S. Treasury Security
coupon rates.
End of A Guarantee Period
Liberty Life will notify a Certificate Owner in writing at least 30 days
prior to the end of a Guarantee Period. At the end of the Guarantee Period,
Liberty Life will automatically transfer the Guarantee Period's Fixed
Account Value to the Money Market Sub-Account of the Variable Account unless
Liberty Life previously received a Certificate Owner's Written Request of:
(1) election of a new Guarantee Period from among those being offered by
Liberty Life at that time; or (2) instructions to transfer the ending
Guarantee Period's Fixed Account Value to one or more Sub-accounts of the
Variable Account. A new Guarantee Period cannot be longer than the number of
years remaining until the Income Date.
Transfers of Fixed Account Value
The Certificate Owner may transfer Fixed Account Value from one Guarantee
Period to another or to one or more Sub-Accounts of the Variable Account
subject to any applicable Market Value Adjustment. If the Fixed Account
Value represents multiple Guarantee Periods, the transfer request must
specify from which values the transfer is to be made.
The Certificate allows Liberty Life to limit the number of transfers that
can be made in a specified time period. Currently, Liberty Life is limiting
Variable Account and Fixed Account transfers to generally unlimited
transfers per calendar year with a $500,000 per transfer dollar limit. See
"Transfer of Variable Account Value". Transfers from the Fixed Account to
the Variable Account at limited to 110% of the Fixed Account Value at the
beginning of the Certificate Year. This limitation will be waived if a
Systematic Withdrawal Program is in effect. These limitations will not apply
to any transfer made at the end of a Guarantee Period. Certificate Owners
will be notified, in advance, of a change in the limitation on the number of
transfers.
Transfer requests must be by Written Request unless the Certificate Owner
has authorized Liberty Life by Written Request to accept telephone transfer
instructions from the Certificate Owner or from a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney. By
authorizing 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 B and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any
changes. Written transfer requests may be made by a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Liberty Life before the close of trading on
the New York Stock Exchange (currently 4:00 PM Eastern Time) will be
executed at the close of business that day. Any requests received later
will be executed at the close of the next business day.
The amount of the transfer will be deducted from the specified values in the
manner stated in the next section below.
If 100% of a Guarantee Period's value is transferred and the current
allocation for Purchase Payments includes that Guarantee Period, then the
allocation formula for future Purchase Payments will automatically change
unless the Certificate Owner instructs otherwise. For example, if the
allocation formula is 50% to the one-year Guarantee Period and 50% to Sub-
Account A and all Fixed Account Value is transferred to Sub-Account A, the
allocation formula will change to 100% to Sub-Account A.
APPENDIX B
TELEPHONE INSTRUCTIONS
Telephone Transfers of Certificate Values
1. If there are Joint Certificate Owners, both must authorize Liberty Life
to accept telephone instructions but either Certificate Owner may give
Liberty Life 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 satisfaction.
3. Neither Liberty Life 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 will employ reasonable
procedures to confirm that a telephone instruction is genuine and, if
Liberty Life does not, Liberty Life 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 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 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
receives the Certificate Owner's written revocation, (b) Liberty Life
discontinues the privilege, or (c) Liberty Life 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 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, 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 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.
PART B
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 (SAI) is not a prospectus but it
relates to, and should be read in conjunction with, the Liberty Advisor
variable annuity prospectus dated May 1, 1998. The SAI is incorporated by
reference into the prospectus. The prospectus is available, at no charge, by
writing Liberty Life at 125 High Street, Boston, MA 02110 or by calling
(800) 437-4466.
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
Average Annual Total Return for a Certificate that is Surrendered.....5
Change in Accumulation Unit Value.....................................7
Yields for Stein Roe Money Market Sub-Account.........................9
Financial Statements....................................................10
Liberty Life Assurance Company of Boston..............................11
Variable Account J....................................................41
The date of this statement of additional information is May 1, 1998.
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 is a
multi-line insurance company. For additional information about Liberty Life,
see page 8 of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium
taxes and then dividing the remaining value of that Sub-Account by $1,000
and multiplying the result by the greater of: (a) the applicable factor from
the Certificate's annuity table for the particular payment option; or (b)
the factor currently offered by 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
without any deduction for the sales charge defined in (c)(ii) of the
net investment factor formula; and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed annual investment rate (AIR). The AIR for Annuity Units
based on the Certificate's annuity tables is 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 12 months. The payee's request
must specify the percentage of the annuity payment that is to be based on
the investment performance of each Sub-Account. The percentage for each Sub-
Account, if not zero, must be at least 5% and must be a whole number. At
the end of the Valuation Period during which 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 Contract and Certificate, 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, 1997 and 1996, and for each of the two years in the period
ended December 31, 1997 and the financial statements of Liberty Life
Assurance Company of Boston-Variable Account J as of December 31, 1997,
appearing in this Statement of Additional Information have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Liberty Life Assurance Company of Boston for the
year ended December 31, 1995 have been included herein in reliance on the
report of KPMG Peat Marwick LLP, independent certified public accountants,
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: Common Stocks, represented by the Standard and Poor's
Composite Stock Price Index (an unmanaged weighted index of 90 stocks prior
to March 1957 and 500 stocks thereafter of industrial, transportation,
utility and financial companies widely regarded by investors as
representative of the stock market); Small Company Stocks, represented by
the fifth capitalization quintile (i.e., the ninth and tenth deciles) of
stocks on the New York Stock Exchange for 1926-1981 and by the performance
of the Dimensional Fund Advisors Small Company 9/10 (for ninth and tenth
deciles) Fund thereafter; Long Term Corporate Bonds, represented beginning
in 1969 by the Salomon Brothers Long-Term High-Grade Corporate Bond Index,
which is an unmanaged index of nearly all Aaa and Aa rated bonds,
represented for 1946-1968 by backdating the Salomon Brothers Index using
Salomon Brothers' monthly yield data with a methodology similar to that used
by Salomon Brothers in computing its Index, and represented for 1925-1945
through the use of the Standard and Poor's monthly High-Grade Corporate
Composite yield data, assuming a 4% coupon and a 20-year maturity; Long-Term
Government Bonds, measured each year using a portfolio containing one U.S.
government bond with a term of approximately twenty years and a reasonably
current coupon; U.S. Treasury Bills, measured by rolling over each month a
one-bill portfolio containing, at the beginning of each month, the shortest-
term bill having not less than one month to maturity; Inflation, measured by
the Consumer Price Index for all Urban Consumers, not seasonably adjusted,
since January, 1978 and by the Consumer Price Index before then. The stock
capital markets may be contrasted with the corporate bond and U.S.
government securities capital markets. Unlike an investment in stock, an
investment in a bond that is held to maturity provides a fixed rate of
return. Bonds have a senior priority to common stocks in the event the
issuer is liquidated and interest on bonds is generally paid by the issuer
before it makes any distributions to common stock owners. Bonds rated in
the two highest rating categories are considered high quality and present
minimal risk of default. An additional advantage of investing in U.S.
government bonds and Treasury bills is that they are backed by the full
faith and credit of the U.S. government and thus have virtually no risk of
default. Although government securities fluctuate in price, they are highly
liquid.
Average Annual Total Return for a Certificate that is Surrendered
The tables below provide performance results for each Sub-Account through
December 31, 1997. The results shown in this section are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Certificate Owner.
The following tables were calculated using the method prescribed by the
Securities and Exchange Commission. They illustrate each Sub-Account's
average annual total return over the periods shown assuming a single $1,000
initial purchase payment and the surrender of the Certificate at the end of
each period. The Sub-Account's average annual total return is the annual
rate that would be necessary to achieve the ending value of an investment
kept in the Sub-Account for the period specified. The first table uses the
inception date of the Certificate's Sub-Accounts while the second table
assumes the Certificate was available prior to that date on the Funds'
inception date.
Each calculation assumes that the $1,000 initial purchase payment was
allocated to only one Sub-Account and no transfers or additional purchase
payments were made. The rate of return reflects all charges assessed against
a Certificate and the Sub-Account except for any premium taxes that may be
payable. The charges reflected are: a Contingent Deferred Sales Charge that
applies when the hypothetical Certificate is surrendered; the annual 1.25%
Mortality and Expense Risk Charge; the annual 0.15% sales charge; and, on an
allocated basis, the Certificate's Certificate Maintenance Charge that is
deducted at the end of each year and upon surrender. The Contingent Deferred
Sales Charge used in the calculations for a particular Sub-Account is equal
to the percentage charge in effect at the end of the period multiplied by
the assumed $1,000 payment. The percentage charge declines from 7% to 1%
over 7 years by 1% per year.
