As Filed with the Securities and Exchange Commission on April 28, 1999
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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9 [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 3, 1999 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 ____
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Facing Sheet
The Contents Page
Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
Items 24 - 32
The Signatures
Exhibits
<PAGE>
VARIABLE ACCOUNT J
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-4
N-4 Item Caption in Prospectus
1. Cover Page
2. Definitions
3. Summary of Certificate Features
Fee Table
Examples
Explanation of Fee Tables and Examples
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
<PAGE>
Caption in Statement of Additional Information
15. Cover Page
16. Table of Contents
17. Liberty Life Assurance Company of Boston
18. Safekeeping of Assets, Experts
19. Not applicable
20. Principal Underwriter
21. Investment Performance
22. Variable Annuity Benefits
23. Financial Statements
<PAGE>
This Amendment No. 8 to the Registration Statement on 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, to supplement the Registration Statement with a separate
prospectus and statement of additional information ("SAI"), and related
exhibits, describing a specific form of the Group and Individual Flexible
Premium Deferred Annuity Contracts. 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 Nos. 6 and 7 to the Registration Statement.
<PAGE>
PART A
<PAGE>
May 3, 1999 Prospectus for
NEW YORK
MANNING & NAPIER VARIABLE ANNUITY
Including Eligible Fund Prospectuses for
MANNING & NAPIER INSURANCE FUND, INC.:
Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Maximum Horizon Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Bond Portfolio
STEINROE VARIABLE INVESTMENT TRUST:
Stein Roe Money Market Fund, Variable Series
<PAGE>
Prospectus for
The Manning & Napier Variable Annuity
Group Flexible Purchase Payment
Deferred Variable Annuity Contract
Issued by
Variable Account J
of
Liberty Life Assurance Company of Boston
This prospectus describes the Manning & Napier variable annuity group
Contracts and related Certificates offered by Liberty Life Assurance
Company of Boston. All discussion of Certificates applies to Contracts
unless specified otherwise.
Under the Certificate, you may elect to have value accumulate on a variable
basis. You may also elect to receive periodic annuity payments on either a
variable or a fixed basis. Purchase payments will be allocated to our
segregated investment account designated Variable Account J. This
prospectus generally describes only the variable features of the
Certificates. The Certificates are designed to help you in your retirement
planning. You may purchase them on a tax-qualified or non-tax qualified
basis. Because they are offered on a flexible payment basis, you are
permitted to make multiple payments.
We will allocate your purchase payments to the investment options in the
proportions you choose. The Certificate currently offers seven investment
options, each of which is a Sub-account of Variable Account J. Currently,
you may choose among the following Eligible Funds:
The Manning & Napier Insurance Fund, Inc.: Manning & Napier Moderate Growth
Portfolio; Manning & Napier Growth Portfolio; Manning & Napier Maximum
Horizon Portfolio; Manning & Napier Small Cap Portfolio; Manning & Napier
Equity Portfolio; and Manning & Napier Bond Portfolio.
SteinRoe Variable Investment Trust: Stein Roe Money Market Fund, Variable
Series.
You may not purchase a Certificate if either you or the Annuitant are 80
years old or older before we receive your application. You may not
purchase a tax-qualified Certificate if you or the Annuitant are 75 years
old or older before we receive your application (age 80 applies to Roth
IRAs).
The purchase of a Contract or Certificate involves certain risks.
Investment performance of the Eligible Funds to which you may allocate
purchase payments may vary. We do not guarantee any minimum Certificate
Value for amounts allocated to the Eligible Funds.
The Variable Account may offer other certificates with different features,
fees and charges, and other Sub-accounts which may invest in different or
additional mutual funds. Separate prospectuses and statements of
additional information will describe other certificates. The agent selling
the Certificates has information concerning the eligibility for and
availability of the other certificates.
This prospectus contains important information about the Contracts and
Certificates you should know before investing. You should read it before
investing and keep it for future reference. We have filed a Statement of
Additional Information ("SAI") with the Securities and Exchange Commission.
The current SAI has the same date as this prospectus and is incorporated by
reference in this prospectus. You may obtain a free copy by writing the
Principal Underwriter, Keyport Financial Services Corp. at 125 High Street,
Boston, MA 02110, by calling (800) 437-4466; by writing Manning & Napier
Insurance Fund at P.O. Box 40610, Rochester, New York, 14604, or calling
(800) 466-3863; or by returning the postcard on the back cover of this
prospectus. A table of contents for the SAI appears on page 27 of this
prospectus.
The date of this prospectus is May 3, 1999.
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
Definitions 3
Summary of Certificate Features 4
Fee Table 5
Example 7
Explanation of Fee Table and Example 7
Condensed Financial Information 8
Performance Information 9
Liberty and the Variable Account 9
Purchase Payments and Applications 10
Investments of the Variable Account 11
Allocations of Purchase Payments 11
Eligible Funds 11
Transfer of Variable Account Value 12
Limits on Transfers 12
Substitution of Eligible Funds and Other
Variable Account Changes 13
Deductions 14
Deductions for Certificate Maintenance Charge 14
Deductions for Mortality and Expense Risk Charge 14
Deductions for Transfers of Variable Account Value 14
Deductions for Premium Taxes 14
Deductions for Income Taxes 15
Total Variable Account Expenses 15
Other Services 15
The Certificates 15
Variable Account Value 15
Valuation Periods 15
Net Investment Factor 16
Modification of the Certificate 16
Right to Revoke 16
Death Provisions for Non-Qualified Certificates 16
Death Provisions for Qualified Certificates 18
Certificate Ownership 18
Assignment 18
Partial Withdrawals and Surrender 19
Annuity Provisions 19
Annuity Benefits 19
Annuity Option and Income Date 19
Change in Annuity Option and Income Date 19
Annuity Options 20
Variable Annuity Payment Values 21
Proof of Age, Sex, and Survival of Annuitant 21
Suspension of Payments 22
Year 2000 Matters 22
Tax Status 22
Introduction 22
Taxation of Annuities in General 22
Qualified Plans 25
Individual Retirement Annuities 25
Variable Account Voting Privileges 25
Sales of the Certificates 26
Legal Proceedings 26
Inquiries by Certificate Owners 26
Table of Contents-Statement of Additional Information 27
Appendix A-Telephone Instructions 28
<PAGE>
DEFINITIONS
Accumulation Unit: A unit of measurement which we use to calculate Variable
Account Value.
Annuitant: The natural person on whose life annuity benefits are based and
who will receive annuity payments starting on the Income Date.
Certificate Anniversary: Each anniversary of the Certificate Date.
Certificate Date: The date when the Certificate becomes effective.
Certificate Owner ("You"): The person(s) having the privileges of ownership
defined in the Certificate.
Certificate Value: The Variable Account Value.
Certificate Withdrawal Value: The Certificate Value less any premium taxes
and certificate maintenance charge.
Certificate Year: Each twelve-month period beginning on the Certificate
Date and each Certificate Anniversary thereafter.
Company ("We", "Us", "Our", "Liberty"): Liberty Life Assurance Company of
Boston.
Designated Beneficiary: The person designated to receive any death benefits
under the Certificate.
Eligible Funds: The underlying mutual funds in which the Variable Account
invests.
In Force: The status of the Certificate before the Income Date so long as
it is not totally surrendered, the Certificate Value under a Certificate
does not go to zero, and there has not been a death of the Annuitant or any
Certificate Owner that will cause the Certificate to end within at most
five years of the date of death.
Income Date: The date on which annuity payments are to begin.
Non-Qualified Certificate: Any Certificate that is not issued under a
Qualified Plan.
Qualified Certificate: Certificates issued under Qualified Plans.
Qualified Plan: A retirement plan which receives special tax treatment
under Section 408(b) or 408A of the Internal Revenue Code ("Code").
Variable Account: Variable Account J which is a separate investment account
of the Company into which purchase payments under the Certificates may be
allocated. The Variable Account is divided into Sub-Accounts which invest
in shares of an Eligible Fund.
Variable Account Value: The value of all Variable Account amounts
accumulated under the Certificate prior to the Income Date.
Written Request: A request written on a form satisfactory to us, signed by
you and a disinterested witness, and filed at our Service Office.
SUMMARY OF CERTIFICATE FEATURES
Because this is a summary, it does not contain all of the information that
may be important to you. You should read the entire prospectus and
Statement of Additional Information before deciding to invest. Further,
individual state requirements, which are different from the information in
this prospectus, are described in supplements to this prospectus or in
endorsements to the Certificates.
The Certificate
The Certificate is a flexible premium deferred variable annuity
certificate. It is designed for retirement planning purposes. It allows
you to allocate purchase payments to and receive annuity payments from the
Variable Account.
The Variable Account is a separate investment account we maintain. If you
allocate payments to the Variable Account, your accumulation values and
annuity payments will fluctuate according to the investment performance of
the Eligible Funds chosen.
The Variable Account is not part of our "general account', which consists
of all our assets except the Variable Account and the assets of other
separate investment accounts we maintain. If you allocate payments to the
Variable Account, the accumulation values and annuity payments will
fluctuate according to the investment performance of the Sub-accounts
chosen.
Purchase of the Certificate
You may make multiple purchase payments. The minimum initial payment is
$5,000. For individual retirement annuities the minimum payment is $2,000.
The minimum amount for each subsequent payment is $1,000 or a lesser amount
as we may permit from time to time which is currently $1,000. (See
"Purchase Payments and Applications".)
Investment Choices
You can allocate and reallocate your investment among the Sub-accounts of
the Variable Account which in turn invest in the Eligible Funds. Each
Eligible Fund holds its assets separately from the assets of the other
Eligible Funds. Each has its own investment objectives and policies
described in the accompanying prospectuses for the Eligible Funds. Under
the Certificate, the Variable Account currently invests in the following:
Manning and Napier Insurance Fund Inc. ("Manning and Napier Insurance
Fund")
Manning and Napier Moderate Growth Portfolio ("MNMGP")
Manning and Napier Growth Portfolio ("MNGP")
Manning and Napier Maximum Horizon Portfolio ("MNMHP")
Manning and Napier Small Cap Portfolio ("MNSCP")
Manning and Napier Equity Portfolio ("MNEP")
Manning and Napier Bond Portfolio ("MNBP")
SteinRoe Variable Investment Trust ("SteinRoe Trust")
Stein Roe Money Market Fund, Variable Series ("SRMMF")
Fees and Charges
Mortality and Expense Risk Charge
We deduct a mortality and expense risk charge at an annual rate of .35% of
your average daily net asset value in the Variable Account. (See
"Deductions for Mortality and Expense Risk Charge.")
Certificate Maintenance Charge
We deduct an annual $35 certificate maintenance charge from Variable
Account Value for administrative expenses. Prior to the Income Date, we
reserve the right to change this charge for future years. In certain
instances, we may waive this charge. (See "Deductions for Certificate
Maintenance Charge.")
Transfer Charge
Currently, there is no transfer charge. However, the Certificate permits
us to charge you up to $25 for each transfer in excess of 12 in each year
your Certificate is In Force.
Premium Taxes
We charge premium taxes against your Certificate Value. Currently such
premium taxes range from 0% to 5.0%. (See "Deductions for Premium Taxes.")
Federal Income Taxes
You will not pay federal income taxes on the increases in the value of
your Certificate. However, if you make a withdrawal, in the form of a lump
sum payment, annuity payment, or make a gift or assignment, you will be
subject to federal income taxes on the increases in the value of your
Certificate and may also be subject to a 10% federal penalty tax. (See
"Tax Status".)
Free Look
Generally, you may revoke the Certificate by returning it to us within 10
days after you receive it. We will refund your Certificate Value, plus any
distribution charges previously deducted, as of the date we receive the
returned Certificate. You will bear the investment risk during the
revocation period. (See "Right to Revoke.")
FEE TABLE
Certificate Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of purchase payments): 0%
Maximum Total Certificate Owner Transaction Expenses1
(as a percentage of purchase payments): 0%
Certificate Maintenance Charge: $35
Variable Account Annual Expenses
(as a percentage of average net assets)
Mortality and Expense Risk Charge: .35%
Total Variable Account Annual Expenses: .35%
Manning & Napier Insurance Fund and SteinRoe Trust Annual Expenses2
(as a percentage of average net assets)
Management Other Total Fund
Fees Expenses Operating
(After Any (After Any Expenses (After
Waiver and/or Waiver and/or Any Waiver and/or
Fund Reimbursement)3 Reimbursement)3 Reimbursement)3
MNMGP 0.00% (1.00%) 1.20% (8.34%) 1.20%(9.43%)
MNGP 0.00% (1.00%) 1.20% (2.30%) 1.20%(3.30%)
MNMHP 0.00% (1.00%) 1.20% (7.43%) 1.20%(8.43%)
MNSCP 0.00% (1.00%) 1.20% (8.04%) 1.20%(9.04%)
MNEP 0.00% (1.00%) 1.20% (7.46%) 1.20%(8.46%)
MNBP 0.00% (0.50%) .85% (8.51%) .85%(9.01%)
SRMMF .35% .27% .62%
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY THE FUNDS. WE
HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
1We reserve the right to impose a transfer fee after prior notice to
Certificate Owners. Currently we do not impose any charge. Premium taxes
are not shown. We deduct the amount of premium taxes, if any, when paid
unless we elect to defer such deduction.
2All Manning & Napier Insurance Fund and SteinRoe Trust expenses are for
1998. The Manning & Napier Insurance Fund expenses reflect the manager's
agreement to reimburse expenses above certain limits (see footnote 3).
3The manager of Manning & Napier Insurance Fund has agreed to reimburse all
expenses, including management fees, in excess of the following percentage
of the average annual net assets of each Eligible Fund of Manning & Napier
Insurance Fund, so long as such reimbursement would not result in the
Eligible Fund's inability to qualify as a regulated investment company
under the Internal Revenue Code: MNMGP 1.2%, MNGP 1.2%, MNMHP 1.2%, MNSCP
1.2%, MNEP 1.2%, MNBP .85%. The Manning & Napier Insurance Fund manager's
fee waiver and assumption of expenses agreement is voluntary and may be
terminated at any time. The total percentages shown in the table for MNMHP,
MNSCP, MNEP, MNGP, MNMGP, and MNBP are after expense reimbursement. Each
percentage shown in the parentheses is what the expenses would be without
any expense reimbursement: for MNMGP--1.00% for management fees, 8.34% for
other expenses and 9.34% for total expenses; for MNGP--1.00% for management
fees, 2.30% for other expenses and 3.30% for total expenses; for MNMHP--
1.00% for management expenses, 7.43% for other expenses and 8.43% for total
expenses; for MNSCP--1.00% for management fees, 8.04% for other expenses
and 9.04% for total expenses; for MNEP--1.00% for management fees, 7.46%
for other expenses and 8.46% for total expenses; and for MNBP--0.50% for
management fees, 8.51% for other expenses and 9.01% for total expenses.