Average Annual Total Return for a
Certificate Surrendered on 12/31/97
Hypothetical $1,000 Purchase Payment*
Length of Investment Period
One Three Five Ten Since Sub-Account
Sub-Account Year Years Years Years Inception Shown**
Alger Growth N/A N/A N/A N/A -9.24%(7/30/97)
Alger Small Cap N/A N/A N/A N/A -7.04 (7/30/97)
Alliance Global Bond N/A N/A N/A N/A -4.92 (7/30/97)
Alliance Premier Growth N/A N/A N/A N/A -7.63 (7/30/97)
Colonial Growth and Income N/A N/A N/A N/A -2.15 (7/30/97)
Colonial Int'l Fund for Growth N/A N/A N/A N/A -21.75 (7/30/97)
Colonial Strategic Income N/A N/A N/A N/A -4.38 (7/30/97)
Colonial U. S. Stock N/A N/A N/A N/A -4.57 (7/30/97)
Liberty All-Star Equity N/A N/A N/A N/A N/A (2/11/98)
Newport Tiger N/A N/A N/A N/A -39.47 (7/30/97)
Stein Roe Global Utilities N/A N/A N/A N/A 10.56 (7/30/97)
MFS Emerging Growth N/A N/A N/A N/A -6.71 (7/30/97)
MFS Research N/A N/A N/A N/A -8.87 (7/30/97)
Stein Roe Balanced N/A N/A N/A N/A -6.14 (7/30/97)
Stein Roe Growth Stock N/A N/A N/A N/A -4.84 (7/30/97)
Stein Roe Mortgage Securities N/A N/A N/A N/A -4.13 (7/30/97)
Stein Roe Special Venture N/A N/A N/A N/A -11.81 (7/30/97)
* Fund expenses in excess of defined amounts were reimbursed during one or
more calendar years for all Funds except Colonial Int'l Fund for Growth,
Newport Tiger and Stein Roe Balanced. Without this expense reimbursement any
return percentages shown that include these calendar years would be lower.
See footnote 5 on page 6 of the prospectus any expense reimbursement
percentages currently applicable to the Funds.
** Non-annualized total returns are shown since these Sub-Accounts have been
in existence for less than one year.
Average Annual Total Return for a
Certificate Surrendered on 12/31/97
Hypothetical $1,000 Purchase Payment*
Length of Investment Period
One Three Five Ten Since Fund
Sub-Account Year Years Years Years Inception Shown
Alger Growth 18.01% 22.18% 17.43% N/A 17.76%(1/9/89)
Alger Small Cap 3.85 16.13 10.84 N/A 17.58 (9/21/88)
Alliance Global Bond -6.68 7.41 5.25 N/A 6.32 (7/15/91)
Alliance Premier Growth 26.01 30.88 19.19 N/A 19.90 (6/26/92)
Colonial Growth and Income 21.19 22.89 N/A N/A 15.42 (7/1/93)
Colonial Int'l Fund for Growth -9.87 -0.10 N/A N/A -2.04 (5/3/94)
Colonial Strategic Income 1.70 9.68 N/A N/A 8.32 (7/13/94)
Colonial U. S. Stock 24.41 25.24 N/A N/A 22.66 (7/5/94)
Liberty All-Star Equity N/A N/A N/A N/A -6.37(11/15/97)**
Newport Tiger -36.16 N/A N/A N/A -7.60 (5/1/95)
Stein Roe Global Utilities 20.98 20.23 N/A N/A 9.53 (7/1/93)
MFS Emerging Growth 14.22 N/A N/A N/A 20.33 (7/24/95)
MFS Research 12.60 N/A N/A N/A 18.84 (7/26/95)
Stein Roe Balanced 9.21 16.61 10.57 N/A 11.42 (1/1/89)
Stein Roe Growth Stock 24.45 27.64 14.94 N/A 16.35 (1/1/89)
Stein Roe Mortgage Securities 1.54 7.07 4.88 N/A 6.89 (1/1/89)
Stein Roe Special Venture 0.32 12.58 14.16 N/A 14.82 (1/1/89)
* Fund expenses in excess of defined amounts were reimbursed during one or
more calendar years for all Funds except Colonial Int'l Fund for Growth,
Newport Tiger and Stein Roe Balanced. Without this expense reimbursement any
return percentages shown that include these calendar years would be lower.
See footnote 5 on page 6 of the prospectus for any expense reimbursement
percentages currently applicable to the Funds.
** Non-annualized total returns are shown since this Sub-Account has been in
existence for less than one year.
Change in Accumulation Unit Value
The following performance information illustrates the average annual change
and the actual annual change in Accumulation Unit values for each Sub-
Account and is computed differently than the standardized average annual
total return information. Performance information for periods prior to the
inception date of the Contract's Sub-Accounts (7/30/97 except for Liberty
All-Star Equity (2/11/98)) assumes the Certificates were available prior to
that date on the Funds' inception date.
A Sub-Account's average annual change in Accumulation Unit values is the
annualized rate at which the value of a Unit changes over the time period
illustrated. A Sub-Account's actual annual change in Accumulation Unit
values is the rate at which the value of a Unit changes over each 12-month
period illustrated. These rates of change in Accumulation Unit values
reflect the Certificate's annual 1.25% Mortality and Expense Risk Charge and
the annual 0.15% sales charge. They do not reflect deductions for any
Contingent Deferred Sales Charge, Certificate Maintenance Charge, and
premium taxes. The rates of change would be lower if these charges were
included.
Average Annual Change Average Annual Change
In Accumulation Unit in Accumulation Unit Value
Value From Fund over the period shown
Inception Shown through 12/31/97
Sub-Account through 12/31/97** Three Years Five Years
Alger Growth 17.76% (1/6/89) 23.07% 17.64%
Alger Small Cap 17.67 (9/20/88) 17.38 11.25
Alliance Global Bond 6.43 (7/15/91) 8.55 5.57
Alliance Premier Growth 20.06 (6/26/92) 31.65 19.39
Colonial Growth and Income 15.82 (7/1/93) 23.77 N/A
Colonial Int'l Fund for Growth -0.94 (5/3/94) 1.22 N/A
Colonial Strategic Income 9.26 (7/5/94) 10.78 N/A
Colonial U. S. Stock 23.34 (7/5/94) 26.08 N/A
Liberty All-Star Equity 0.63***(11/15/97) N/A N/A
Newport Tiger -5.81 (5/1/95) N/A N/A
Stein Roe Global Utilities 10.01 (7/1/93) 21.14 N/A
MFS Emerging Growth 21.88 (7/24/95) N/A N/A
MFS Research 20.43 (7/26/95) N/A N/A
Stein Roe Balanced 11.42 (1/1/89) 17.58 10.84
Stein Roe Growth Stock 16.35 (1/1/89) 28.45 15.17
Stein Roe Mortgage Securities 6.89 (1/1/89) 8.22 5.21
Stein Roe Special Venture 14.82 (1/1/89) 13.62 14.39
12-Month Period Change in Accumulation
Unit Value**
Sub-Account 1989 1990 1991 1992 1993 1994
Alger Growth 22.42%* 2.69% 38.45% 10.82% 20.78% 0.05%
Alger Small Cap 62.22 7.21 55.37 2.12 11.72 -5.69
Alliance Global Bond N/A N/A 10.29* 3.40 9.61 -6.46
Alliance Premier Growth N/A N/A N/A 12.99* 11.07 -4.30
Colonial Growth and Income N/A N/A N/A N/A 4.28* -2.12
Colonial Int'l Fund for Growth N/A N/A N/A N/A N/A -6.86*
Colonial Strategic Income N/A N/A N/A N/A N/A 0.15*
Colonial U. S. Stock N/A N/A N/A N/A N/A 3.69*
Liberty All-Star Equity N/A N/A N/A N/A N/A N/A
Newport Tiger N/A N/A N/A N/A N/A N/A
Stein Roe Global Utilities N/A N/A N/A N/A -2.38* -11.51
MFS Emerging Growth N/A N/A N/A N/A N/A N/A
MFS Research N/A N/A N/A N/A N/A N/A
Stein Roe Balanced 20.82 -2.11 26.17 6.04 7.78 -4.52
Stein Roe Growth Stock 29.58 -3.04 45.98 5.15 3.52 -7.64
Stein Roe Mortgage Securities 11.33 7.59 12.90 4.49 4.80 -2.93
Stein Roe Special Venture 29.27 -10.29 35.36 12.90 33.80 -0.20
12-Month Period Change in Accumulation
Unit Value**
Sub-Account 1995 1996 1997
Alger Growth 34.49% 11.77% 24.01%
Alger Small Cap 42.32 2.73 10.62
Alliance Global Bond 23.02 4.72 -0.72
Alliance Premier Growth 42.85 21.00 32.01
Colonial Growth and Income 28.34 16.16 27.19
Colonial Int'l Fund for Growth 4.39 3.62 -4.12
Colonial Strategic Income 16.67 8.20 7.70
Colonial U. S. Stock 27.91 20.14 30.41
Liberty All-Star Equity N/A N/A 0.63*
Newport Tiger 14.46* 9.69 -32.09
Stein Roe Global Utilities 33.30 5.04 26.98
MFS Emerging Growth 16.70* 15.40 20.22
MFS Research 9.97* 20.46 18.60
Stein Roe Balanced 23.75 14.01 15.21
Stein Roe Growth Stock 35.84 19.59 30.45
Stein Roe Mortgage Securities 14.14 3.25 7.54
Stein Roe Special Venture 10.21 25.18 6.32
* Percentage of change is for less than 12 months; it is for the period from
the inception date shown to the end of the year.
** Fund expenses in excess of defined amounts were reimbursed during one or
more calendar years for all Funds except Colonial Int'l Fund for Growth,
Newport Tiger and Stein Roe Balanced. Without this expense reimbursement any
return percentages shown that include these calendar years would be lower.
See footnote 5 on page 6 of the prospectus for any expense reimbursement
percentages currently applicable to the Funds.
*** Non-annualized total returns are shown since this Sub-Account has been
in existence for less than one year.
Yield for Stein Roe Money Market Sub-Account
Yield for the Stein Roe Money Market Sub-Account are calculated using the
method prescribed by the Securities and Exchange Commission. Yield reflects
the deduction of the annual 1.40% asset-based Certificate charge and on an
allocated basis, the Certificate's annual $36 Certificate Maintenance
Charge. The yield does not reflect Contingent Deferred Sales Charges and
premium tax charges. The yield would be lower if these charges were
included. The following is the standardized formula:
Yield equals: (A - B - 1) X 365
C 7
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day
period. The assumed annual charge is equal to the $36
Certificate charge multiplied by a fraction equal to the
average number of Certificates with Stein Roe Money Market Sub-
Account value during the 7-day period divided by the average
total number of Certificates during the 7-day period. This
annual amount is converted to a 7-day charge by multiplying it
by 7/365. It is then equated to an Accumulation Unit size
basis by multiplying it by a fraction equal to the average
value of one Stein Roe Money Market Sub-Account Accumulation
Unit during the 7-day period divided by the average Certificate
Value in Stein Roe Money Market Sub-Account during the 7-day
period.
C = the Accumulation Unit value at the beginning of the 7-day
period.
The yield formula assumes that the weekly net income generated by an
investment in the Stein Roe Money Market Sub-Account will continue over an
entire year.
For the 7-day period ended 12/31/97 the yield for the Stein Roe Money Market
Sub-Account was 3.90%.
FINANCIAL STATEMENTS
The financial statements of Liberty Life and the Variable Account are
included in the statement of additional information. The financial
statements of Liberty Life are provided as relevant to its ability to meet
its financial obligations under the Certificates and should not be
considered as bearing on the investment performance of the assets held in
the Variable Account.
Report of Independent Auditors
The Board of Directors
Liberty Life Assurance Company of Boston
We have audited the accompanying balance sheets of Liberty Life Assurance
Company of Boston (the Company) as of December 31, 1997 and 1996, and the
related statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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 at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
February 27, 1998
Independent Auditors' Report
The Board of Directors
Liberty Life Assurance Company of Boston:
We have audited the financial statements of Liberty Life Assurance Company
of Boston for the year ended December 31, 1995. 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 results of operations and cash flows for
Liberty Life Assurance Company of Boston for the year ended December 31,
1995 in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 16, 1996
Liberty Life Assurance Company of Boston
Balance Sheets
Year ended December 31
1997 1996
(In Thousands)
Assets:
Investments:
Fixed maturities, available for sale $2,143,658 $1,737,187
Equity securities, available for sale 3,187 4,122
Policy loans 49,331 45,345
Short-term investments 57,956 78,715
Other invested assets 43,747 38,281
Total investments 2,297,879 1,903,650
Cash and cash equivalents 37,211 34,372
Amounts recoverable from reinsurers 55,313 48,800
Premiums receivable 13,606 8,421
Federal income taxes recoverable 718
Investment income due and accrued 23,764 20,820
Deferred policy acquisition costs 89,154 77,424
Other assets 7,977 7,050
Assets held in separate accounts 1,487,078 1,097,040
Total assets $4,012,700 $3,197,577
Liabilities and Stockholders' Equity:
Liabilities:
Future policy benefits $1,128,468 $ 936,842
Policyholders' and beneficiaries' funds 687,458 548,153
Policy and contract claims 42,222 30,394
Dividends to policyholders 11,246 12,919
Experience rating refund reserves 1,760 2,400
Liability for participating policies 72,811 68,504
Federal income taxes payable 542
Deferred federal income taxes 102,767 73,973
Due to Parent 8,262 8,907
Accrued expenses and other liabilities 112,724 117,144
Liabilities related to separate accounts 1,487,078 1,097,040
Total liabilities 3,654,796 2,896,818
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 52,500
Net unrealized gains on investments, net of
federal income taxes of $70,189 and $43,793 130,326 81,330
Cumulative foreign currency translations,
net of federal income taxes of $852 and $612 1,583 1,139
Retained earnings 170,995 163,290
Total stockholders' equity 357,904 300,759
Total liabilities and stockholders' equity $4,012,700 $3,197,577
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Income
Year ended December 31
1997 1996 1995
(In Thousands)
Revenues:
Premiums, net $415,636 $283,965 $197,017
Net investment income 144,989 122,527 108,721
Realized capital gains on investments 8,074 6,722 5,091
Contractholder charges and assessments 7,335 5,759 5,428
Other revenues 9,010 4,469 4,323
Total revenues 585,044 423,442 320,580
Benefits and expenses:
Death and other policy benefits 249,449 173,281 126,029
Recoveries from reinsurers on ceded claims (11,382) (11,454) (10,489)
Provision for future policy benefits and
other policy liabilities 186,883 121,347 88,903
Interest credited to policyholders 38,128 32,252 27,527
Change in deferred policy acquisition
costs (16,709) (15,247) (11,101)
General expenses 100,535 69,926 52,555
Insurance taxes and licenses 10,069 6,956 4,997
Dividends to policyholders 9,279 12,610 12,277
Total benefits and expenses 566,252 389,671 290,698
Income from continuing operations before
federal income taxes and earnings of
participating policies 18,792 33,771 29,882
Federal income taxes 6,726 10,327 10,782
Income from continuing operations before
earnings of participating policies 12,066 23,444 19,100
Earnings of participating policies net
of federal income tax benefit of $3,719
in 1997, $2,514 in 1996 and $2,581
in 1995 4,307 3,247 3,397
Income from continuing operations 7,759 20,197 15,703
Discontinued operations:
Loss from operations on discontinued
group health, net of federal income
tax benefits of $29 in 1997, $175
in 1996 and $1,236 in 1995 (54) (325) (2,267)
Net income $ 7,705 $ 19,872 $13,436
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
(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, 1995 $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
losses on
investments, net
of deferred
federal income
tax benefit 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
Net income 7,705 7,705
Net unrealized
gains on
investments, net
of deferred federal
income taxes
of ($26,396) 48,996 48,996
Cumulative foreign
currency translations,
net of deferred
federal income
taxes of ($240) 444 444
Balance at
December 31, 1997 $2,500 $52,500 $130,326 $1,583 $170,995 $357,904
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Cash Flows
Year ended December 31
1997 1996 1995
(In Thousands)
Cash flows from operating activities:
Premiums collected $413,539 $280,613 $197,607
Investment income received 117,860 98,899 89,412
Other considerations received 10,300 10,331 9,421
Policyholder claims paid (188,976) (124,297) (96,494)
Surrender benefits paid (44,534) (33,748) (5,927)
General expenses paid (89,327) (67,834) (56,736)
Insurance taxes and licenses paid (9,955) (3,959) (6,000)
Policyholder dividends paid (10,962) (12,008) (11,685)
Federal income taxes paid, including
capital gains taxes (5,829) (5,858) (12,878)
Intercompany net receipts (645) (426) 9,201
Other receipts 11,157 12,218 (2,782)
Net cash flows provided by operating
activities 202,628 153,931 113,139
Cash flows from investing activities:
Proceeds from fixed maturities sold 159,987 128,493 41,763
Proceeds from fixed maturities matured 89,033 91,292 75,084
Cost of fixed maturities acquired (550,588) (480,206) (224,725)
Proceeds from equity securities sold 5,039 125,997 87,449
Cost of equity securities acquired (369) (122,197) (86,390)
Change in policy loans (3,986) (4,673) (4,087)
Investment cash in transit 59 126 (182)
Proceeds from short-term investments sold
or matured 802,596 833,144 485,257
Cost of short-term investments acquired (780,872) (790,040) (566,870)
Proceeds from other long-term investments
sold 7,962 5,997 4,320
Cost of other long-term investments
acquired (10,972) (6,904) (13,427)
Net cash used in investing activities (282,111) (218,971) (201,808)
Cash flows from financing activities:
Additional paid-in capital - 50,000 -
Policyholders' deposits on investment
contracts 185,488 139,579 62,019
Policyholders' withdrawals from
investment contracts (82,425) (65,343) (62,314)
Change in securities loaned (20,741) (89,625) 148,710
Net cash provided by financing activities 82,322 34,611 148,415
Change in cash and cash equivalents 2,839 (30,429) 59,746
Cash and cash equivalents, beginning of year 34,372 64,801 5,055
Cash and cash equivalents, end of year $ 37,211 $ 34,372 $ 64,801
See accompanying notes to financial statements.