The manager of SteinRoe Trust has agreed until April 30, 2000 to reimburse
all expenses, including management fees, in excess of the following
percentage of the average annual net assets of each Eligible Fund of
SteinRoe Trust: SRMMF .65%. The SteinRoe Trust's manager was not required
to reimburse expenses as of the date of this prospectus.
EXAMPLE
If you surrender your Certificate at the end of the periods shown you would
pay the following expenses on a $1,000 investment assuming 5% annual return
on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
MNMGP $16 $51 $91 $225
MNGP 16 51 91 225
MNMHP 16 51 91 225
MNSCP 16 51 91 225
MNEP 16 51 91 225
MNBP 12 39 91 177
SRMMF 10 32 58 144
EXPLANATION OF FEE TABLE AND EXAMPLE
The purpose of the fee table is to illustrate the expense you may directly
or indirectly bear under a Certificate. The table reflects expenses of the
Variable Account as well as the Eligible Funds. You should read
"Deductions" in this prospectus and the sections relating to expenses of
the Eligible Funds in their prospectuses. The example does not include any
taxes or tax penalties you may be required to pay if you surrender your
Certificate.
The example assumes you did not make any transfers. We reserve the right
to impose a transfer fee after we notify you. Currently, we do not impose
any transfer fee. Premium taxes are not shown. We deduct the amount of
any premium taxes (which range from 0% to 5%) from Certificate Value upon
full surrender, death or annuitization.
The fee table and example should not be considered a representation of past
or future expenses and charges of the Sub-accounts. Your actual expenses
may be greater or less than those shown. Similarly, the 5% annual rate of
return assumed in the example is not an estimate or a guarantee of future
investment performance. See "Deductions" in this prospectus, "Management"
in the prospectus for Manning & Napier Insurance Fund, and "How the Funds
are Managed" in the prospectus for SteinRoe Trust.
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
MNMGP 11.350 12.018 0 1998
10.893 11.350 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
MNGP 12.171 12.379 0 1998
11.731 12.171 13,602 1997
MNMHP 12.861 13.316 0 1998
12.629 12.861 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
MNSCP 12.089 10.699 0 1998
12.629 12.089 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
MNEP 12.774 13.199 0 1998
12.719 12.774 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
MNBP 10.871 11.878 0 1998
10.295 10.871 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
SRMMF 10.556 11.056 0 1998
10.326 10.556 0 1997
Available in 1997 and 1998 but no accumulation units were purchased
* 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 value is as of July 15, 1997, which is the date the Fund Sub-
Accounts first became available.
The full financial statements for the Variable Account and Liberty are in
the Statement of Additional Information.
PERFORMANCE INFORMATION
The Variable Account may from time to time advertise certain performance
information concerning its various Sub-accounts.
Performance information is not an indicator of either past or future
performance of a Certificate.
The Sub-accounts may advertise total return information for various periods
of time. Total return performance information is based on the overall
percentage change in value of a hypothetical investment in the Sub-account
over a given period of time.
Average annual total return information shows the average annual
compounding percentage applied to the value of an investment in the Sub-
account from the beginning of the measuring period to the end of that
period. This average annual total return reflects all historical investment
results, less all Sub-account and Certificate charges and deductions.
Average total return is not reduced by any premium taxes. Average total
return would be less if these taxes were deducted.
In order to calculate average annual total return, we divide the change in
value of a Sub-account under a Certificate surrendered on a particular date
by a hypothetical $1,000 investment in the Sub-account. We then annualize
the resulting total rate for the period to obtain the average annual
compounding percentage change during the period.
The Sub-accounts may present additional total return information computed
on a different basis:
The Sub-accounts may present total return information as described above,
except there are no Certificate deductions for the certificate maintenance
charge and premium taxes. Because there are no charges deducted, the
calculation is simplified. We divide the change in a Sub-account's
Accumulation Unit value over a specified time period by the Accumulation
Unit value of that Sub-account at the beginning of the period. This
computation results in a twelve-month change rate. For longer periods it
is a total rate for the period. We annualize the total rate in order to
obtain the average annual percentage change in the Accumulation Unit value.
The percentages would be lower if these charges were included.
The SRMMF Sub-account is a money market Sub-account that also may advertise
yield and effective yield information. The yield of the Sub-account refers
to the income generated by an investment in the Sub-account over a
specifically identified seven-day period. We annualize this income by
assuming that the amount of income generated by the investment during that
week is generated each week over a fifty-two week period and is shown as a
percentage. The yield reflects the deduction of all charges assessed
against the Sub-account and a Certificate but does not take into account
premium tax charges. The yield would be lower if these charges were
included.
We calculate the effective yield of the SRMMF Sub-account in a similar
manner but, when annualizing the yield, we assume income earned by the Sub-
account is reinvested. This compounding effect causes effective yield to
be higher than yield.
LIBERTY AND THE VARIABLE ACCOUNT
We were incorporated on September 17, 1963 as a stock life insurance
company. Our executive and administrative offices are at 175 Berkeley
Street, Boston, Massachusetts 02117.
We write 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. We are licensed to do business in all states and in the District of
Columbia. However, the Contracts described in this prospectus are currently
offered only in New York. We have 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 our relative financial
strength and ability to meet contractual obligations to our policyholders.
Even though we hold the assets in the Variable Account separately from our
other assets, our ratings may still be relevant to you since not all of our
contractual obligations relate to payments based on those segregated
assets.
We are a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and membership in IMSA in
advertisements. Being a member means that we have chosen to participate in
IMSA's Life Insurance Ethical Market Conduct Program.
We are a wholly-owned subsidiary of Liberty Mutual Insurance Company and
Liberty Mutual Fire Insurance Company. Liberty Mutual Insurance Company is
a multi-line insurance and financial services institution.
We established the Variable Account 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 mean the Securities and Exchange Commission
supervises us or the management of the Variable Account.
Obligations under the Certificates are our obligations. Although the assets
of the Variable Account are our property, these assets are held separately
from our other assets and are not chargeable with liabilities arising out
of any other business we may conduct. Income, capital gains and/or capital
losses, whether or not realized, from assets allocated to the Variable
Account are credited to or charged against the Variable Account without
regard to the income, capital gains, and/or capital losses arising out of
any other business we may conduct.
PURCHASE PAYMENTS AND APPLICATIONS
The initial purchase payment is due on the Certificate Date. The minimum
initial purchase payment is $5,000, and $2,000 for individual retirement
annuities. You may make additional purchase payments. Each subsequent
purchase payment must be at least $1,000 or any lesser amount we may
permit. We may reject any purchase payment or any application.
If your application for a Certificate is complete and amounts are to be
allocated to the Variable Account, we will apply your initial purchase
payment to the Variable Account within two business days of receipt. If
the application is not complete, we will notify you and try to complete it
within five business days. If it is incomplete at the end of this period,
we will inform you of the reason for the delay. The purchase payment will
be returned immediately unless you specifically consent to our keeping the
purchase payment until the application is complete. Once the application
is complete, the purchase payment will be applied within two business days
of its completion.
We will send you a written notification showing the allocation of all
purchase payments and the re-allocation of values after any transfer you
have requested. You must notify us immediately of any error.
We will permit others to act on your behalf in certain instances,
including:
o We will accept an application for a Certificate signed by an
attorney-in-fact if we receive a copy of the power of attorney with
the application.
o We will issue a Certificate to replace an existing life insurance
or annuity policy that we or an affiliated company issued even
though we did not previously receive a signed application from you.
Certain dealers or other authorized persons such as employers and Qualified
Plan fiduciaries may inform us of your responses to application questions
by telephone or by order ticket and cause the initial purchase payment to
be paid to us. If the information is complete, we will issue the
Certificate with a copy of an application containing that information. We
will send you the Certificate and a letter so you may review the
information and notify us of any errors. We may request you to confirm
that the information is correct by signing a copy of the application or a
Certificate delivery receipt. We will send you a written notice confirming
all purchases. Our liability under any Certificate is only to amounts so
confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
We will invest the purchase payments you applied to the Variable Account in
the Eligible Fund Sub-accounts chosen by you. Your selection must specify
the percentage of the purchase payment that is allocated to each Sub-
account or must specify the asset allocation model selected. (See "Other
Services, The Programs".) The percentage for each Sub-account, if not
zero, must be at least 10% and a whole number. You may change the
allocation percentages without fee, penalty or other charge. You must
notify us in writing of your allocation changes unless you, your attorney-
in-fact, or another authorized person have given us written authorization
to accept telephone allocation instructions. By allowing us to accept
telephone changes, you agree to accept and be bound by our current
conditions and procedures. The current conditions and procedures are in
Appendix A. We will notify you of any changes in advance.
The Variable Account is segmented into Sub-accounts. Each Sub-account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. We may add or withdraw Eligible Funds and
Sub-accounts as permitted by applicable law.
Eligible Funds
The Eligible Funds are the separate funds listed within Manning & Napier
Insurance Fund and the SteinRoe Trust. Liberty and the Variable Account
may enter into agreements with other mutual funds for the purpose of making
such mutual funds available as Eligible Funds under certain Certificates.
We do not promise that the Eligible Funds will meet their investment
objectives. Amounts you have allocated to Sub-accounts may grow, decline,
or grow less in value than you expect, depending on the investment
performance of the Sub-accounts in which the Eligible Funds invest. You
bear the investment risk that those Sub-accounts possibly will not meet
their investment objectives. You should carefully review their
prospectuses before allocating amounts to the Sub-accounts of the Variable
Account.
All the Eligible Funds are funding vehicles for variable annuity contracts
and variable life insurance policies offered by our separate accounts. The
Eligible Funds are also available for the separate accounts of insurance
companies affiliated and unaffiliated with us. The risks involved in this
"mixed and shared funding" are disclosed in the Eligible Fund prospectuses
under the following captions: Manning & Napier Insurance Fund - "Sales and
Redemptions"; and the SteinRoe Trust - "The Trust".
Manning & Napier Advisors, Inc. ("Manning & Napier Advisors"), acts as
Manning & Napier Insurance Fund's investment adviser. Manning & Napier
Advisors also is generally responsible for supervision of the overall
business affairs of Manning & Napier Insurance Fund, including supervision
of service providers to the Fund and direction of Manning & Napier
Advisors' directors, officers or employees who may be elected as officers
of Manning & Napier Insurance Fund to serve as such.
Stein Roe & Farnham Incorporated ("Stein Roe"), an affiliate, is the
investment adviser for the Eligible Fund of SteinRoe Trust.
We have briefly described the Eligible Funds below. You should read the
current prospectus for the Eligible Funds for more details and complete
information. The prospectus is available, at no charge, from a salesperson
or by writing the Principal Underwriter, Keyport Financial Services Corp.
at 125 High Street, Boston, MA 02110 or by calling (800) 437-4466. The
Prospectus may also be obtained by writing Manning & Napier Insurance Fund,
Inc. at P.O. Box 40610, Rochester, New York 14604, or calling (800) 466-
3863.
Eligible Funds of Manning & Napier Insurance
Fund and Variable Account Sub-Accounts Investment Objective
Manning & Napier Moderate Growth Portfolio Seeks with equal emphasis
(MNMGP Sub-account) long-term growth and
preservation of capital.
Manning & Napier Growth Portfolio Seeks long-term growth of
(MNGP Sub-account) Capital. The secondary
objective is the
preservation of capital.
Manning & Napier Maximum Horizon Portfolio Seeks to achieve the high
(MNMHP Sub-account) level of long-term
capital growth typically
associated with the stock
market.
Manning & Napier Small Cap Portfolio Seeks to achieve long-term
(MNSCP Sub-account) growth of capital by
investing principally in
the equity securities of
small issuers.
Manning & Napier Equity Portfolio Seeks long-term growth of
(MNEP Sub-account) capital.
Manning & Napier Bond Portfolio Seeks to maximize total
(MNBP Sub-account) return in the form of
both income and capital
appreciation by investing
in fixed income
securities without regard
to maturity.
Eligible Fund of SteinRoe Trust and
Variable Account Sub-Account Investment Objective
Stein Roe Money Market Fund, Variable Seeks to provide high
Series (SRMMF Sub-Account) current income from
short-term money market
instruments while
emphasizing preservation
of capital and
maintaining excellent
liquidity.
Transfer of Variable Account Value
You may transfer Variable Account Value from one Sub-account to another Sub-
account.
We may charge a transfer fee and limit the number of transfers that you can
make in a time period. Transfer limitations may prevent you from making a
transfer on the date you select. This may result in your Certificate Value
being lower than it would have been if you had been able to make the
transfer.
Limits on Transfers
Currently, we do not limit the number of frequency of transfers. We do not
charge a transfer fee for each transfer in excess of 12 in each Certificate
Year, except as follows:
o We impose a transfer limit of one transfer every thirty days, or
such other period as we may permit, for transfers on behalf of
multiple Certificates by a common attorney-in-fact, or transfers
that are, in our determination, based on the recommendation of a
common investment adviser or broker/dealer, and
o We limit each transfer to a maximum of $500,000, or such greater
amount as we may permit. We treat all transfer requests for a
Certificate made on the same day as a single transfer. We may
treat as a single transfer all transfers you request on the same
day for every Certificate you own. The total combined transfer
amount is subject to the $500,000 limitation. If the total
amount of the requested transfers exceeds $500,000, we will not
execute any of the transfers, and
o We treat as a single transfer all transfers made on the same day
on behalf of multiple Certificates by a common attorney-in-fact,
or transfers that are, in our determination, based on the
recommendation of a common investment adviser or broker/dealer.