Liberty Life Assurance Company of Boston
Statements of Cash Flows (continued)
Year ended December 31
1997 1996 1995
(In Thousands)
Reconciliation of net income to
net cash flows from operating activities:
Net income $ 7,705 $ 19,872 $ 13,436
Adjustments to reconcile net income to
net cash flows from operating activities:
Realized capital gains on investments (8,074) (6,722) (5,091)
Accretion of bond discount (23,586) (20,271) (17,822)
Interest credited to policyholders 38,128 32,252 27,543
Changes in assets and liabilities:
Proceeds from securities loaned 20,741 89,625 (148,710)
Amounts recoverable from reinsures (6,513) (11,881) 4,897
Premiums receivable (5,185) (3,447) 413
Investment income due and accrued (2,944) (3,545) (1,409)
Deferred policy acquisition costs (16,708) (15,247) (10,888)
Other assets (1,514) 495 1,354
Future policy benefits 191,626 127,800 88,924
Policy and contract claims 11,828 11,050 (1,523)
Dividends to policyholders (1,673) 610 567
Experience rating refund liabilities (640) 1,210 (510)
Liability for participating policies 4,307 3,248 3,397
Change in federal income tax balances (1,260) 542 (5,830)
Deferred federal income taxes 2,128 3,805 3,235
Due to Parent (645) (427) 9,201
Accrued expenses and other liabilities (5,093) (75,038) 151,955
Net cash flows from operating activities $ 202,628 $153,931 113,139
See accompanying notes to financial statements.
Liberty Life Assurance Company Of Boston
Notes to Financial Statements
December 31, 1997
(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.
Pending Accounting Standards
In June 197, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, adoption in 1998 will have no impact on the Company's net income or
capital. SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which currently are reported in capital, to be included in other
comprehensive income and the disclosure of total comprehensive income. If
the Company had adopted SFAS No. 130 for the year ended December 31, 1997,
the total of other comprehensive income items and comprehensive income
(which includes net income) would be $49,440 and $57,145 million,
respectively, and would have been displayed separately.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Pending Accounting Standards (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for years beginning after
December 31, 1997. SFAS No. 131 requires that certain companies report
financial and descriptive information about their reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and
in assessing performance. The financial information to be reported includes
segment profit or loss, certain revenue and expense items and segment assets
and reconcilliations to corresponding amounts in the financial statements.
SFAS No. 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. The adoption of SFAS No. 131 will not affect
results of operations or financial position, but will affect the disclosure
of segment information.
In December 1997, the American Institute of Certified Public Accountants
issued SOP 97-3 "Accounting by Insurance and Other Enterprises for Insurance-
Related Assessments." SOP 97-3 established accounting standards for when an
entity should recognize a liability for guaranty fund and other assessments,
how to measure the liability, and when as asset may be recognized for paid
assessments that can be recovered through premium tax offsets. SOP 97-3 is
not expected to have a material impact on the Company's financial
statements.
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.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Short-term investments include investments with maturities of less than one
year at the date of acquisition.
Other invested assets, principally 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 and group 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. Costs relating to
disability insurance policies are amortized straight line over a five-year
period. 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 been decreased for this adjustment by
$4,979 and $585 at December 31, 1997 and 1996, respectively.
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.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
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 5.5% and
6.3% in 1997 and 1996 and between 6.3% and 6.5% in 1995.
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 5.30% and 7.25% in 1997
and between 5.35% and 7.05% in 1996 for annuity contracts. Credited
interest rates were between 6.2% and 11.4% in both 1997, 1996, and 1995 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
issues 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 Companys'
experience.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
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
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "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. The measurement of deferred tax assets is
reduced by a valuation allowance if, based upon the available evidence, it
is more likely than not that some or all of the deferred tax assets will not
be realized.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Participating Policies
Participating policies approximate 29% and 33% of life insurance in force at
DecemberE31, 1997 and 1996, respectively, and 12% and 18% of ordinary
insurance premium revenue in 1997 and 1996, 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 income.
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 the
Company, bears the investment risk. Separate account contractholders have
no claim against the assets of the general account of the Company. 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.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments
Fixed Maturities
The amortized cost, gross unrealized gains and losses, and fair value of
investments in fixed maturities available for sale are summarized as
follows:
At December 31, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 403,296 $ 99,877 $ (80) $ 503,093
Debt securities issued
by states and
municipalities 50,794 2,848 53,642
Corporate securities 773,208 68,035 (601) 840,642
U.S. government guaranteed
mortgage-backed
securities 712,132 34,543 (394) 746,281
Total fixed maturities
available for sale $1,939,430 $205,303 $(1,075) $2,143,658
At 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 states and
municipalities 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
available for sale $1,615,220 $132,236 $(10,269) $1,737,187
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
The amortized cost and fair value of the Company's investment in fixed
maturities available for sale by contractual maturity is summarized as
follows:
At December 31, 1997
Amortized Fair
Cost Value
Maturity in one year or less $ 54,408 $ 56,774
Maturity after one year through five years 179,077 186,866
Maturity after five years through ten years 383,954 411,567
Maturity after ten years 609,859 742,170
U.S. government guaranteed mortgage-backed
securities 712,132 746,281
Total fixed maturities available for sale $1,939,430 $2,143,658
The expected maturities in the foregoing table may differ from the
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
Gross gains of $1,145 and $1,472, and gross losses of $1,019 and $1,411,
were realized on the sales of fixed maturities available for sale during
1997 and 1996, respectively.
At December 31, 1997, bonds with a cost of $7,166 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, 1997
Gross Gross
Unrealized Unrealized Fair
Cost Gaines Losses Value
Equity securities $ 3,003 $ 401 $ (217) $ 3,187
Other invested assets 39,217 6,304 (1,774) 43,747
Total $42,220 $6,705 $(1,991) $46,934
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
At December 31, 1996
Gross Gross
Unrealized Unrealized Fair
Cost Gaines 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
Net Investment Income
Major categories of the Company's net investment income are summarized as
follows:
Year ended December 31
1997 1996 1995
Investment income:
Fixed maturities $139,894 $118,365 $104,779
Equity securities 83 214
Policy loans 3,020 2,672 2,397
Short-term investments and cash
equivalents 2,376 1,633 2,034
Other invested assets 1,623 1,476 878
Gross investment income 146,913 124,229 110,302
Less investment expenses (1,924) (1,702) (1,581)
Net investment income $144,989 $122,527 $108,721
Realized Capital Gains on Investments
Realized capital gains on investments were derived from the following
sources:
Year ended December 31
1997 1996 1995
Fixed maturities $ 126 $ 61 $ 366
Equity securities 4,575 3,812 3,441
Other invested assets 3,373 2,849 1,284
Realized capital gains on investments $ 8,074 $ 6,722 5,091
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
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, 1997 and 1996,
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 $250,
as well as selected risks of lesser amounts. Life insurance in force and
premium information is summarized as follows:
Year ended December 31, 1997
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Life insurance in force $30,426,406 $64,767 $2,500,680 $27,990,493
Premiums:
Group life and disability $ 280,789 $ 2,698 $ 14,868 $ 268,619
Individual life and annuity 142,357 6,022 1,456 146,923
Group pension 94 94
Total premiums $ 423,240 $ 8,720 $ 16,324 $ 415,636
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
3. Reinsurance (continued)
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
Amounts payable or recoverable for reinsurance on policy and contract
liabilities are not subject to periodic or maximum limits. At December 31,
1997, 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
1997 1996
Group life and health $32,901 $25,952
Individual life and annuity 22,412 22,848
Total amounts recoverable from reinsurers $55,313 $48,800
The Company remains obligated for amounts ceded in the event that the
reinsurers do not meet their obligations.
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.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes (continued)
Federal income tax expense (benefit) attributable to income from operations
was composed of the following:
Year ended December 31
1997 1996 1995
Continuing operations:
Current $4,598 $ 7,011 $7,848
Deferred 2,128 3,316 2,934
Federal income tax expense $6,726 $10,327 $10,782
Year ended December 31
1997 1996 1995
Discontinued operations:
Current $ (29) $ (175) $(1,236)
Deferred 0 0 0
Federal income tax benefit $ (29) $ (175) $(1,236)
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 income tax rate of 35% is summarized as follows:
Year ended December 31
1997 1996 1995
Expected income tax expense $6,577 $11,820 $10,458
Adjustments to income taxes resulting
from:
Reconciliation of prior year tax return 68 (1,226) 401
Other, net 81 (267) (77)
Federal income tax expense $6,726 $10,327 $10,782
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred liabilities are summarized as
follows:
At December 31
1997 1996 1995
Deferred tax assets:
Dividends to policyholders $ 2,816 $ 3,349 $ 3,230
Experience rating reserves -- -- 14
Unearned interest on policy loans 323 303 283
Unearned group premium adjustment 1,021 962 585
Accrued surrender charges on deposit funds 426 401 --
1987 disability reserve tax adjustment -- -- 215
Other 93 60 29
Total deferred tax assets 4,679 5,075 4,356
Deferred tax liabilities:
Future policy benefits (11,483) (11,760) (11,181)
Deferred acquisition costs (20,772) (18,818) (16,201)
Bonds purchased at market discount (2,115) (2,273) (1,769)
Bonds market valuation adjustment (68,540) (41,493) (64,788)
Unrealized gain on other long-term
investments (1,649) (2,300) (1,603)
Reconciliation of taxes on other long-term
investments (951) (951) (829)
Cumulative foreign currency translations (852) (612) (515)
Deferred and uncollected premium adjustment (646) (653) (565)
Experience rating reserves (277) (133)
Other (161) (55) (63)
Total deferred tax liabilities (107,446) (79,048) (97,514)
Net deferred tax liability $(102,767) $(73,973) $(93,158)
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
valuation allowance has been established.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes (continued)
Prior to 1984, a portion of the Company's income was not taxed, but was
accumulated in a "policyholder' 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, 1997 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, principally included in policy and
contract reserves, net of reinsurance recoverables:
Year ended December 31
1997 1996
Unpaid claim liabilities, at beginning
of year $163,035 $102,089
Less reinsurance recoverables (238) (203)
Net balance at beginning of year 162,797 101,886
Claims incurred related to:
Current year 196,941 104,526
Prior years - incurred 6,432 12,432
Prior years - interest 9,132 5,744
Total incurred 212,505 122,702
Claims paid related to:
Current year 76,710 34,342
Prior years 45,080 27,449
Total paid 121,790 61,791
Net balance at end of year 253,512 162,797
Plus: reinsurance recoverables 490 238
Balance of unpaid claim liabilities,
at end of year $254,002 $163,035
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
5. Unpaid Claims Liability for Group Accident and Health Business
(continued)
During 1997 and 1996, approximately $2,000 and $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 covering lines under those contracts,
including certain claims which are already in payment status. These claims,
which were incurred in 1996 or earlier, were not included in the December
31, 1996 claim reserves and liabilities but are included as prior years
incurred claims at December 31, 1997 and 1996. The remaining adverse
development during 1997 resulted from a higher incidence of new claims on
certain policies.
Interest accrued on prior year reserves has been calculated on the opening
reserve balance less one half year's cash payments at the average rate at
which the Company's reserves were discounted during 1997 and 1996.
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,
1997, 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 the Company,
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 held for the benefit of participating
policyholders is $(1,072) and for the stockholders is $71,991 at
DecemberE31, 1997. Dividends paid to policyholders were $10,962, and there
were no dividends paid to stockholders in 1997.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
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, 1997 and 1996, the Company has
accrued $576 and $888, 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 $443 and $150 in 1997 and 1996, 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 which 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 $1,700 and $1,503 for the years ended December 31, 1997 and 1996,
respectively.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
9. Benefit Plans
Significant benefit plans are sponsored by Liberty Mutual and the associated
costs are shared by members of the Liberty Companies. Liberty Mutual's
sponsored plans are summarized as follows:
(a) Pension Plan
Liberty Mutual sponsors noncontributory defined benefit pension
plans (the Plans) covering U.S. employees who have attained age 21
and have completed one year of service and Canadian employees who
have completed one year of service. The 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.
In 1997, Liberty Mutual adopted Statement of Financial Accounting
Standards No. 87, "Employers' Accounting For Pensions," for vested
employees. In 1996, the accounting policy was primarily to
recognize expense equal to the amount funded. Assets of the Plans
consist primarily of investments in life insurance company separate
accounts and a collective investment trust fund, which invests
primarily in fixed income and Standard and Poor's Index of 500
equity securities. At December 31, 1997 and 1996, assets of the
Plans totaling $1,197,094 and $844,930, respectively, were held in
separate accounts managed by the Company.
Under the intercompany pooling agreement, $0 and $395 of the
pension expense was charged to the Company in 1997 and 1996,
respectively.
(b) 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 and have ten years of service 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.
Under the intercompany pooling arrangement $166 and $236 of the
postretirement expense was charged to operations in 1997 and 1996,
respectively.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
9. Benefit Plans (continued)
(c) Thrift-Incentive Plan
Liberty Mutual sponsors a defined contribution savings plan for all
employees of the Liberty Companies who meet certain eligibility
requirements. During 1997 and 1996, employees were permitted to
contribute up to 16% of their annual compensation on a combined
before-tax and after-tax basis, subject to certain limitations
imposed by the Tax Reform Act of 1986. In 1997 and 1996, Liberty
Mutual made matching contributions of $1.00 and $0.87, respectively,
for each dollar contributed by employees, up to 6% of their annual
compensation. Liberty Mutual's expense was $36,850 and $30,075 in
1997 and 1996, respectively. Under the intercompany pooling
arrangement, the Company's expense related to the thrift incentive
plan is borne by Liberty Mutual.
10. 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
1997 and 1996 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
$15,768 and $13,903 in 1997 and 1996, respectively.
The Company insures key officers of Liberty Mutual Group under an Optional
Life Insurance Plan. Premiums associated with this plan amounted to $8,252
and $4,967 in 1997 and 1996, respectively.
Liberty Mutual purchases structured settlement annuity contracts, with and
without life contingencies, from the Company. Premiums under these
contracts amounted to $136,161 and $91,754 in 1997 and 1996, respectively.
The related policy and contract reserves with respect to all structured
settlement annuity contracts purchased by Liberty Mutual amounted to
$595,146 and $441,220 at December 31, 1997 and 1996, respectively.
Liberty Mutual deposited $774 and $16,107 with the Company in 1997 and
1996, 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, 1997 and 1996, 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 $6,002 and $3,194 in 1997 and 1996, respectively. The related
policy and contract reserves with respect to these structured settlement
annuity contracts assumed by the Company amounted to $8,501 and $2,601 at
December 31, 1997 and 1996, respectively.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
11. 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.
Equity securities
The fair values for equity securities are based upon quoted market
prices, where available; for equity securities that are not actively
traded, estimated fair values are based on values of issues of
comparable yield and quality.
Policy loans
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
11. Fair Value of Financial Instruments (continued)
Short-term investments
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Other invested assets
The fair values of other invested assets are based on the financial
statements of the underlying funds.
Investment contracts
The fair values for the Company's liabilities under investment-type
insurance contracts, including individual and group annuities, 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.