The $500,000 limitation applies to such transfers. If the total
amount of the requested transfers exceeds $500,000, we will not
execute any of the transfers.
If we have executed a transfer with respect to your Certificate as part of
a multiple transfer request, we will not execute another transfer request
for your Certificate for thirty days.
By applying these limitations we intend to protect the interests of
individuals who do and those who do not engage in significant transfer
activity among Sub-accounts. We have determined that the actions of
individuals engaging in significant transfer activity may cause an adverse
affect on the performance of the Eligible Fund for the Sub-account
involved. The movement of values from one Sub-account to another may
prevent the appropriate Eligible Fund from taking advantage of investment
opportunities because the Eligible Fund must maintain a liquid position in
order to handle redemptions. Such movement may also cause a substantial
increase in fund transaction costs which all Certificate Owners must
indirectly bear.
We will notify you prior to charging any transfer fee or a change in the
limitation on the number of transfers. The fee will not exceed $25.
You must notify us in writing of your transfer requests unless you have
given us written authorization to accept telephone transfer requests from
you or your attorney-in-fact. By authorizing us to accept telephone
transfer instructions, you agree to accept and be bound by our current
conditions and procedures. The current conditions and procedures are in
Appendix A. You will be given prior notification of any changes. A person
acting on your behalf as an attorney-in-fact may make written transfer
requests.
If we receive your transfer requests before 4:00 P.M. Eastern Time, we will
initiate them at the close of business that day. We will initiate any
requests received after that time at the close of the next business day. We
will execute your request to transfer value by both redeeming and acquiring
Accumulation Units on the day we initiate the transfer.
If you transfer 100% of any Sub-account's value, and the allocation formula
for purchase payments on your application includes that Sub-account, the
allocation formula for future purchase payments will automatically change
unless you tell us otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If shares of any of the Eligible Funds are no longer available for
investment by the Variable Account, or further investment in the shares of
the Eligible Fund is no longer appropriate under the Certificate, we may
add or substitute shares of another Eligible Fund or of another mutual fund
for Eligible Fund shares already purchased or to be purchased in the
future. Any substitution of securities will comply with the requirements
of the Investment Company Act of 1940.
We also reserve the right to make the following changes in the operation of
the Variable Account and Eligible Funds:
o to operate the Variable Account in any form permitted by law;
o to take any action necessary to comply with applicable law or
obtain and continue any exemption from applicable law;
o to transfer any assets in any Sub-account to another, or to one
or more separate investment accounts, or to our general account;
o to add, combine or remove Sub-accounts in the Variable Account;
and
o to change how charges are assessed, so long as the total charges
do not exceed the maximum amount that may be charged to the
Variable Account and the Eligible Funds in connection with the
Certificates.
DEDUCTIONS
Deductions for Certificate Maintenance Charge
We charge an annual certificate maintenance charge of $35 per Certificate
Year. Before the Income Date we do not guarantee the amount of the
certificate maintenance charge and may change it. This charge reimburses
us for our expenses incurred in maintaining your Certificate.
On the Income Date, we will subtract a pro-rata portion of the charge due
on the next Certificate Anniversary from the Variable Account Value. This
pro-rata charge covers the period from the prior Certificate Anniversary to
the Income Date. We will deduct the charge proportionally from each Sub-
account based upon the value each Sub-account bears to the Variable Account
Value.
Once annuity payments begin, the certificate maintenance charge is
guaranteed not to increase. We will subtract this charge in equal parts
from each annuity payment. For example, if annuity payments are monthly,
then we will deduct one-twelfth of the annual charge from each payment.
Deductions for Mortality and Expense Risk Charge
Variable annuity payments fluctuate depending on the investment performance
of the Sub-accounts. The payments will not be affected by the mortality
experience (death rate) of persons receiving such payments or of the
general population. We guarantee the Death Benefits described in "Death
Provisions". We also assume an expense risk since the certificate
maintenance charge after the Income Date remains the same and does not
change to reflect variations in expenses.
We deduct a mortality and expense risk charge from each Sub-account. The
mortality and expense risk charge is equal, on an annual basis, to .35% of
the average daily net asset value of each Sub-account. We deduct the
charge both before and after the Income Date. We may deduct less than the
full charge from Sub-account values attributable to Certificates issued to
our employees and other persons specified in "Sales of the Certificates".
Additionally, we may, in certain circumstances described in "Sales of the
Certificates" offer to credit additional interest from our general account
to a purchase payment upon receipt as an allowance for future deductions of
the mortality and expense risk charge.
Deductions for Transfers of Variable Account Value
The Certificate allows us to charge a transfer fee. Currently, we do not
charge such a fee. We will notify you prior to the imposition of any fee
and the fee will not exceed $25.
Deductions for Premium Taxes
We deduct the amount of any premium taxes required by any state or
governmental entity. Currently, we deduct premium taxes from Certificate
Value upon full surrender, death or annuitization. The actual amount of
any such premium taxes will depend, among other things, on the type of
Certificate you purchase (Qualified or Non-Qualified), on your state of
residence, the state of residence of the Annuitant, and the insurance tax
laws of such states. For New York Certificates, the current premium tax
rate is 0%.
Deductions for Income Taxes
We will deduct income taxes from any amount payable under the Certificate
that a governmental authority requires us withhold. See "Income Tax
Withholding".
Total Variable Account Expenses
Total Variable Account expenses you will incur will be the certificate
maintenance charge and the mortality and expense risk charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and the deductions and expenses paid out of the assets
of the Eligible Funds. The prospectus for the Eligible Fund describes
these deductions and expenses.
OTHER SERVICES
The Program. We offer the following investment related program which is
available only prior to the Income Date:
o systematic withdrawal program.
This program has its own requirements, as discussed below. We reserve the
right to terminate the program.
If you have submitted a telephone authorization form, you may make certain
changes by telephone. We describe the current conditions and procedures in
Appendix A.
Systematic Withdrawal Program. To the extent permitted by law, if you
enroll in the systematic withdrawal program, we will make monthly,
quarterly, semi-annual or annual distributions of a set dollar amount
directly to you. We will treat such distributions for federal tax purposes
as any other withdrawal or distribution of Certificate Value. You may
specify the amount of each partial withdrawal, subject to a minimum of
$100. You may make systematic withdrawals from any Sub-accounts.
Unless you specify the Sub-account(s) from which you want withdrawals of
Certificate Value made, or if the amount in a specified Sub-account is less
than the predetermined amount, we will make withdrawals under the program
in the manner specified for partial withdrawals in "Partial Withdrawals and
Surrender." We will process all Sub-account withdrawals under the program
by canceling the number of Accumulation Units equal in value to the amount
to be distributed to you.
THE CERTIFICATES
Variable Account Value
The Variable Account Value for a Certificate is the sum of the value of
each Sub-account where you have allocated values. We determine the value
of each Sub-account at any time by multiplying the number of Accumulation
Units attributable to that Sub-account by its Accumulation Unit value.
Each purchase payment you make results in the credit of additional
Accumulation Units to your Certificate and the appropriate Sub-account. The
number of additional units for any Sub-account will equal the amount
allocated to that Sub-account divided by the Accumulation Unit value for
that Sub-account at the time of investment.
Valuation Periods
We determine the value of the Variable Account each valuation period using
the net asset value of the Eligible Fund shares. A valuation period is the
period beginning at 4:00 P.M. (EST) which is the close of trading on the
New York Stock Exchange and ending at the close of trading for the next
business day. The New York Stock Exchange is currently closed on weekends,
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
Net Investment Factor
Your Variable Account Value will fluctuate with the investment results of
the underlying Eligible Funds you have selected. In order to determine how
these fluctuations affect value, we use an Accumulation Unit value. Each
Sub-account has its own Accumulation Units and value per unit. We determine
the unit value applicable during any valuation period at the end of that
period.
When we first purchased Eligible Fund shares on behalf of the Variable
Account, we valued each Accumulation Unit at a specified dollar amount. The
Unit value for each Sub-account in any valuation period thereafter is
determined by multiplying the value for the prior period by a net
investment factor. This factor may be greater or less than 1.0; therefore,
the Accumulation Unit may increase or decrease from valuation period to
valuation period. We calculate a net investment factor for each Sub-account
according to the following formula (a b) - c, where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of
the valuation period; plus
(ii) the per share amount of any distribution the Eligible Fund made
if the "ex-dividend" date occurs during that same valuation
period.
(b) is the net asset value per share of the Eligible Fund at the end of
the prior valuation period.
(c) is equal to:
(i) the valuation period equivalent of the daily mortality and
expense risk charge; plus
(ii) a charge factor for any tax provision established by us as a
result of the operations of that Sub-account.
Modification of the Certificate
Only our President or Secretary may agree to alter the Certificate or waive
any of its terms. A change may be made to the Certificate if there have
been changes in applicable law or interpretation of law. Any changes will
be made in writing and with your consent, except as may be required by
applicable law.
Right to Revoke
You may return the Certificate within 10 days after you receive it by
delivering or mailing it to us or Manning & Napier Insurance Fund, Inc.,
P.O. Box 40610, Rochester, New York, 14604. The postmark on a properly
addressed and postage-prepaid envelope determines if a Certificate is
returned within the period. We will treat the returned Certificate as if
we never issued it and we will refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant. If
while the Certificate is In Force, you or any Joint Certificate Owner dies,
or if the Annuitant dies when a non-natural person (such as a trust) owns
the Certificate, we will treat the Designated Beneficiary as the
Certificate Owner after such a death.
If the decedent's surviving spouse is the sole Designated Beneficiary, he
or she will automatically become the new sole primary Certificate Owner as
of the decedent's date of death. If the decedent was the Annuitant, the
new Annuitant will be any living contingent annuitant, otherwise the
surviving spouse. The Certificate can stay In Force until another death
occurs. Except for this paragraph, all of "Death Provisions" will apply to
that subsequent death.
In all other cases, the Certificate may remain In Force for a period not to
exceed 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, we will automatically
end it by paying the Certificate Value to the Designated Beneficiary. If
the Designated Beneficiary is not then alive, we will pay any person(s)
named by the Designated Beneficiary in writing; otherwise we will pay the
Designated Beneficiary's estate.
The Covered Person under this paragraph shall be the decedent if he or she
is the first to die among you, any joint Certificate Owner or Annuitant.
If there is a non-natural Certificate Owner such as a trust, the Annuitant
shall be the Covered Person.
Upon the death of the Covered Person, we will increase the Certificate
Value so that it equals the death benefit amount if it is less than the
death benefit amount ("DBA"). The DBA at issue is the initial purchase
payment. Thereafter, it is the prior death benefit plus any additional
purchase payments, less any partial withdrawals, and any applicable
surrender charges.
When we receive due proof of the Covered Person's death, we will compare,
as of the date of death, the Certificate Value and the DBA. If the
Certificate Value was less than the DBA, we 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 we receive due proof of death.
We allocate the amount credited, if any, to the Variable Account based on
the purchase payment allocation selection in effect when we receive due
proof of death. If the Designated Beneficiary does not surrender the
Certificate, it will continue for the time period specified above.
Payment of Benefits. Instead of receiving a lump sum, you or any Designated
Beneficiary may direct us in writing to pay any benefit of $5,000 or more
under an annuity payment option that meets the following:
o the first payment to the Designated Beneficiary must be made no
later than one year after the date of death;
o payments must be made over the life of the Designated Beneficiary
or over a period not extending beyond that person's life
expectancy; and
o any payment option that provides for payments to continue after
the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time during which the
remaining payments are to be made.
Death of Certain Non-Certificate Owner Annuitant. These provisions apply
if, while the Certificate is In Force, the Annuitant dies, the Annuitant is
not the Certificate Owner or a joint Certificate Owner and 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 you. If the Annuitant dies before you and any joint
Certificate Owner, then the Annuitant is the Covered Person and we will
increase the Certificate Value, as provided below, if it is less than the
DBA, as defined above.
When we receive due proof of the Annuitant's death, we will compare, as of
the date of death, the Certificate Value and the DBA. If the Certificate
Value is less than the DBA, we will increase the Certificate Value by 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 we receive due proof of death. We allocate the amount credited, if
any, to the Variable Account based on the purchase payment allocation
selection in effect when we receive due proof of death.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
Death of Annuitant. If the Annuitant dies while the Certificate is In
Force, the Designated Beneficiary will control the Certificate. We will
increase the Certificate Value, as provided below, if it is less than the
DBA as defined above. When we receive due proof of the Annuitant's death,
we will compare, as of the date of death, the Certificate Value to the DBA.
If the Certificate Value was less than the DBA, we 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 we receive due proof of
death. We will allocate the amount credited, if any, to the Variable
Account based on the purchase payment allocation selection in effect when
we receive due proof of death.
If the Designated Beneficiary does not surrender the Certificate, 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, we will
automatically end it then by paying the Certificate Withdrawal Value to the
Designated Beneficiary. If the Designated Beneficiary is not alive then, we
will pay any person(s) named by the Designated Beneficiary in writing;
otherwise we will pay the Designated Beneficiary's estate.
Payment of Benefits. You or any Designated Beneficiary may direct us in
writing to pay any benefit of $5,000 or more under an annuity payment
option that meets the following:
o the first payment to the Designated Beneficiary must be made no
later than one year after the date of death;
o payments must be made over the life of the Designated Beneficiary
or over a period not extending beyond that person's life
expectancy; and
o any payment option that provides for payments to continue after
the death of the Designated Beneficiary will not allow the
successor payee to extend the period of time over which the
remaining payments are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application and
you may exercise all the rights of the Certificate. Joint Certificate
Owners are permitted. Contingent Certificate Owners are not permitted.
You may direct us in writing to change the Certificate Owner, primary
beneficiary, contingent beneficiary or contingent annuitant. An irrevocably-
named person may be changed only with the written consent of that person.
Because a change of Certificate Owner by means of a gift may be a taxable
event, you should consult a competent tax adviser as to the tax
consequences resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership.
You should consult the plan administrator and a competent tax adviser as to
the tax consequences resulting from such a transfer.
ASSIGNMENT
You may assign the Certificate at any time. You must file a copy of any
assignment with us. Your rights and those of any revocably-named person
will be subject to the assignment. A Qualified Certificate may have
limitations on your ability to assign the Certificate.
Because an assignment may be a taxable event, you should consult a
competent tax adviser as to the tax consequences resulting from any such
assignment.
PARTIAL WITHDRAWALS AND SURRENDER
You may make partial withdrawals from the Certificate by notifying us in
writing. The minimum withdrawal amount is $300. We may permit a lesser
amount with the systematic withdrawal program. If the Certificate Value
after a partial withdrawal would be below $2,500, we will treat the request
as a withdrawal of only the amount over $2,500. Unless you specify
otherwise, we will deduct the total amount withdrawn from all Sub-accounts
of the Variable Account in the ratio that the value in each Sub-account
bears to the total Variable Account Value.
You may totally surrender the Certificate by notifying us in writing.
Surrendering the Certificate will end it. Upon surrender, you will receive
the Certificate Withdrawal Value.
We will pay the amount of any surrender within seven days of receipt of
your request. Alternatively, you may purchase for yourself an annuity
payment option with any surrender benefit of at least $5,000. If the
Certificate Owner is not a natural person, we must consent to the selection
of an annuity payment option.
You may not surrender annuity options based on life contingencies after
annuity payments have begun. You may surrender Option A, described in
"Annuity Options" below, which is not based on life contingencies, if you
have selected a variable payout.
Because of the potential tax consequences of a full or partial surrender,
you should consult a competent tax adviser regarding a surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Certificate is In
Force, we will begin payments under the annuity option or options you have
chosen. We determine the amount of the payments on the Income Date by:
applying the payments to the option you choose for your Certificate Value
and subtracting any premium taxes not previously deducted and any
applicable certificate maintenance charge.
Annuity Option and Income Date
You may select an Annuity Option and Income Date at the time of
application. If you do not select an Annuity Option, we automatically
choose Option B. If you do not select an Income Date for the Annuitant,
the Income Date will automatically be the earlier of:
o the later of the Annuitant's 90th birthday and the 10th
Certificate Anniversary, and
o any maximum date permitted under state law.
Change in Annuity Option and Income Date
You may choose or change an Annuity Option or the Income Date by writing us
at least 30 days before the Income Date. However, any Income Date must be:
o for fixed annuity options, not earlier than the first Certificate
Anniversary; and
o not later than the earlier of
(i) the later of the Annuitant's 90th birthday and the 10th
Certificate Anniversary and
(ii) any maximum date permitted under state law.
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.
You may arrange other options if we agree. Each option is available in two
forms -- as a variable annuity for use with the Variable Account and as a
fixed annuity for use with our general account. Variable annuity payments
will fluctuate. Fixed annuity payments will not fluctuate. We will
determine the dollar amount of each fixed annuity payment by:
o deducting from the Certificate Value any premium taxes not
previously deducted and any applicable certificate maintenance
charge;
o then dividing the remainder by $1,000 and
o multiplying the result by the greater of:
(i) the applicable factor shown in the appropriate table in the
Certificate; or
(ii) the factor we currently offer at the time annuity payments
begin.
We may base this current factor on the sex of the payee unless we are
prohibited by law from doing so.
If you do not select an Annuity Option we will automatically apply
Option B. Unless you choose otherwise, we will apply Variable Account
Value, (less any premium taxes not previously deducted and less any
applicable certificate maintenance charge) to a variable annuity option.
The same amount applied to a variable option and a fixed option will
produce a different initial annuity payment and different subsequent
payments.
The payee is the person who will receive the sum payable under a payment
option. Any payment option that provides for payments to continue after the
death of the payee will not allow the successor payee to extend the period
of time over which the remaining payments are to be made.
If the amount available under any variable or fixed option is less than
$5,000, we reserve the right to pay such amount in one sum to the payee in
lieu of the payment otherwise provided for.
We will make annuity payments monthly unless you have requested in writing
quarterly, semi-annual or annual payments. However, if any payment would be
less than $100, we have the right to reduce the frequency of payments to a
period that will result in each payment being at least $100.
Option A: Income For a Fixed Number of Years. We will pay an annuity for
a chosen number of years, not less than 5 nor more than 50. You may choose
a period of years over 30 only if it does not exceed the difference between
age 100 and the Annuitant's age on the date of the first payment. We refer
to Option A as Preferred Income Plan (PIP). At any time while we are making
variable annuity payments, the payee may elect to receive the following
amount: the present value of the remaining payments, commuted at the
interest rate used to create the annuity factor for this option (this
interest rate is 5% per year, unless at the time you chose Option A you
selected 3% per year in writing). Instead of receiving a lump sum, the
payee may elect another payment option.
If, at the death of the payee, Option A payments have been made for fewer
than the chosen number of years:
o we will continue payments during the remainder of the period to
the successor payee; or
o the successor payee may elect to receive in a lump sum the
present value of the remaining payments, commuted at the interest
rate used to create the annuity factor for this option. For the
variable annuity, this interest rate is 5% per year unless the
payee chose 3% per year 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 we have no
mortality risk during this period.
You may choose a "level monthly" payment option for variable payments under
Option A. Under this option, we convert your annual payment into twelve
equal monthly payments. Thus the monthly payment amount changes annually
instead of monthly. We will determine each annual payment as described
below in "Variable Annuity Payment Values", place each annual payment in
our general account, and distribute it in twelve equal monthly payments.
The sum of the twelve monthly payments will exceed the annual payment
amount because of an interest rate factor we use, which will vary from year
to year. If the payments are commuted, (1) we will use the commutation
method described above for calculating the present value of remaining
annual payments and (2) use the interest rate that determined the current
twelve monthly payments to commute any unpaid monthly payments.
See "Annuity Payments" for the manner in which Option A may be taxed.
Option B: Life Income with 10 Years of Payments Guaranteed. We will pay an
annuity during the lifetime of the payee. If, at the death of the payee,
payments have been made for fewer than 10 years:
o we will continue payments during the remainder of the period to
the successor payee; or
o such 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 the
payee had chosen 3% per year at the time the option was selected.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. We will pay an annuity for as
long as either the payee or a designated second natural person is alive.
The amount of the annuity payments will depend on the age of both persons
on the Income Date and it may also depend on each person's sex. It is
possible under this option to receive only one annuity payment if both
payees die after the receipt of the first payment or to receive only two
annuity payments if both payees die after receipt of the second payment and
so on.
Variable Annuity Payment Values
We determine the amount of the first variable annuity payment by using an
annuity purchase rate based on an assumed annual investment return of 5%
per year, unless you choose 3% in writing. 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:
o the sum of all Sub-account payments; less
o the pro-rata amount of the annual certificate maintenance charge.
Currently, there is no limit on the number of times or the frequency with
which a payee may instruct us to change the Sub-account(s) used to
determine the amount of the variable annuity payments.
Proof of Age, Sex, and Survival of Annuitant
We may require proof of age, sex or survival of any payee upon whose age,
sex or survival payments depend. If the age or sex has been misstated, we
will compute the amount payable based on the correct age and sex. If income
payments have begun, we will pay in full any underpayments with the next
annuity payment and deduct any overpayments, unless repaid in one sum, from
future annuity payments until we are repaid in full.
SUSPENSION OF PAYMENTS
We reserve the right to suspend or postpone any type of payment from the
Variable Account for any period when:
o the New York Stock Exchange is closed other than customary
weekend or holiday closings;
o trading on the Exchange is restricted;
o an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account
or determine their value; or
o the Securities and Exchange Commission permits delay for the
protection of security holders. The applicable rules and
regulations of the Securities and Exchange Commission shall
govern as to whether the two conditions described above
exist.
YEAR 2000 MATTERS
We have been addressing Year 2000 matters since late 1995. We have
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. We
have been and are continuing to make such changes in existing systems as we
believe necessary, targeting December 31, 1999 as the expected completion
date. We have established Year 2000 compliance standards for all new
internal systems. We intend to provide uninterrupted service to all of our
policyholders and customers through and beyond 2000.
We believe that the timetable for implementing any required changes will be
met and that the Year 2000 issue will not pose significant operational
problems for our computer systems.
We do not expect the cost of addressing the Year 2000 issue will be
material to our financial condition or results of operations.
TAX STATUS
Introduction
This discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax adviser. We make no
attempt to consider any applicable state or other tax laws. Moreover, this
discussion is based upon our understanding of current federal income tax
laws as they are currently interpreted. We make no representation regarding
the likelihood of continuation of those current federal income tax laws or
of the current interpretations by the Internal Revenue Service.
The Certificate is for use by individuals in retirement plans which may or
may not be Qualified Plans under the provisions of the Internal Revenue
Code (the "Code"). The ultimate effect of federal income taxes on the
Certificate Value, on annuity payments, and on the economic benefit to the
Certificate Owner, Annuitant or Designated Beneficiary depends on the type
of retirement plan for which you purchase the Certificate and upon the tax
and employment status of the individual concerned.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are
no income taxes on increases in the value of a Certificate until a
distribution occurs, in the form of a full surrender, a partial surrender,
an assignment or gift of the Certificate, or annuity payments. A trust or
other entity owning a Non-Qualified Certificate, other than as an agent for
an individual, is taxed differently; increases in the value of a
Certificate are taxed yearly whether or not a distribution occurs.
Surrenders, Assignments and Gifts. If you fully surrender your
Certificate, the portion of the payment that exceeds your cost basis in the
Certificate is subject to tax as ordinary income. For Non-Qualified
Certificates, the cost basis is generally the amount of the purchase
payments made for the Certificate. For Qualified Certificates, the cost
basis is generally zero and the taxable portion of the surrender payment is
generally taxed as ordinary income subject to special 5-year income
averaging for lump-sum distributions received before January 1, 2000. A
Designated Beneficiary receiving a lump sum surrender benefit after your
death or the death of the Annuitant is taxed on the portion of the amount
that exceeds your cost basis in the Certificate. If the Designated
Beneficiary elects 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 you. For partial withdrawals under a
Qualified Certificate, payments are treated first as a non-taxable return
of principal up to the cost basis and then a taxable return of income.
Since the cost basis of Qualified Certificates is generally zero, partial
surrender amounts will generally be fully taxed as ordinary income.
If you assign or pledge a Non-Qualified Certificate, you will be treated as
if you had received the amount assigned or pledged. You will be subject to
taxation under the rules applicable to partial withdrawals or surrenders.
If you give away your Certificate to anyone other than your spouse, you are
treated for income tax purposes as if you had fully surrendered the
Certificate.
A special computational rule applies if we issue to you, during any
calendar year, two or more Certificates, or one or more Certificates and
one or more of our other annuity contracts. Under this rule, the amount of
any distribution includable in your gross income is determined under
Section 72(e) of the Code. All of the contracts will be treated as one
contract. We believe this means the amount of any distribution under any
one Certificate will be includable in gross income to the extent that at
the time of distribution the sum of the values for all the Certificates or
contracts exceeds the sum each contract's cost basis.
Annuity Payments. We determine the non-taxable portion of each variable
annuity payment by dividing the cost basis of your values by the total
number of expected payments. We determine the non-taxable portion of each
fixed annuity payment with an "exclusion ratio" formula which establishes
the ratio that the cost basis of your values allocated to fixed payments
bears to the total expected value of annuity payments for the term of the
annuity. The remaining portion of each payment is taxable. Such taxable
portion is taxed at ordinary income rates. For Qualified Certificates, the
cost basis is generally zero. With annuity payments based on life
contingencies, the payments will become fully taxable once the payee lives
longer than the life expectancy used to calculate the non-taxable portion
of the prior payments. Because variable annuity payments can increase over
time and because certain payment options provide for a lump sum right of
commutation, it is possible that the IRS could determine that variable
annuity payments should not be taxed as described above but instead should
be taxed as if they were received under an agreement to pay interest. This
determination would result in a higher amount (up to 100%) of certain
payments being taxable.
With respect to the "level monthly" payment option available under Annuity
Option A, pursuant to which each annual payment is placed in our general
account and paid out with interest in 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 you, Annuitants, and Designated
Beneficiaries under Certificates may be subject to both ordinary income
taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on the following
amounts received:
o after the taxpayer attains age 59-1/2;
o in a series of substantially equal payments made for life or life
expectancy;
o after the death of the Certificate Owner (or, where the
Certificate Owner is not a human being, after the death of the
Annuitant);
o if the taxpayer becomes totally and permanently disabled; or
o under a Non-Qualified Certificate's annuity payment option that
provides for a series of substantially equal payments; provided
only that one purchase payment is made to the Certificate, that
the Certificate is not issued as a result of a Section 1035
exchange, and that the first annuity payment begins in the first
Certificate Year.
Income Tax Withholding. We are required to withhold federal income taxes
on taxable amounts paid under Certificates unless the recipient elects not
to have withholding apply. We will notify recipients of their right to
elect not to have withholding apply.
Section 1035 Exchanges. You may purchase a Non-Qualified Certificate with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of
the Code. It is our understanding that in such an event:
o the new Certificate will be subject to the distribution-at-death
rules described in "Death Provisions for Non-Qualified
Certificates";
o purchase payments made between August 14, 1982 and January 18,
1985 and the income allocable to them will, following an
exchange, no longer be covered by a "grandfathered" exception to
the penalty tax for a distribution of income that is allocable to
an investment made over ten years prior to the distribution; and
o purchase payments made before August 14, 1982 and the income
allocable to them will, following an exchange, continue to
receive the following "grandfathered" tax treatment under prior
law:
(i) the penalty tax does not apply to any distribution;
(ii) partial withdrawals are treated first as a non-taxable
return of principal and then a taxable return of income;
and
(iii) assignments are not treated as surrenders subject to
taxation.
We base our understanding of the above principally on legislative reports
prepared by the Staff of the Congressional Joint Committee on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments
underlying variable annuity contracts (other than pension plan contracts).
The Eligible Funds intend to meet the diversification requirements for the
Certificate as those requirements may change from time to time. If the
diversification requirements are not satisfied, the Certificate will not be
treated as an annuity contract. As a consequence, income earned on a
Certificate would be taxable to you in the year in which diversification
requirements were not satisfied, including previously non-taxable income
earned in prior years. As a further consequence, we 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 your
control of the investments of a segregated asset account may cause you,
rather than us, to be treated as the owner of the assets of the account.