Additional data with respect to fair values of the Company's
investments is disclosed is Note 2.
The carrying amount and fair value of the Company's financial instruments
are summarized as follows:
At December 31, 1997 At December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Fixed maturities $2,143,658 $2,143,658 $1,737,187 $1,737,187
Equity securities 3,187 3,187 4,122 4,122
Policy loans 49,331 49,331 45,345 45,345
Short-term investments 57,956 57,956 78,715 78,715
Other invested assets 43,747 43,747 38,281 38,281
Individual and group annuities 131,549 131,297 153,927 153,742
Other policyholder funds
left on deposit 8,411 8,411 8,009 8,009
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
12. Deferred Policy Acquisition Costs
Details with respect to deferred policy acquisition costs are summarized as
follows:
Year ended December 31
1997 1996
Balance, beginning of year $77,424 $62,762
Additions 28,736 16,114
Amortization (12,027) (867)
Valuation adjustment for unrealized
gain on fixed maturities (4,979) (585)
Balance, end of year $89,154 $77,424
13. 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
1997 1996 1995
Revenues from continuing operations:
Group life and disability $301,684 $203,911 $108,132
Individual life and annuity 250,751 186,696 175,960
Group pension 32,609 32,835 36,488
Total revenues from continuing operations $585,044 $423,442 $320,580
Income (loss) from continuing operations
before federal income taxes and earnings
of participating policies:
Group life and disability $(11,588) $ 8,377 $ 5,723
Individual life and annuity 28,874 24,319 22,444
Group pension 1,506 1,075 1,715
Total income from continuing operations
before federal income taxes and earnings
of participating policies $18,792 $ 33,771 $ 29,882
At December 31
1997 1996 1995
Assets:
Group life and disability $ 522,569 $ 414,085 $ 414
Individual life and annuity 1,640,099 1,319,402 1,318
Group pension 1,850,033 1,464,090 1,266
Total Assets $ 4,012,700 $ 3,197,577 $ 3,198
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
14. 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: 1997 1996 1995
Statutory basis, net (loss) income $ (8,549) $ 3,554 $ 6,952
Increase/(decreases)
Deferred policy acquisition costs 16,709 15,247 11,101
Policy reserves 8,235 9,631 2,779
Participating policies (4,307) (3,248) (3,397)
Deferred federal income taxes (2,128) (3,316) (2,934)
Deferred premiums (1,781) (1,859) (1,763)
Interest maintenance reserve (414) (526) (439)
Other (60) 389 1,137
Net income as reported herein $ 7,705 $ 19,872 $ 13,436
Year ended December 31
Stockholders' equity: 1997 1996 1995
Statutory basis, capital and surplus $126,669 $137,933 $84,441
Increase/(decreases)
Deferred policy acquisition costs 89,154 77,424 65,597
Policy reserves 109,310 102,214 92,583
Participating policies (72,811) (68,504) (65,256)
Asset valuation reserve 13,266 11,773 9,372
Interest maintenance reserve 3,913 4,327 4,853
Deferred federal income taxes (102,767) (73,973) (93,158)
Deferred premiums (14,336) (17,346) (15,487)
Net unrealized gain on fixed maturities 204,228 121,967 184,696
Other 1,278 4,944 4,609
Stockholders' equity as reported herein $357,904 $300,759 $272,250
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
15. 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.
16. Impact of Year 2000 (Unaudited)
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date
using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Liberty Mutual has allocated significant resources, both internal and
external, to an on-going, carefully planned and managed effort to examine
all relevant internal computing systems to identify areas that may require
changes within Liberty Mutual and the Company. Efforts include both
applications which Liberty Mutual has developed internally and software
which has been acquired from external sources. Liberty Mutual has been and
is continuing to make changes in existing systems as believed to be
necessary, targeting December 31, 1998 as the expected completion date,
excluding newly acquired entities. In addition to the effort to modify
existing systems, Liberty Mutual has established year 2000 compliance
standards for all new internal systems. As Liberty Mutual acquires or
affiliates with new entities, year 2000 efforts are expended to ensure that
the new entities address the necessary changes to operating systems to meet
year 2000 compliance.
Report of Independent Auditors
To the Board of Directors of Liberty Life Assurance Company
of Boston and Contract Owners of Variable Account J
We have audited the accompanying statement of assets and liabilities of
Liberty Life Assurance Company of Boston - Variable Account J as of December
31, 1997 and the related statement of operations and changes in net assets
for the period from November 15, 1997 (commencement of operations) to
December 31, 1997. These financial statements are the responsibility of
Liberty Life Assurance Company of Boston'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 - Variable Account J at December 31, 1997 and the results
of its operations and changes in net assets for the period from November 15,
1997 (commencement of operations) to December 31, 1997, in conformity with
generally accepted accounting principles.
Boston, Massachusetts /s/Ernst & Young LLP
March 13, 1998
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Assets and Liabilities
December 31, 1997
Assets
Investments at market value:
Alger American Fund
Alger American Growth Portfolio -
136 shares (cost $5,673) $ 5,802
Alger American Small Capitalization
Portfolio - 733 shares (cost $31,646) 32,058
Alliance Variable Products Series Fund, Inc.
Alliance Global Bond Portfolio -
4,086 shares (cost $45,326) 45,359
Alliance Premier Growth Portfolio -
1,623 shares (cost $33,589) 34,076
MFS Variable Insurance Trust
MFS Emerging Growth Series -
3,057 shares (cost $49,629) 49,335
MFS Research Series - 4,316 shares
(cost $68,344) 68,147
Manning & Napier Insurance Fund, Inc.
Manning & Napier Growth Portfolio -
13,592 shares (cost $166,833) 165,551
SteinRoe Variable Investment Trust
SteinRoe Money Market Fund - 57,061 shares
(cost $57,061) 57,061
SteinRoe Special Venture Fund -
2,389 shares (cost $44,479) 43,005
SteinRoe Balanced Fund - 3,745 shares
(cost $62,263) 62,952
SteinRoe Mortgage Securities Fund -
6,381 shares (cost $67,967) 68,469
SteinRoe Growth Stock Fund - 1,010 shares
(cost $35,427) 36,480
Liberty Variable Investment Trust
Colonial Growth and Income Fund - 3,986 shares
(cost $72,646) 61,139
SteinRoe Global Utilities Fund - 1,967 shares
(cost $25,960) 23,452
Colonial International Fund for Growth -
45,413 shares (cost $90,035) 80,836
Colonial U.S. Stock Fund - 3,246 shares
(cost $59,156) 52,883
Colonial Strategic Income Fund - 14,809 shares
(cost $179,718) 165,115
Newport Tiger Fund - 8,366 shares
(cost $14,433) 14,305
Total assets $1,066,025
Net assets
Variable annuity contracts (Note 6) $1,176,378
Due to Liberty Life Assurance Company (Note 2) (110,353)
Total net assets $1,066,025
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Alger Alger American Alliance
American Small Global
Growth Capitalization Bond
Portfolio Portfolio Portfolio
Income
Dividends $ - $ - $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 28 9 57
Net investment income
(expense) (28) (9) (57)
Realized gain (loss) - (34) (151)
Unrealized appreciation
(depreciation) during
the period 129 412 33
Net increase (decrease)
in net assets from
operations 101 369 (175)
Purchase payments from
contract owners 12,703 27,652 49,317
Transfers between
accounts 5,446 5,303 (3,863)
Contract terminations
and annuity payouts (70) - (418)
Other transfers (to)
from Liberty Life
Assurance Company (12,378) (1,266) 498
Net increase in net
assets from contract
transactions 5,701 31,689 45,534
Net assets at beginning
of period - - -
Net assets at end of
period $ 5,802 $32,058 $45,359
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Alliance MFS
Premier Emerging MFS
Growth Growth Research
Portfolio Series Series
Income
Dividends $ - $ - $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 16 67 82
Net investment income
(expense) (16) (67) (82)
Realized gain (loss) (22) 4 -
Unrealized appreciation
(depreciation) during
the period 487 (294) (197)
Net increase (decrease)
in net assets from
operations 449 (357) (279)
Purchase payments from
contract owners 27,912 41,404 56,210
Transfers between
accounts 7,000 13,263 12,066
Contract terminations
and annuity payouts (304) (198)
Other transfers (to)
from Liberty Life
Assurance Company (1,285) (4,671) 348
Net increase in net
assets from contract
transactions 33,627 49,692 68,426
Net assets at beginning
of period - - -
Net assets at end of
period $34,076 $49,335 $68,147
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Manning & SteinRoe SteinRoe
Napier Money Special
Growth Market Venture
Portfolio Fund Fund
Income
Dividends $ - $ - $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 130 71 49