The regulations could impose requirements that are not reflected in the
Certificate. We, however, have reserved certain rights to alter the
Certificate and investment alternatives so as to comply with such
regulations. Since no regulations have been issued, there can be no
assurance as to the content of such regulations or even whether application
of the regulations will be prospective. For these reasons, you are urged
to consult your tax adviser.
Qualified Plans
The Certificate is for use with Qualified Plans. The tax rules applicable
to participants in Qualified Plans vary according to the type of plan and
the terms and conditions of the plan itself. Therefore, we do not attempt
to provide more than general information about the use of the Certificate
with Qualified Plans. Participants under a Qualified Plan as well as
Certificate Owners, Annuitants, and Designated Beneficiaries are cautioned
that the rights of any person to any benefits under a Qualified Plan may be
subject to the terms and conditions of the plan regardless of the terms and
conditions of the Certificate issued in connection therewith. Following is
a brief description of the type of Qualified Plans and of the use of the
Certificate in connection with them. Purchasers of the Certificate should
seek competent advice concerning the terms and conditions of the particular
Qualified Plan and use of the Certificate with that Plan.
Individual Retirement Annuities
Sections 408(b) and 408A of the Code permit eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" and "Roth IRA", respectively. These individual
retirement annuities are subject to limitations on the amount which may be
contributed, the persons who may be eligible to contribute, and on the time
when distributions may commence. In addition, distributions from certain
types of Qualified Plans may be placed on a tax-deferred basis into a
Section 408(b) Individual Retirement Annuity.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with our view of present applicable law, we will vote the
shares of the Eligible Funds held in the Variable Account at regular and
special meetings of the shareholders of the Eligible Funds in accordance
with instructions received from persons having the voting interest in the
Variable Account. We will vote shares for which we have not received
instructions in the same proportion as we vote shares for which we have
received instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation should change, and as a
result we determine that we are permitted to vote the shares of the
Eligible Funds in our own right, we may elect to do so.
You have the voting interest under a Certificate prior to the Income Date.
The number of shares held in each Sub-account which are attributable to you
is determined by dividing your Variable Account Value in each Sub-account
by the net asset value of the applicable share of the Eligible Fund. The
payee has the voting interest after the Income Date under an annuity
payment option. The number of shares held in the Variable Account which are
attributable to each payee is determined by dividing the reserve for the
annuity payments by the net asset value of one share. During the annuity
payment period, the votes attributable to a payee decrease as the reserves
underlying the payments decrease.
We will determine the number of shares in which a person has a voting
interest as of the date established by the respective Eligible Fund for
determining shareholders eligible to vote at the meeting of the Fund. We
will solicit voting instructions in writing prior to such meeting in
accordance with the procedures established by the Eligible Fund.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting
instructions.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC"), an affiliate, serves as the
principal underwriter for the Certificate described in this prospectus.
Salespersons who represent us, as variable annuity agents will sell the
Certificates. Such salespersons are also registered representatives of
broker/dealers who have entered into distribution agreements with KFSC.
KFSC is registered under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. It is
located at 125 High Street, Boston, Massachusetts 02110. A dealer selling
the Certificate receives no commission.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Principal Underwriter are a party. We are engaged in various kinds of
routine litigation which, in our judgment, is not of material importance in
relation to our total capital and surplus.
INQUIRIES BY CERTIFICATE OWNERS
You may write us with questions about your Certificate at 125 High Street,
Boston, MA 02110, or call (800) 367-3653 or write Manning & Napier
Insurance Fund, Inc. at P.O. Box 40610 Rochester, New York 14604 or call
(800) 466-3863.
TABLE OF CONTENTS-STATEMENT OF ADDITIONAL INFORMATION
Page
Liberty Life Assurance Company of Boston 2
Variable Annuity Benefits 2
Variable Annuity Payment Values 2
Re-Allocating Sub-account Payments 3
Safekeeping of Assets 4
Principal Underwriter 4
Experts 4
Investment Performance 4
Yields for Stein Roe Money Market Fund (SRMMF) Sub-account 5
Financial Statements 6
Variable Account J 7
Liberty Life Assurance Company of Boston 28
<PAGE>
APPENDIX A
TELEPHONE INSTRUCTIONS
Telephone Transfers of Certificate Values
1. If there are joint Certificate Owners, both must authorize us and
Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund")
to accept telephone instructions but either Certificate Owner may give us
telephone instructions.
2. All callers must identify themselves. We reserve the right to refuse
to act upon any telephone instructions in cases where the caller has not
sufficiently identified himself/herself to our or Manning & Napier
Insurance Fund's satisfaction.
3. Neither we, Manning & Napier Insurance Fund, nor any person acting on
our or its behalf shall be subject to any claim, loss, liability, cost or
expense if we or such person acted in good faith upon a telephone
instruction, including one that is unauthorized or fraudulent. However, we
and/or Manning & Napier Insurance Fund will employ reasonable procedures to
confirm that a telephone instruction is genuine and, if we and/or Manning &
Napier Insurance Fund does not, we and/or Manning & Napier Insurance Fund
may be liable for losses due to an unauthorized or fraudulent instruction.
You thus bear the risk that an unauthorized or fraudulent instruction
executed may cause your Certificate Value to be lower than it would be had
no instruction been executed.
4. We record all conversations with disclosure at the time of the call.
5. The application for the Certificate may allow you to create a power of
attorney by authorizing another person to give telephone instructions.
Unless prohibited by state law, we will treat such power as durable in
nature and it shall not be affected by your subsequent incapacity,
disability or incompetency. Either we, Manning & Napier Insurance Fund or
the authorized person may cease to honor the power by sending written
notice to you at your last known address. Neither we, Manning & Napier
Insurance Fund nor any person acting on our behalf shall be subject to
liability for any act executed in good faith reliance upon a power of
attorney.
6. Telephone authorization shall continue in force until:
o we and/or Manning & Napier Insurance Fund receive your written
revocation,
o we and/or Manning & Napier Insurance Fund discontinues the
privilege, or
o we and/or Manning & Napier Insurance Fund receives written
evidence that you have entered into a market timing or asset
allocation agreement with an investment adviser or with a
broker/dealer.
7. If we receive telephone transfer instructions at 800-367-3653 and/or
Manning & Napier Insurance Fund at (800) 466-3863 before the 4:00 P.M.
Eastern Time close of trading on the New York Stock Exchange they will be
initiated that day based on the unit value prices calculated at the close
of that day. Instructions received after the close of trading on the NYSE
will be initiated the following business day.
8. Once we and/or Manning & Napier Insurance Fund accept instructions, they
may not be canceled.
9. You must make all transfers in accordance with the terms of the
Certificate and current prospectus. If your transfer instructions are not
in good order, we and/or Manning & Napier Insurance Fund will not execute
the transfer and will notify the caller within 48 hours.
10. If you transfer 100% of any Sub-account's value and the allocation
formula for purchase payments includes that Sub-account, then we will
change the allocation formula for future purchase payments accordingly
unless we receive telephone instructions to the contrary. For example, if
the allocation formula is 50% to Sub-account A and 50% to Sub-account B and
you transfer all of Sub-account A's value to Sub-account B we will change
the allocation formula to 100% to Sub-account B unless you instruct us
otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1-6 above are applicable.
<PAGE>
Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
Issued by:
Liberty Life Assurance Company of Boston
175 Berkeley Street, Boston, MA 02117
Liberty Life Service Office
125 High Street, Boston, MA 02110-2712
[ ] Yes. I would like to receive the New York Manning & Napier Variable
Annuity Statement of Additional Information.
[ ] Yes. I would like to receive the Manning & Napier Insurance Fund, Inc.
Statement of Additional Information.
[ ] Yes. I would like to receive the SteinRoe Variable Investment Trust
Statement of Additional Information.
Name
Address
City, State Zip
<PAGE>
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
LIBERTY LIFE SERVICE OFFICE
125 HIGH STREET
BOSTON, MA 02110-9773
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES.
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT J
OF
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON ("Liberty Life")
This Statement of Additional Information (SAI) is not a prospectus but it
relates to, and should be read in conjunction with, the Manning & Napier
variable annuity prospectus dated May 3, 1999. The SAI is incorporated by
reference into the prospectus. The prospectus is available, at no charge,
by writing Keyport Financial Services Corp. at 125 High Street, Boston, MA
02110 or by calling (800) 437-4466. It may also be obtained by writing
Manning & Napier Insurance Fund, Inc. at P.O. Box 40610, Rochester, New
York 14604, or by calling (800) 466-3868.
TABLE OF CONTENTS
Page
Liberty Life Assurance Company of Boston.............................2
Variable Annuity Benefits............................................2
Variable Annuity Payment Values....................................2
Re-Allocating Sub-Account Payments.................................3
Safekeeping of Assets................................................4
Principal Underwriter................................................4
Experts..............................................................4
Investment Performance...............................................4
Yields for Stein Roe Money Market Fund (SRMMF) Sub-Account.........5
Financial Statements.................................................6
Variable Account J.................................................7
Liberty Life Assurance Company of Boston...........................28
The date of this statement of additional information is May 3, 1999.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Liberty Mutual Insurance Company ("Liberty Mutual") and Liberty Mutual Fire
Insurance Company ("Liberty Mutual Fire") are the ultimate corporate
parents of Liberty Life. Liberty Mutual and Liberty Mutual Fire ultimately
control Liberty Life through the following intervening holding company
subsidiary: Liberty Mutual Property-Casualty Holding Corporation. Liberty
Mutual Insurance Company is a multi-line insurance company. For additional
information about Liberty Life, see page 9 of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium
taxes and then dividing the remaining value of that Sub-Account by $1,000
and multiplying the result by the greater of: (a) the applicable factor
from the Certificate's annuity table for the particular payment option; or
(b) the factor currently offered by Liberty Life at the time annuity
payments begin. This current factor may be based on the sex of the payee
unless to do so would be prohibited by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number
of Annuity Units remains fixed for the annuity payment period. Each Sub-
Account payment after the first one will be determined by multiplying (a)
by (b), where: (a) is the number of Sub-Account Annuity Units; and (b) is
the Sub-Account Annuity Unit value for the Valuation Period that includes
the date of the particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Liberty Life uses an Annuity Unit
value. Each Sub-Account has its own Annuity Units and value per Unit. The
Annuity Unit value applicable during any Valuation Period is determined at
the end of such period.
When Liberty Life first purchased Eligible Fund shares on behalf of the
Variable Account, Liberty Life valued each Annuity Unit for each Sub-
Account at a specified dollar amount. The Unit value for each Sub-Account
in any Valuation Period thereafter is determined by multiplying the value
for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Annuity Unit may increase or
decrease from Valuation Period to Valuation Period. For each assumed
annual investment rate (AIR), Liberty Life calculates a net investment
factor for each Sub-Account by dividing (a) by (b), where:
(a) is equal to the net investment factor as defined in the
prospectus; and
(b) is the assumed investment factor for the current Valuation Period.
The assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for
any Valuation Period shall be the accumulated value, at the end of
such period, of $1.00 deposited at the beginning of such period at
the assumed annual investment rate (AIR). The AIR for Annuity
Units based on the Certificate's annuity tables is 5% per year. An
AIR of 3% per year is also currently available upon Written
Request.
With a particular AIR, payments after the first one will increase or
decrease from month to month based on whether the actual annualized
investment return of the selected Sub-Account(s) (after deducting the
Mortality and Expense Risk Charge) is better or worse than the assumed AIR
percentage. If a given amount of Sub-Account value is applied to a
particular payment option, the initial payment will be smaller if a 3% AIR
is selected instead of a 5% AIR but, all other things being equal, the
subsequent 3% AIR payments have the potential for increasing in amount by a
larger percentage and for decreasing in amount by a smaller percentage.
For example, consider what would happen if the actual annualized investment
return (see the first sentence of this paragraph) is 9%, 5%, 3%, or 0%
between the time of the first and second payments. With an actual 9%
return, the 3% AIR and 5% AIR payments would both increase in amount but
the 3% AIR payment would increase by a larger percentage. With an actual
5% return, the 3% AIR payment would increase in amount while the 5% AIR
payment would stay the same. With an actual return of 3%, the 3% AIR
payment would stay the same while the 5% AIR payment would decrease in
amount. Finally, with an actual return of 0%, the 3% AIR and 5% AIR
payments would both decrease in amount but the 3% AIR payment would
decrease by a smaller percentage. Note that the changes in payment amounts
described above are on a percentage basis and thus do not illustrate when,
if ever, the 3% AIR payment amount might become larger than the 5% AIR
payment amount. Note though that if Option A (Income for a Fixed Number of
Years) is selected and payments continue for the entire period, the 3% AIR
payment amount will start out being smaller than the 5% AIR payment amount
but eventually the 3% AIR payment amount will become larger than the 5% AIR
payment amount.
Re-Allocating Sub-Account Payments
The number of Annuity Units for each Sub-Account under any variable annuity
option will remain fixed during the entire annuity payment period unless
the payee makes a written request for a change. Currently, a payee can
instruct Liberty Life to change the Sub-Account(s) used to determine the
amount of the variable annuity payments 1 time every 6 months. The payee's
request must specify the percentage of the annuity payment that is to be
based on the investment performance of each Sub-Account. The percentage
for each Sub-Account, if not zero, must be at least 10% and must be a whole
number. At the end of the Valuation Period during which Liberty Life
receives the request, Liberty Life will: (a) value the Annuity Units for
each Sub-Account to create a total annuity value; (b) apply the new
percentages the payee has selected to this total value; and (c) recompute
the number of Annuity Units for each Sub-Account. This new number of units
will remain fixed for the remainder of the payment period unless the payee
requests another change.
<PAGE>
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 Certificates, which are offered continuously, are
distributed by Keyport Financial Services Corp. ("KFSC"), which is an
affiliate of Liberty Life.
EXPERTS
The financial statements of Liberty Life Assurance Company of Boston at
December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998 and the financial statements of Liberty Life
Assurance Company of Boston-Variable Account J at December 31, 1998 and for
each of the two years in the period ended December 31, 1998, appearing in
this Statement of Additional Information have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
INVESTMENT PERFORMANCE
The Variable Account may from time to time quote performance information
concerning its various Sub-Accounts. A Sub-Account's performance may also
be compared to the performance of sub-accounts used with variable annuities
offered by other insurance companies. This comparative information may be
expressed as a ranking prepared by Financial Planning Resources, Inc. of
Miami, FL (The VARDS Report), Lipper Analytical Services, Inc., or by
Morningstar, Inc. of Chicago, IL (Morningstar's Variable Annuity
Performance Report), which are independent services that compare the
performance of variable annuity sub-accounts. The rankings are done on the
basis of changes in accumulation unit values over time and do not take into
account any charges (such as sales charges or administrative charges) that
are deducted directly from contract values.
Ibbotson Associates of Chicago, IL provides historical returns from 1926 on
capital markets in the United States. The Variable Account may quote the
performance of its Sub-Accounts in conjunction with the long-term
performance of capital markets in order to illustrate general long-term
risk versus reward investment scenarios. Capital markets tracked by
Ibbotson Associates include common stocks, small company stocks, long-term
corporate bonds, long-term government bonds, U.S. Treasury Bills, and the
U.S. inflation rate. Historical total returns are determined by Ibbotson
Associates for: Common Stocks, represented by the Standard and Poor's
Composite Price Index (an unmanaged weighted index of 90 stocks prior to
March 1957 and 500 stocks thereafter of industrial, transportation, utility
and financial companies widely regarded by investors as representative of
the stock market); Small Company Stocks, represented by the fifth
capitalization quintile (i.e., the ninth and tenth deciles) of stocks on
the New York Stock Exchange for 1926-1981 and by the performance of the
Dimensional Fund Advisors Small Company 9/10 (for ninth and tenth deciles)
Fund thereafter; Long Term Corporate Bonds, represented beginning in 1969
by the Salomon Brothers Long-Term High-Grade Corporate Bond Index, which is
an unmanaged index of nearly all Aaa and Aa rated bonds, represented for
1946-1968 by backdating the Salomon Brothers Index using Salomon Brothers'
monthly yield data with a methodology similar to that used by Salomon
Brothers in computing its Index, and represented for 1925-1945 through the
use of the Standard and Poor's monthly High-Grade Corporate Composite yield
data, assuming a 4% coupon and a 20-year maturity; Long-Term Government
Bonds, measured each year using a portfolio containing one U.S. government
bond with a term of approximately twenty years and a reasonably current
coupon; U.S. Treasury Bills, measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the shortest-term
bill having not less than one month to maturity; Inflation, measured by the
Consumer Price Index for all Urban Consumers, not seasonably adjusted,
since January, 1978 and by the Consumer Price Index before then. The stock
capital markets may be contrasted with the corporate bond and U.S.
government securities capital markets. Unlike an investment in stock, an
investment in a bond that is held to maturity provides a fixed rate of
return. Bonds have a senior priority to common stocks in the event the
issuer is liquidated and interest on bonds is generally paid by the issuer
before it makes any distributions to common stock owners. Bonds rated in
the two highest rating categories are considered high quality and present
minimal risk of default. An additional advantage of investing in U.S.
government bonds and Treasury bills is that they are backed by the full
faith and credit of the U.S. government and thus have virtually no risk of
default. Although government securities fluctuate in price, they are
highly liquid.
Yields for Stein Roe Money Market Fund (SRMMF) Sub-Account
Yield and effective yield percentages for the SRMMF Sub-Account are
calculated using the method prescribed by the Securities and Exchange
Commission. Both yields reflect the deduction of the annual 0.35% asset-
based Certificate charge. Both yields also reflect, on an allocated basis,
the Certificate's annual $35 Certificate Maintenance Charge. Both yields
do not reflect premium tax charges. The yields would be lower if these
charges were included. The following are the standardized formulas:
Yield equals: (A - B - 1) x 365
C 7
Effective Yield Equals: (A - B)365/7 - 1
C
Where:
A = the Accumulation Unit value at the end of the 7-day period.
B = hypothetical Certificate Maintenance Charge for the 7-day period. The
assumed annual SRMMF Sub-Account charge is equal to the $35 Certificate
charge multiplied by a fraction equal to the average number of
Certificates with SRMMF 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 SRMMF Sub-Account Accumulation Unit during the 7-day period
divided by the average Certificate Value in SRMMF 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 SRMMF Sub-Account will continue over an entire year. The
effective yield formula also annualizes seven days of net income but it
assumes that the net income is reinvested over the year. This compounding
effect causes effective yield to be higher than the yield.
For the 7-day period ended 12/31/98 the yield for the Stein Roe Money
Market Sub-Account was 3.46% and the effective yield was 3.52%.
FINANCIAL STATEMENTS
The financial statements of the Variable Account and Liberty Life 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.
<PAGE>
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, 1998 and the related statement of operations and changes in
net assets for the year ended December 31, 1998 and 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 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 - Variable Account J at December 31, 1998 and the results
of its operations and changes in net assets for the year ended December 31,
1998 and 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 12, 1999
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Assets and Liabilities
For the Year Ended December 31, 1998
Assets
Investments at market value:
Alger American Fund
Alger American Growth Portfolio - 41,407 shares
(cost $1,888,653) $ 2,203,679
Alger American Small Capitalization Portfolio -
28,209 shares (cost $1,142,599) 1,240,958
Alliance Variable Products Series Fund, Inc.
Alliance Global Bond Portfolio - 62,532 shares
(cost $727,881) 776,647
Alliance Premier Growth Portfolio - 168,059
shares (cost $4,400,815) 5,215,828
MFS Variable Insurance Trust
MFS Emerging Growth Series - 118,452 shares
(cost $2,164,266) 2,543,170
MFS Research Series - 158,834 shares (cost $2,745,430) 3,025,781
SteinRoe Variable Investment Trust
SteinRoe Money Market Fund - 4,272,757 shares
(cost $4,272,757) 4,272,757
SteinRoe Special Venture Fund - 29,404 shares
(cost $437,900) 400,476
SteinRoe Balanced Fund - 317,135 shares
(cost $5,106,764) 5,434,417
SteinRoe Mortgage Securities Fund - 191,869 shares
(cost $2,029,296) 2,072,311
SteinRoe Growth Stock Fund - 50,758 shares
(cost $1,966,920) 2,209,485
Liberty Variable Investment Trust
Colonial Growth and Income Fund - 397,694 shares
(cost $6,470,245) 6,518,207
SteinRoe Global Utilities Fund - 123,083 shares
(cost $1,590,880) 1,693,615
Colonial International Fund for Growth - 984,750
shares (cost $1,912,508) 1,969,500
Colonial U.S. Stock Fund - 316,823 shares
(cost $5,730,503) 5,953,015
Colonial Strategic Income Fund - 544,958 shares
(cost $6,269,709) 6,038,139
Liberty All Star Equity Fund - 140,714 shares
(cost $1,560,563) 1,674,491
Newport Tiger Fund - 194,487 shares (cost $271,844) 305,345
Total assets 53,547,821
Liabilities
Due to Liberty Life Assurance Company (Note 2) (11,784)
Net assets $ 53,536,037
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Assets and Liabilities (continued)
For the Year Ended December 31, 1998
Net assets
Variable annuity contracts (Note 5) $ 49,598,750
Annuity reserves (Note 2) 3,937,287
Net assets $ 53,536,037
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
Alger American Alger American Small
Growth Portfolio Capitalization Portfolio
1998 1997 1998 1997
Income
Dividends $ 55,643 $ - $ 33,757 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 11,534 28 6,964 9
Net investment income
(expense) 44,109 (28) 26,793 (9)
Realized gain (loss) (1,019) - (578) (34)
Unrealized appreciation
(depreciation) during
the period 314,898 129 97,946 412
Net increase (decrease)
in net assets from
operations 357,988 101 124,161 369
Purchase payments from
contract owners 984,977 12,703 575,785 27,652
Transfers between
accounts 1,011,858 (6,932) 533,712 4,037
Contract terminations
and annuity payouts (169,324) (70) (26,024) -
Other transfers (to)
from Liberty Life
Assurance Company - 12,378 - 1,266
Net increase (decrease)
in net assets from
contract transactions 1,827,511 18,079 1,083,473 32,955
Net assets at
beginning of period 18,180 - 33,324 -
Net assets at end of
period $ 2,203,679 $ 18,180 $ 1,240,958 $ 33,324
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
Alliance Global Alliance Premier
Bond Portfolio Growth Portfolio
1998 1997 1998 1997
Income
Dividends $ 5,233 $ - $ 1,690 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 4,501 57 28,419 16
Net investment income
(expense) 732 (57) (26,729) (16)
Realized gain (loss) 232 (151) 10,349 (22)
Unrealized appreciation
(depreciation) during
the period 48,733 33 849,630 487
Net increase (decrease)
in net assets from
operations 49,697 (175) 833,250 449
Purchase payments from
contract owners 404,683 49,317 3,403,242 27,912
Transfers between
accounts 342,562 (3,365) 1,571,872 5,715
Contract terminations
and annuity payouts (65,156) (418) (627,897) -
Other transfers (to)
from Liberty Life
Assurance Company - (498) - 1,285
Net increase (decrease)
in net assets from
contract transactions 682,089 45,036 4,347,217 34,912
Net assets at
beginning of period 44,861 - 35,361 -
Net assets at end of
period $ 776,647 $ 44,861 $ 5,215,828 $ 35,361
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
MFS Emerging
Growth Series MFS Research Series
1998 1997 1998 1997
Income
Dividends $ 2,211 $ - $ 7,904 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 14,633 67 16,976 82
Net investment income
(expense) (12,422) (67) (9,072) (82)
Realized gain (loss) 20,003 4 11,833 -
Unrealized appreciation
(depreciation) during
the period 379,198 (294) 280,549 (197)
Net increase (decrease)
in net assets from
operations 386,779 (357) 283,310 (279)
Purchase payments from
contract owners 1,393,188 41,404 1,318,459 56,210
Transfers between
accounts 1,004,821 8,592 1,709,257 12,414
Contract terminations
and annuity payouts (295,624) (304) (353,044) (198)
Other transfers (to)
from Liberty Life
Assurance Company - 4,671 - (348)
Net increase (decrease)
in net assets from
contract transactions 2,102,385 54,363 2,674,672 68,078
Net assets at
beginning of period 54,006 - 67,799 -
Net assets at end
of period $ 2,543,170 $ 54,006 $ 3,025,781 $ 67,799
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
SteinRoe SteinRoe
Money Market Fund Special Venture Fund
1998 1997 1998 1997
Income
Dividends $ 40,252 $ - $ 4,586 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 11,246 71 2,596 49
Net investment income
(expense) 29,006 (71) 1,990 (49)
Realized gain (loss) - - 75 -
Unrealized appreciation
(depreciation) during
the period - - (35,949) (1,474)
Net increase (decrease)
in net assets from
operations 29,006 (71) (33,884) (1,523)
Purchase payments from
contract owners 1,663,036 103,387 190,661 41,370
Transfers between
accounts 2,986,408 (8,263) 209,901 3,340
Contract terminations
and annuity payouts (454,851) (37,992) (9,202) (182)
Other transfers (to)
from Liberty Life
Assurance Company (8,667) (7,903) - (5)
Net increase (decrease)
in net assets from
contract transactions 4,185,926 49,229 391,360 44,523
Net assets at
beginning of period 49,158 - 43,000 -
Net assets at end
of period $ 4,264,090 $ 49,158 $ 400,476 $ 43,000
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
SteinRoe Mortgage
SteinRoe Balanced Fund Securities Fund
1998 1997 1998 1997
Income
Dividends $ 12,246 $ - $ 8,022 $ -
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 29,674 55 10,960 185
Net investment income
(expense) (17,428) (55) (2,938) (185)
Realized gain (loss) 9,858 10 529 967
Unrealized appreciation
(depreciation) during
the period 326,423 689 40,473 502
Net increase (decrease)
in net assets from
operations 318,853 644 38,064 1,284
Purchase payments from
contract owners 3,784,819 59,401 709,094 199,689
Transfers between
accounts 2,100,061 3,109 1,397,349 6,396
Contract terminations
and annuity payouts (834,291) (202) (140,437) (138,900)
Other transfers (to)
from Liberty Life
Assurance Company - 2,023 - (228)
Net increase (decrease)
in net assets from
contract transactions 5,050,589 64,331 1,966,006 66,957
Net assets at
beginning of period 64,975 - 68,241 -
Net assets at end
of period $ 5,434,417 $ 64,975 $ 2,072,311 $ 68,241
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
SteinRoe Growth Colonial Growth
Stock Fund and Income Fund
1998 1997 1998 1997
Income
Dividends $ 4,682 $ - $ 244,712 $ 14,445
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 13,677 31 34,364 142
Net investment income
(expense) (8,995) (31) 210,348 14,303
Realized gain (loss) 20,945 - (350) 32
Unrealized appreciation
(depreciation) during
the period 241,512 1,053 57,091 (11,507)
Net increase (decrease)
in net assets from
operations 253,462 1,022 267,089 2,828
Purchase payments from
contract owners 1,793,212 26,773 3,424,549 81,646
Transfers between
accounts 643,085 8,685 3,199,670 (22,614)
Contract terminations
and annuity payouts (518,279) - (465,655) (721)
Other transfers (to)
from Liberty Life
Assurance Company - 1,525 (2,335) 31,415
Net increase (decrease)
in net assets from
contract transactions 1,918,018 36,983 6,156,229 89,726
Net assets at
beginning of period 38,005 - 92,554 -
Net assets at end
of period $ 2,209,485 $ 38,005 $ 6,515,872 $ 92,554
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
SteinRoe Global Colonial International
Utilities Fund Fund for Growth
1998 1997 1998 1997
Income
Dividends $ 33,288 $ 8,579 $ 8,760 $ 6,058
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 8,714 64 11,009 110