Net investment income
(expense) (130) (71) (49)
Realized gain (loss) - - -
Unrealized appreciation
(depreciation) during
the period (1,282) - (1,474)
Net increase (decrease)
in net assets from
operations (1,412) (71) (1,523)
Purchase payments from
contract owners 165,000 103,387 41,370
Transfers between
accounts 1,963 (16,166) 3,335
Contract terminations
and annuity payouts (37,992) (182)
Other transfers (to)
from Liberty Life
Assurance Company - 7,903 5
Net increase in net
assets from contract
transactions 166,963 57,132 44,528
Net assets at beginning
of period - - -
Net assets at end of
period $165,551 $ 57,061 $ 43,005
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
SteinRoe SteinRoe
SteinRoe Mortgage Growth
Balanaced Securities Stock
Fund Fund Fund
Income
Dividends $ - $ - $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 55 185 31
Net investment income
(expense) (55) (185) (31)
Realized gain (loss) 10 967 -
Unrealized appreciation
(depreciation) during
the period 689 502 1,053
Net increase (decrease)
in net assets from
operations 644 1,284 1,022
Purchase payments from
contract owners 59,401 199,689 26,773
Transfers between
accounts 5,621 8,126 10,210
Contract terminations
and annuity payouts (202) (138,900) -
Other transfers (to)
from Liberty Life
Assurance Company (2,512) (1,730) (1,525)
Net increase in net
assets from contract
transactions 62,308 67,185 35,458
Net assets at beginning
of period - - -
Net assets at end of
period $ 62,952 $ 68,469 $ 36,480
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Colonial SteinRoe Colonial
Growth and Global International
Income Utilities Fund for
Fund Fund Growth
Income
Dividends $ 14,445 $ 8,579 $ 6,058
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 142 64 110
Net investment income
(expense) 14,303 8,515 5,948
Realized gain (loss) 32 (2,527) (80)
Unrealized appreciation
(depreciation) during
the period (11,507) (2,508) (9,199)
Net increase (decrease)
in net assets from
operations 2,828 3,480 (3,331)
Purchase payments from
contract owners 81,646 60,151 103,005
Transfers between
accounts 8,801 992 4,362
Contract terminations
and annuity payouts (721) (38,395) (565)
Other transfers (to)
from Liberty Life
Assurance Company (31,415) (2,776) (22,635)
Net increase in net
assets from contract
transactions 58,311 19,972 84,167
Net assets at beginning
of period - - -
Net assets at end of
period $ 61,139 $ 23,452 $ 80,836
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Colonial Colonial
U.S Strategic Newport
Stock Income Tiger
Fund Fund Fund
Income
Dividends $ 7,731 $ 17,698 $ 147
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 90 185 7
Net investment income
(expense) 7,641 17,513 140
Realized gain (loss) (514) (2,273) (88)
Unrealized appreciation
(depreciation) during
the period (6,273) (14,603) (128)
Net increase (decrease)
in net assets from
operations 854 637 (76)
Purchase payments from
contract owners 93,211 184,835 10,467
Transfers between
accounts 5,677 11,682 5,329
Contract terminations
and annuity payouts (37,485) (1,024) -
Other transfers (to)
from Liberty Life
Assurance Company (9,374) (31,015) (1,415)
Net increase in net
assets from contract
transactions 52,029 164,478 14,381
Net assets at beginning
of period - - -
Net assets at end of
period $ 52,883 $165,115 $ 14,305
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Period from November 15, 1997 (commencement of operations) to
December 31, 1997
Total
Income
Dividends $ 54,658
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 1,378
Net investment income
(expense) 53,280
Realized gain (loss) (4,676)
Unrealized appreciation
(depreciation) during
the period (44,160)
Net increase (decrease)
in net assets from
operations 4,444
Purchase payments from
contract owners 1,344,133
Transfers between
accounts 89,147
Contract terminations
and annuity payouts (256,456)
Other transfers (to)
from Liberty Life
Assurance Company (115,243)
Net increase in net
assets from contract
transactions 1,061,581
Net assets at beginning
of period -
Net assets at end of
period $1,066,025
See accompanying notes.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements
December 31, 1997
1. Organization
Variable Account J (the "Variable Account"), was established on November 15,
1997 as a segregated investment account of Liberty Life Assurance Company of
Boston (the "Company"). The Variable Account is registered with the
Securities and Exchange Commission as a Unit Investment Trust under the
Investment Company Act of 1940 and invests in shares of eligible funds. The
Variable Account is a funding vehicle for group and individual variable
annuity contracts. The Variable Account currently offers two contracts,
distinguished principally by the level of expenses, surrender charges, and
eligible fund options. The two contracts and their respective eligible fund
options are as follows:
Liberty Advisor Variable Annuity Manning & Napier Variable Annuity
Alger American Fund: Manning & Napier Insurance Fund, Inc:
Alger American Growth Portfolio Manning & Napier Small Cap Portfolio
Alger American Small Capitalization Manning & Napier Equity Portfolio
Portfolio Manning & Napier Moderate Growth
Portfolio
Manning & Napier Growth Portfolio
MFS Variable Insurance Trust: Manning & Napier Maximum Horizon
MFS Emerging Growth Series Portfolio
MFS Research Series Manning & Napier Bond Portfolio
SteinRoe Variable Investment Trust SteinRoe Variable Investment Trust
(SRVIT): (SRVIT):
SteinRoe Money Market Fund SteinRoe Money Market Fund
SteinRoe Special Venture Fund
SteinRoe Balanced Fund
SteinRoe Mortgage Securities Fund
SteinRoe Growth Stock Fund
Liberty Variable Investment Trust (LVIT):
Colonial Growth and Income Fund
SteinRoe Global Utilities Fund
Colonial International Fund for Growth
Colonial Strategic Income Fund
Colonial U.S. Stock Fund
Newport Tiger Fund
Alliance Variable Products Series Fund, Inc:
Alliance Global Bond Portfolio
Alliance Premier Growth Portfolio
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
2. Significant Accounting Policies
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect amounts reported therein. Although
actual results could differ from these estimates, any such differences are
expected to be immaterial to the Variable Account.
Shares of the eligible funds are sold to the Variable Account at the
reported net asset values. Transactions are recorded on the trade date.
Income from dividends is recorded on the ex-dividend date. Realized gains
and losses on sales of investments are computed on the basis of the
identified cost of the investments sold.
Amounts due from Liberty Life Assurance Company represent exchanges into the
Variable Account in 1997 where cash was not transferred to the Variable
Account until January 1998.
The operations of the Variable Account are included in the federal income
tax return of the Company, which is taxed as a Life Insurance Company under
the provisions of the Internal Revenue Code. The Company anticipates no tax
liability resulting from the operations of the Variable Account. Therefore,
no provision for income taxes has been charged against the Variable Account.
3. Expenses
Liberty Advisor Variable Annuity
There are no deductions made from purchase payments for sales charges at the
time of purchase. In the event of a contract termination, a contingent
deferred sales charge, based on a graded table of charges, is deducted. An
annual contract maintenance charge of $36 to cover the cost of contract
administration is deducted from each contractholder's account on the
contract anniversary date. Daily deductions are made from each sub-account
for assumption of mortality and expense risk at an effective annual rate of
1.25% of contract value. A daily deduction is also made for distribution
costs incurred by the Company at an effective annual rate of 0.15% of
contract value.
Manning & Napier Variable Annuity
There are no deductions from purchase payments for sales charges at the time
of purchase. There are also no contingent deferred sales charges or
distribution charges. An annual contract maintenance charge of $35 to cover
the cost of contract administration is deducted from each contractholder's
account on the contract anniversary date. Daily deductions are made from
each sub-account for assumption of mortality and expense risk at an
effective annual rate of 0.35% of contract value.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
4. Affiliated Company Transactions
Administrative services necessary for the operation of the Variable Account
are provided by Keyport Life Insurance Company (Keyport Life), an affiliate
of the Company. The Company has absorbed all organizational expenses
including the fees of registering the Variable Account and its contracts for
distribution under federal and state securities laws. Stein Roe & Farnham,
Inc., an affiliate of the Company, is the investment advisor to the SRVIT.