Net investment income
(expense) 24,574 8,515 (2,249) 5,948
Realized gain (loss) (964) (2,527) (3,281) (80)
Unrealized appreciation
(depreciation) during
the period 105,625 (2,508) 66,242 (9,199)
Net increase (decrease)
in net assets from
operations 129,235 3,480 60,712 (3,331)
Purchase payments from
contract owners 703,419 60,151 802,382 103,005
Transfers between
accounts 924,462 (1,784) 1,138,406 (18,273)
Contract terminations
and annuity payouts (89,729) (38,395) (135,471) (565)
Other transfers (to)
from Liberty Life
Assurance Company (222) 2,776 (35) 22,635
Net increase (decrease)
in net assets from
contract transactions 1,537,930 22,748 1,805,282 106,802
Net assets at
beginning of period 26,228 - 103,471 -
Net assets at end
of period $ 1,693,393 $ 26,228 $ 1,969,465 $ 103,471
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
Colonial U.S. Colonial Strategic
Stock Fund Income Fund
1998 1997 1998 1997
Income
Dividends $ 226,986 $ 7,731 $ 371,929 $ 17,698
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 31,698 90 34,340 185
Net investment income
(expense) 195,288 7,641 337,589 17,513
Realized gain (loss) (9,335) (514) (730) (2,273)
Unrealized appreciation
(depreciation) during
the period 228,365 (6,273) (216,922) (14,603)
Net increase (decrease)
in net assets from
operations 414,318 854 119,937 637
Purchase payments from
contract owners 3,309,689 93,211 2,462,799 184,835
Transfers between
Accounts 2,562,660 (3,697) 3,569,435 (19,333)
Contract terminations
and annuity payouts (394,932) (37,485) (308,696) (1,024)
Other transfers (to)
from Liberty Life
Assurance Company (478) 8,397 - 29,549
Net increase (decrease)
in net assets from
contract transactions 5,476,939 60,426 5,723,538 194,027
Net assets at
beginning of period 61,280 - 194,664 -
Net assets at end
of period $ 5,952,537 $ 61,280 $ 6,038,139 $ 194,664
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
Liberty All-Star
Equity Fund Newport Tiger Fund
1998 1997 1998 1997
Income
Dividends $ 6,979 $ - $ 5,743 $ 147
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 9,500 - 1,633 7
Net investment income
(expense) (2,521) - 4,110 140
Realized gain (loss) 71 - 114 (88)
Unrealized appreciation
(depreciation) during
the period 113,843 - 33,659 (128)
Net increase (decrease)
in net assets from
operations 111,393 - 37,883 (76)
Purchase payments from
contract owners 1,020,261 - 74,207 10,467
Transfers between
Accounts 579,807 - 180,609 3,914
Contract terminations
and annuity payouts (36,970) - (3,074) -
Other transfers (to)
from Liberty Life
Assurance Company (47) - - 1,415
Net increase (decrease)
in net assets from
contract transactions 1,563,051 - 251,742 15,796
Net assets at
beginning of period - - 15,720 -
Net assets at end
of period $ 1,674,444 $ - $ 305,345 $ 15,720
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1998 and Period From
November 15, 1997 (commencement of operations) to December 31, 1997
Manning & Napier
Growth Portfolio Total Total
1998 1997 1998 1997
Income
Dividends $ - $ - $ 1,074,623 $ 54,658
Expenses (Note 3)
Mortality and expense
risk and administrative
charges 369 130 282,807 1,378
Net investment income
(expense) (369) (130) 791,816 53,280
Realized gain (loss) 3,779 - 61,531 (4,676)
Unrealized appreciation
(depreciation) during
the period - (1,282) 2,931,316 (44,160)
Net increase (decrease)
in net assets from
operations 3,410 (1,412) 3,784,663 4,444
Purchase payments from
contract owners 32,000 165,000 28,050,462 1,344,133
Transfers between
Accounts 166,023 1,963 25,831,958 (26,096)
Contract terminations
and annuity payouts (366,984) - (5,295,640) (256,456)
Other transfers (to)
from Liberty Life
Assurance Company - - (11,784) 110,353
Net increase (decrease)
in net assets from
contract transactions (168,961) 166,963 48,574,996 1,171,934
Net assets at
beginning of period 165,551 - 1,176,378 -
Net assets at end
of period $ - $ 165,551 $53,536,037 $ 1,176,378
See accompanying notes.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON - VARIABLE ACCOUNT J
Notes to Financial Statements
December 31, 1998
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 Manning & Napier Equity Portfolio
Capitalization 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 SteinRoe Variable Investment
Trust (SRVIT): Trust (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 U.S. Stock Fund
Colonial Strategic Income Fund
Liberty All-Star Equity Fund
Newport Tiger Fund
Alliance Variable Products Series Fund, Inc:
Alliance Global Bond Portfolio
Alliance Premier Growth Portfolio
<PAGE>
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. Certain prior year
amounts have been reclassified to conform to the current year's
presentation.
Shares of the eligible funds are sold to the Variable Account at the
reported net asset values. Transactions are recorded on the trade date.
Income from dividends is recorded on the ex-dividend date. Realized gains
and losses on sales of investments are computed on the basis of the
identified cost of the investments sold.
Amounts due to Liberty Life Assurance Company represent mortality and
expense risk charges earned by the Company in 1998 but not transferred to
the Company until January 1999. In addition, if a contractholder's
financial transaction is not executed on the appropriate investment date, a
correcting buy or sell of shares is required by the Company in order to
make the contractholder whole. The resulting risk of a gain or loss has no
effect on the contractholder's account and is fully assumed by the Company.
Amounts retained by the Company are invested in the Variable Account for
this purpose.
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.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
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.
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.
<PAGE>
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 units and dollar
value outstanding at December 31, 1998 areas follows:
1997 1998
Unit Unit
Value Value Units Dollars
Alger American Growth
Portfolio $12.277190 $17.928398 119,998.8781 $ 2,151,388
Alger American Small
Capitalization Portfolio 11.056560 12.597280 97,063.2901 1,222,733
Alliance Global Bond
Portfolio 9.811315 11.041874 65,159.6038 719,484
Alliance Premier Growth
Portfolio 13.462574 19.645990 248,807.2346 4,888,064
MFS Emerging Growth Series 11.680929 15.454973 157,801.3749 2,438,816
MFS Research Series 11.834080 14.399988 198,776.4161 2,862,378
SteinRoe Money Market Fund 13.780309 14.283805 226,343.7104 3,233,049
SteinRoe Special Venture
Fund 31.085014 25.351276 15,797.0781 400,476
SteinRoe Balanced Fund 24.497018 27.188237 176,301.9322 4,793,339
SteinRoe Mortgage
Securities Fund 17.874172 18.825527 99,634.0429 1,875,663
SteinRoe Growth Stock
Fund 35.538075 44.828835 42,035.0430 1,884,382
Colonial Growth and
Income Fund 19.353674 21.211314 293,104.2447 6,217,126
SteinRoe Global
Utilities Fund 15.358133 17.923199 89,732.9798 1,608,302
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
5. Unit Values (continued)
1997 1998
Unit Unit
Value Value Units Dollars
Colonial International
Fund for Growth $ 9.659572 $10.761067 175,808.7616 $ 1,891,890
Colonial U.S. Stock Fund 20.780533 24.622292 228,156.3738 5,617,733
Colonial Strategic Income
Fund 13.615795 14.237231 409,896.3014 5,835,788
Liberty All-Star Equity
Fund 11.777423 140,335.7755 1,652,794
Newport Tiger Fund 8.525525 7.866774 38,814.4936 305,345
2,823,567.5346 $49,598,750
<PAGE>
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 1998 are shown below:
Purchases Sales
Alger American Growth Portfolio $ 2,211,934 $ 327,934
Alger American Small Capitalization Portfolio 1,154,392 42,861
Alliance Global Bond Portfolio 776,410 94,087
Alliance Premier Growth Portfolio 5,344,582 987,705
MFS Emerging Growth Series 2,734,520 639,886
MFS Research Series 3,310,849 645,596
SteinRoe Money Market Fund 6,019,189 1,832,295
SteinRoe Special Venture Fund 189,385 16,062
SteinRoe Balanced Fund 6,004,076 984,621
SteinRoe Mortgage Securities Fund 2,107,561 173,436
SteinRoe Growth Stock Fund 2,698,141 791,496
Colonial Growth and Income Fund 6,839,757 405,666
SteinRoe Global Utilities Fund 1,729,332 90,827
Colonial International Fund for Growth 1,964,457 143,503
Colonial U.S. Stock Fund 6,125,963 450,122
Colonial Strategic Income Fund 6,402,393 312,309
Liberty All Star Equity Fund 1,623,128 66,564
Newport Tiger Fund 285,679 28,572
Manning & Napier Growth Portfolio 198,024 201,803
$ 57,719,772 $ 8,235,345
<PAGE>
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. Many of these systems
are not presently Year 2000 compliant. These systems use programs that were
designed and developed without considering the impact of the upcoming
change in the century. Any of the Company's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company's business, financial condition and
results of operations could be materially and adversely affected by the
failure of the Company's systems and applications (and those operated by
third parties interfacing with the Company's systems and applications) to
properly operate or manage these dates.
In addressing the Year 2000 issue, the Company has completed an inventory
of its computer programs and assessed its Year 2000 readiness. The
Company's computer programs include internally developed programs, third-
party purchased programs and third-party custom developed programs. For
programs which were identified as not being Year 2000 ready, the Company
has implemented a remedial plan which includes repairing or replacing the
programs and appropriate testing for Year 2000. The remediation plan is
substantially complete and is currently in the final testing phase. The
Company also identified its non-information technology systems with respect
to Year 2000 issues. The Company initiated remediation efforts in this
area and expects to complete this phase during 1999.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON -VARIABLE ACCOUNT J
Notes to Financial Statements (continued)
8. Year 2000 (Unaudited) (continued)
In addition, the Company has initiated communication with significant
financial institutions, distributors, suppliers and others with which it
does business to determine the extent to which the Company's systems are
vulnerable by the failure of others to remediate their own Year 2000
issues. The Company has received feedback from such parties and is in the
process of independently confirming information received from other parties
with respect to their year 2000 issues. The Company is developing, and will
continue to develop, contingency plans for dealing with any adverse effects
that become likely in the event the Company's remediation plans are not
successful or third parties fail to remediate their own Year 2000 issues.
The Company expects contingency planning to be substantially complete by
June 1999. If necessary modifications and conversions are not made, or are
not timely completed, or if the systems of the companies on which the
Company's interface system relies are not timely converted, the Year 2000
issues could have a material impact on the financial condition and results
of operations of the Company. However, the Company believes that with
modifications to existing software and conversions to new software, the
Year 2000 issue will not pose significant operational problems for its
computer systems.
<PAGE>
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, 1998 and 1997, and the
related statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Boston, Massachusetts /s/Ernst & Young LLP
February 8, 1999
<PAGE>
Liberty Life Assurance Company of Boston
Balance Sheets
December 31
1998 1997
Assets (In Thousands)
Investments:
Fixed maturities, available for sale $2,506,333 $2,143,658
Equity securities, available for sale 1 3,187
Policy loans 53,153 49,331
Short-term investments 38,359 57,956
Other invested assets 50,760 43,747
Total investments 2,648,606 2,297,879
Cash and cash equivalents 117,610 37,211
Amounts recoverable from reinsurers 58,277 55,313
Premiums receivable 22,390 13,606
Federal income taxes recoverable 718
Investment income due and accrued 28,624 23,764
Deferred policy acquisition costs 98,856 89,154
Other assets 12,594 7,977
Assets held in separate accounts 1,914,657 1,487,078
Total assets $4,901,614 $4,012,700
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits $1,335,685 $1,128,468
Policyholders' and beneficiaries' funds 832,234 687,458
Policy and contract claims 38,792 42,222
Dividends to policyholders 11,826 11,246
Experience rating refund reserves 823 1,760
Liability for participating policies 74,664 72,811
Federal income taxes payable 18,603
Deferred federal income taxes 101,900 102,767
Due to Parent 13,408 8,262
Accrued expenses and other liabilities 170,709 112,724
Liabilities related to separate accounts 1,914,657 1,487,078
Total liabilities 4,513,301 3,654,796
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
Retained earnings 176,269 170,995
Accumulated other comprehensive income 157,044 131,909
Total stockholders' equity 388,313 357,904
Total liabilities and stockholders' equity $4,901,614 $4,012,700
See accompanying notes to financial statements.
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Income
Year ended December 31
1998 1997 1996
(In Thousands)
Revenues:
Premiums, net $ 469,510 $ 415,636 $ 283,965
Net investment income 164,998 144,989 122,527
Realized capital gains on investments 18,311 8,074 6,722
Contractholder charges and assessments 9,816 7,335 5,759
Other revenues 20,289 9,010 4,469
Total revenues 682,924 585,044 423,442
Benefits and expenses:
Death and other policy benefits 298,277 249,449 173,281
Recoveries from reinsurers on ceded
claims (12,740) (11,382) (11,454)
Provision for future policy benefits
and other policy liabilities 213,368 186,883 121,347
Interest credited to policyholders 42,355 38,128 32,252
Change in deferred policy acquisition
Costs (12,920) (16,709) (15,247)
General expenses 120,495 100,535 69,926
Insurance taxes and licenses 11,960 10,069 6,956
Dividends to policyholders 11,561 9,279 12,610
Total benefits and expenses 672,356 566,252 389,671
Income from continuing operations
before federal income taxes and
earnings of participating policies 10,568 18,792 33,771
Federal income taxes 3,441 6,726 10,327
Income from continuing operations
before earnings of participating
policies 7,127 12,066 23,444
Earnings of participating policies
net of federal income tax benefit
of $3,317 in 1998, $3,719 in 1997
and $2,514 in 1996 1,853 4,307 3,247
Income from continuing operations 5,274 7,759 20,197
Discontinued operations:
Loss from operations on discontinued
group health, net of federal income tax
benefits of $29 in 1997 and $175 in 1996 (54) (325)
Net income $ 5,274 $ 7,705 $ 19,872
See accompanying notes to financial statements.