Liberty Advisory Services Corporation, a wholly-owned subsidiary of Keyport
Life, is the investment advisor to the LVIT. Colonial Management
Associates, Inc., an affiliate of the Company, is the investment sub-advisor
to the LVIT. Keyport Financial Services Corp., a wholly-owned subsidiary of
Keyport Life, is the principal underwriter for SRVIT and LVIT. The
investment advisors' compensation is derived from the mutual funds.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
5. Unit Values
A summary of the accumulation unit values and accumulation and dollar value
outstanding at December 31, 1997 are as follows:
Unit
Value Units Dollars
Alger American Growth
Portfolio $12.277190 1,480.7130 $ 18,179
Alger American Small
Capitalization Portfolio 11.056560 3,013.9570 33,324
Alliance Global Bond Portfolio 9.811315 4,572.3740 44,861
Alliance Premier Growth
Portfolio 13.462574 2,626.6150 35,361
MFS Emerging Growth Series 11.680929 4,623.3480 54,005
MFS Research Series 11.834080 5,729.1310 67,799
Manning & Napier Growth
Portfolio 12.170966 13,602.1250 165,551
SteinRoe Money Market Fund 13.780309 3,567.2640 49,158
SteinRoe Special Venture Fund 31.085014 1,383.3030 43,000
SteinRoe Balanced Fund 24.497018 2,652.3640 64,975
SteinRoe Mortgage Securities
Fund 17.874172 3,818.0230 68,245
SteinRoe Growth Stock Fund 35.538075 1,069.4160 38,005
Colonial Growth and Income
Fund 19.353674 4,782.1930 92,553
SteinRoe Global Utilities Fund 15.358133 1,707.7600 26,228
Colonial International Fund
for Growth 9.659572 10,711.7580 103,472
Colonial U.S. Stock Fund 20.780533 2,948.8660 61,279
Colonial Strategic Income Fund 13.615795 14,296.8520 194,664
Newport Tiger Fund 8.525525 1,843.8750 15,720
$84,429.9370 $1,176,378
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
6. Purchases and Sales of Securities
The cost of shares purchased and proceeds from shares sold by the Variable
Account during 1997 are shown below:
Purchases Sales
Alger American Growth Portfolio $ 18,242 $ 12,569
Alger American Small Capitalization
Portfolio 34,354 2,674
Alliance Global Bond Portfolio 62,480 17,003
Alliance Premier Growth Portfolio 38,237 4,626
MFS Emerging Growth Series 58,809 9,184
MFS Research Series 71,010 2,666
Manning & Napier Growth Portfolio 166,914 81
SteinRoe Money Market Fund 95,104 38,043
SteinRoe Special Venture Fund 44,727 248
SteinRoe Balanced Fund 75,576 13,323
SteinRoe Mortgage Securities Fund 246,565 179,565
SteinRoe Growth Stock Fund 48,157 12,730
Colonial Growth and Income Fund 95,914 23,300
SteinRoe Global Utilities Fund 107,823 79,336
Colonial International Fund for Growth 593,404 503,289
Colonial U.S. Stock Fund 106,965 47,295
Colonial Strategic Income Fund 230,498 48,507
Newport Tiger Fund 17,098 2,577
$2,111,877 $ 997,016
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -
VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
7. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments
of the segregated asset account on which the contract is based are not
adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a
statutory safe harbor test or diversification requirements set forth in
regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that the Variable Account satisfies the
current requirements of the regulations, and it intends that the Variable
Account will continue to meet such requirements.
8. Year 2000 (Unaudited)
The Variable Account, like other business organizations and individuals,
would be adversely affected if the Company's computer systems and those of
its service providers do not properly process and calculate date related
information and data from and after January 1, 2000. The Company has
substantially completed an inventory of its computer programs and assessed
its Year 2000 readiness. In addition, the Company has initiated
communications with third parties to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not timely completed, or
if the systems of the companies on which the Company's interface system
relies are not timely converted, the Year 2000 issue could have a material
impact on the operations of the Variable Account.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Liberty Life Assurance Company of Boston:
Balance Sheets for the years ended December 31, 1997 and 1996.
Statements of Income for the years ended December 31, 1997,
1996, and 1995.
Statements of Stockholders' Equity for the years ended December
31, 1997, 1996, and 1995.
Statements of Cash Flows for the years ended December 31, 1997,
1996, and 1995.
Notes to Financial Statements
Variable Account J
Statements of Assets and Liabilities - December 31, 1997
Statements of Operations and Changes in Net Assets for the year
ended December 31, 1997
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)
*** (4i) Specimen Group Variable Annuity Contract of Liberty Life
Assurance Company of Boston (LA)
*** (4j) Specimen Variable Annuity Certificate of Liberty Life
Assurance Company of Boston (LA)
* (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.
*** (8d) Participation Agreement Among MFS Variable Insurance Trust,
Liberty Life Assurance Company of Boston, and Massachusetts
Financial Services Corp.
*** (8e) Participation Agreement Among The Alger American Fund,
Liberty Life Assurance Company of Boston, and Fred Alger and
Company, Incorporated
*** (8f) Participation Agreement Among Alliance Variable Products
Series Fund, Inc., Alliance Fund Distributors, Inc., Alliance
Capital Management L.P., and Liberty Life Assurance Company of
Boston.
*** (8g) Amended and Restated Participation Agreement By and Among
Keyport Variable Investment Trust, Keyport Financial Services
Corp., Keyport Life Insurance Company and Liberty Life
Assurance Company of Boston.
*** (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 Pre-Effective Amendment No. 1 to
Registration Statement (File No. 333-29811; 811-08269) filed on or about
June 27, 1997.
*** Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement (File No. 333-29811; 811-08269) filed on or about
July 17, 1997.
****Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement (File No. 333-29811; 811-08269) filed on or about
March 2, 1998.
+ Incorporated by reference to Post-Effective Amendment No. 5 to
Registration Statement (File No. 333-29811; 811-08269) filed on or about
April 14, 1998.
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
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
Joseph J. Poplaski, Jr. Vice President
S. Robin Pratt Vice President
Steven M. Sentler Vice President
John A. Tymochko Vice President
E. Janney Wilson Vice President
Barry S. Gilvar Secretary
Elliot J. Williams Treasurer
Gerald H. Dolan Assistant Treasurer
Bernard Gillen Assistant Treasurer
James W. Jakobek Assistant Treasurer
Charlene Albanese Assistant Secretary
Diane S. Bainton Assistant Secretary
Katherine Desiderio Assistant Secretary
James R. Pugh Assistant Secretary
Harvey Swedlove 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 Liberty Advisory Services Corp.
(LASC), a Massachusetts corporation functioning as an investment advisor.
LASC files separate financial statements and is ultimately owned by Liberty
Mutual Insurance Company.
Chart for the affiliations of the Depositor is incorporated by
reference to the Registration Statement (Files No. 333-29811; 811-08269)
filed on or about June 18, 1997.
Item 27. Number of Contract Owners.
As of April 1, 1998, there were 124 Qualified Contract Owners and
200 Non-Qualified Contract Owners.
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 Liberty 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
James J. Klopper Director and Clerk
Francis E. Reinhart Director and Vice President-Administration
Rogelio P. Japlit Treasurer
Paul T. Holman Assistant Clerk
Donald A. Truman Assistant Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
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.
SIGNATURES
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of the
Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has duly caused this Registration Statement to be signed on its behalf,
in the City of Boston and Commonwealth of Massachusetts, on this 30th day of
April, 1998.
Variable Account J
(Registrant)
BY: Liberty Life Assurance Company of Boston
(Depositor)
BY: /s/Elliot J. Williams
Elliot J. Williams, Treasurer
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 04/30/98
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 04/30/98
/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 as Exhibit 16
in the Registration Statement (Files No. 333-29811; 811-08269) filed on or
about June 18, 1997.
EXHIBIT INDEX
Exhibit Page
(10) Consents of Independent Auditors
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Statement of Additional Information and to the use of our reports dated
February 27, 1998, with respect to the financial statements of Liberty Life
Assurance Company of Boston, and March 13, 1998, with respect to the
financial statements of Liberty Life Assurance Company of Boston-Variable
Account J, included in this Post-Effective Amendment No. 6 to the
Registration Statement (Form N-4, Nos. 333-29811; 811-08269).
Boston, Massachusetts /s/Ernst & Young LLP
April 30, 1998
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Liberty Life Assurance Company of Boston:
We consent to the use of our report dated February 16, 1996 with respect to
the financial statements of Liberty Life Assurance Company of Boston
included herein and to the reference to our firm under the heading "Experts"
in the Statement of Additional Information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 30, 1998