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Cash Flows
Year ended December 31
1998 1997 1996
(In Thousands)
Cash flows from operating activities
Premiums collected $ 445,376 $ 413,539 $ 280,613
Investment income received 137,106 117,860 98,899
Other considerations received 13,595 10,300 10,331
Policyholder claims paid (210,111) (188,976) (124,297)
Surrender benefits paid (76,775) (44,534) (33,748)
General expenses paid (102,627) (89,327) (67,834)
Insurance taxes and licenses paid (12,584) (9,955) (3,959)
Policyholder dividends paid (10,996) (10,962) (12,008)
Federal income taxes recovered (paid),
including capital gains taxes 773 (5,829) (5,858)
Intercompany net receipts 5,146 (645) (426)
Other (payments) receipts (3,268) 11,157 12,218
Net cash provided by operating
Activities 185,635 202,628 153,931
Cash flows from investing activities
Proceeds from fixed maturities sold 301,907 159,987 128,493
Proceeds from fixed maturities matured 52,370 89,033 91,292
Cost of fixed maturities acquired (639,354) (550,588) (480,206)
Proceeds from equity securities sold 6,973 5,039 125,997
Cost of equity securities acquired (342) (369) (122,197)
Change in policy loans (3,822) (3,986) (4,673)
Investment cash in transit (1,881) 59 126
Proceeds from short-term investments
sold or matured 1,002,551 802,596 833,144
Cost of short-term investments
Acquired (982,689) (780,872) (790,040)
Proceeds from other long-term
investments sold 8,623 7,962 5,997
Cost of other long-term investments
Acquired (14,934) (10,972) (6,904)
Net cash used in investing activities (270,598) (282,111) (218,971)
Cash flows from financing activities
Additional paid-in capital - - 50,000
Policyholders' deposits on
investment contracts 239,357 185,488 139,579
Policyholders' withdrawals from
investment contracts (133,503) (82,425) (65,343)
Change in securities loaned 59,508 (20,741) (89,625)
Net cash provided by financing
activities 165,362 82,322 34,611
Change in cash and cash equivalents 80,399 2,839 (30,429)
Cash and cash equivalents, beginning
of year 37,211 34,372 64,801
Cash and cash equivalents,
end of year $ 117,610 $ 37,211 $ 34,372
See accompanying notes to financial statements.
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Cash Flows (continued)
Year ended December 31
1998 1997 1996
(In Thousands)
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 5,274 $ 7,705 $ 19,872
Adjustments to reconcile net
income to net cash provided
by operating activities:
Realized capital gains on
Investments (18,311) (8,074) (6,722)
Accretion of bond discount (22,783) (23,586) (20,271)
Interest credited to policyholders 43,958 38,128 32,252
Changes in assets and liabilities:
(Repayments of) proceeds from
securities loaned (59,508) 20,741 89,625
Amounts recoverable from reinsures (2,964) (6,513) (11,881)
Premiums receivable (8,784) (5,185) (3,447)
Investment income due and accrued (4,860) (2,944) (3,545)
Deferred policy acquisition costs (12,920) (16,709) (15,247)
Other assets (4,617) (1,514) 495
Future policy benefits 207,217 191,626 127,800
Policy and contract claims (3,430) 11,828 11,050
Dividends to policyholders 580 (1,673) 610
Experience rating refund
liabilities (937) (640) 1,210
Liability for participating
policies 1,853 4,307 3,248
Change in federal income tax
balances 19,321 (1,260) 542
Deferred federal income taxes (15,107) 2,128 3,805
Due to Parent 5,146 (645) (427)
Accrued expenses and other
liabilities 56,507 (5,092) (75,038)
Net cash provided by operating
Activities $ 185,635 $ 202,628 $ 153,931
See accompanying notes to financial statements.
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Stockholders' Equity
(In Thousands)
Additional Accumulated Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
Balance at January 1, 1996 $2,500 $ 2,500 $143,418 $123,832 $272,250
Additional paid-in capital 50,000 50,000
Comprehensive income:
Net income 19,872 19,872
Other comprehensive
income, net of tax:
Net unrealized losses on
investments (41,545) (41,545)
Foreign currency
translation adjustment 182 182
Comprehensive income (21,491)
Balance at
December 31, 1996 2,500 52,500 163,290 82,469 300,759
Comprehensive income:
Net income 7,705 7,705
Other comprehensive
income, net of tax:
Net unrealized gains
on investments 48,996 48,996
Foreign currency
translation adjustment 444 444
Comprehensive income 57,145
Balance at
December 31, 1997 2,500 52,500 170,995 131,909 357,904
Comprehensive income:
Net income 5,274 5,274
Other comprehensive
income, net of tax:
Net unrealized gains
on investments 24,174 24,174
Foreign currency
translation adjustment 961 961
Comprehensive income 30,409
Balance at
December 31, 1998 $2,500 $ 52,500 $176,269 $157,044 $388,313
See accompanying notes to financial statements.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements
(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.
Reporting Changes
During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting and display of comprehensive
income and its components and requires that selected changes in
stockholders' equity be added to net income and reported as comprehensive
income. The Company adopted this Statement retroactively and has reported
this information within the statement of stockholders' equity and the
footnotes to the financial statements. The adoption of SFAS No. 130 had no
impact on the Company's financial position or results of operations.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the disclosure of information about the Company's operating
segments, which are defined on the same basis that the Company is managed,
including disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS No. 131 did not affect the Company's
financial position or results of operations, nor did it affect the manner
in which the Company defines its operating segments. Data reported for all
periods has been presented to conform to the requirements of SFAS No. 131.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 provides guidance for
determining whether computer software is for internal use and when costs
incurred for internal use software are to be capitalized. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The adoption
of SOP 98-1 is not expected to have a material impact on the Company's
financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting the Costs of Start-up
Activities. The SOP is effective beginning on January 1, 1999, and requires
that start-up costs capitalized prior to January 1, 1999 be written-off and
any future start-up costs be expensed as incurred. Restatement of
previously issued financial statements is not permitted. SOP 98-5 is not
expected to have a material impact on the Company's financial statements.
In December 1997, the AICPA issued SOP 97-3, Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments. SOP 97-3 provides
guidance for assessments related to insurance activities and requirements
for disclosure of certain information. SOP 97-3 is effective for financial
statements issued for periods beginning after December 31, 1998.
Restatement of previously issued financial statements is not permitted. SOP
97-3 is not expected to have a material impact on the Company's financial
statements.
SOP 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk, provides guidance on how to
account for insurance and reinsurance contracts that do not transfer
insurance risk under a method referred to as deposit accounting. SOP 98-7
is effective for fiscal years beginning after June 15, 1999. SOP 98-7 is
not expected to have a material impact on the Company's financial
statements
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
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 reflected in accumulated other
comprehensive income, net of applicable deferred income taxes.
For the mortgage-backed bond portion of the fixed maturity investment
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments over the estimated economic life of the
security. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual
payments to date and anticipated future payments and any resulting
adjustments are included in investment income.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
Other invested assets, 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 group life and 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 net unrealized gains or losses that are reflected in accumulated
other comprehensive income.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Recognition of Traditional Life Premium Revenue and Related Expenses
Premiums on traditional life insurance policies are recognized as revenue
when due. Benefits and expenses are associated with premiums so as to
result in the recognition of profits over the life of the policies. This
association is accomplished by providing liabilities for future policy
benefits and the deferral and subsequent amortization of acquisition
costs.
Recognition of Universal Life Revenue and Policy Account Balances
Revenues from universal life policies represent investment income from the
related invested assets and amounts assessed against policyholders.
Included in such assessments are mortality charges, surrender charges paid
and administrative fees. Policy account balances consist of consideration
received plus credited interest, less accumulated policyholder charges,
assessments and withdrawals. Credited interest rates were between 5.5% and
6.3% in 1998, 1997 and 1996.
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 for annuity contracts were between
5.0% and 5.85% in 1998, 5.30% and 7.25% in 1997 and 5.35% and 7.05% in
1996. Credited interest rates for structured settlement contracts were
between 6.1% and 11.4% in 1998, 1997 and 1996.
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 generally are 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 6.1% and 11.4%, and the mortality assumptions are based on the
1971 GAM and IAM tables.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Future policy benefits for long-term disability cases are computed using
the 1987 Commissioners' Group Disability Table adjusted for the Companys'
experience.
Policy and Contract Claims
Accident and health business policy and contract claims principally
include claims in course of settlement and claims incurred but not
reported, which are determined based on a formula derived as a result of
the Company's past experience. Claims liabilities may be more or less
than the amounts paid when the claims are ultimately settled. Such
differences are considered changes in estimates and are recorded in the
statement of income in the year the claims are settled.
Reinsurance
All assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis in the accompanying balance sheets. The
accompanying statements of income 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 SFAS 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.
<PAGE>
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 28%, 29% and 33% of ordinary life
insurance in force at December 31, 1998, 1997 and 1996, respectively, and
13%, 12% and 18% of ordinary insurance premium revenue in 1998, 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. These amounts are accumulated and then converted
to U.S. dollars. The unrealized gain or loss from the translation is
reflected in accumulated other comprehensive income, 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.
Reclassification
Certain 1996 and 1997 amounts have been reclassified to conform to the
1998 presentation.
<PAGE>
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, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 378,791 $ 108,906 $ (163) $ 487,534
Debt securities issued by
states and municipalities 55,805 3,651 - 59,456
Corporate securities 998,995 102,351 (1,687) 1,099,659
U.S. government guaranteed
mortgage-backed securities 823,966 36,695 (977) 859,684
Total fixed maturities
available for sale $ 2,257,557 $ 251,603 $ (2,827) $ 2,506,333
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
<PAGE>
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, 1998
Amortized Fair
Cost Value
Maturity in one year or less $ 37,559 $ 37,981
Maturity after one year through five years 316,747 340,845
Maturity after five years through ten years 508,497 551,012
Maturity after ten years 570,788 716,811
U.S. government guaranteed mortgage-backed
Securities 823,966 859,684
Total fixed maturities available for sale $ 2,257,557 $ 2,506,333
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 $11,163, $1,145 and $1,472, and gross losses of $516,
$1,019 and $1,411, were realized on the sales of fixed maturities
available for sale during 1998, 1997 and 1996, respectively.
At December 31, 1998, bonds with a cost of $8,851 were on deposit with
state insurance departments to satisfy regulatory requirements.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
Equity Securities and Other Invested Assets
Unrealized gains and losses on investments in equity securities available
for sale and other invested assets are reflected in stockholders' equity
and do not affect operations. The cost, gross unrealized gains and
losses, and fair value of those investments are summarized as follows:
At December 31, 1998
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 1 $ 1
Other invested assets 49,674 $ 5,071 $ (3,985) 50,760
Total $ 49,675 $ 5,071 $ (3,985) $ 50,761
At December 31, 1997
Gross Gross
Unrealized Unrealized Fair
Cost Gains 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
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
Net Investment Income
Major categories of the Company's net investment income are summarized as
follows:
Year ended December 31
1998 1997 1996
Investment income:
Fixed maturities $160,351 $139,89 $118,365
Equity securities 83
Policy loans 3,238 3,020 2,672
Short-term investments and
cash equivalents 2,598 2,376 1,633
Other invested assets 2,003 1,623 1,476
Gross investment income 168,190 146,913 124,229
Less investment expenses 3,192 1,924 1,702
Net investment income $164,998 $144,989 $122,527
Realized Capital Gains on Investments
Realized capital gains on investments were derived from the following
sources:
Year ended December 31
1998 1997 1996
Fixed maturities $ 10,647 $ 126 $ 61
Equity securities 3,629 4,575 3,812
Other invested assets 4,035 3,373 2,849
Realized capital gains on
Investments $ 18,311 $ 8,074 $ 6,722
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, 1998 and 1997.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
3. Reinsurance
Certain premiums and benefits are assumed from and ceded to other
insurance companies under various reinsurance agreements. The Company
cedes business to reinsurers to share risks under life, health, and
annuity contracts for the purpose of providing the Company with increased
capacity to write larger risks and maintain its exposure to loss within
capital resources. The effect of reinsurance assumed and ceded on
premiums was as follows:
Year ended December 31, 1998
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Individual Life and Annuity $148,153 $ 3,873 $ 1,907 $ 150,119
Group Life and Disability 317,155 482 14,758
302,879
Group Pension and Other 20,908 5,354 9,750 16,512
Total premiums $486,216 $ 9,709 $ 26,415 $ 469,510
Year ended December 31, 1997
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Individual Life and Annuity $142,357 $ 6,022 $ 1,456 $ 146,923
Group Life and Disability 265,620 2,698 10,699 257,619
Group Pension and Other 15,263 4,169 11,094
Total premiums $423,240 $ 8,720 $ 16,324 $ 415,636
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
3. Reinsurance (continued)
Year ended December 31, 1997
Assumed Ceded to
Direct From Other Other Net
Amount Companies Companies Amount
Individual Life and Annuity $102,373 $ 2,939 $ 5,536 $ 99,776
Group Life and Disability 187,766 55 7,746 180,075
Group Pension and Other 6,438 2,324 4,114
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,
1998, no individual reinsurer owed the Company an amount that was equal to
or greater than 3% of the Company's surplus.
The Company remains obligated for amounts ceded in the event that the
reinsurers do not meet their obligations.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes
The Company is included in a consolidated federal income tax return with
Liberty Mutual and its other subsidiaries. Under a written tax sharing
agreement, approved by the Board of Directors, Liberty Mutual collects
from and refunds to the subsidiaries the amount of taxes or benefits
determined as if Liberty Mutual and the subsidiaries filed separate
returns.
Federal income tax expense (benefit) attributable to income from
operations was composed of the following:
Year ended December 31
1998 1997 1996
Continuing operations:
Current $ 18,548 $ 4,598 $ 7,011
Deferred (15,107) 2,128 3,316
Federal income tax expense $ 3,441 $ 6,726 $ 10,327
Year ended December 31
1998 1997 1996
Discontinued operations:
Current $ 0 $ (29) $ (175)
Deferred 0 0 0
Federal income tax benefit $ 0 $ (29) $ (175)
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
1998 1997 1996
Expected income tax expense $ 3,699 $ 6,577 $ 11,820
Adjustments to income taxes
resulting from:
Reconciliation of prior year
tax return (756) 68 (1,226)
Other, net 498 81 (267)
Federal income tax expense $ 3,441 $ 6,726 $ 10,327
<PAGE>
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
1998 1997
Deferred tax assets:
Dividends to policyholders $ 2,984 $ 2,816
Unearned interest on policy loans 338 323
Unearned group premium adjustment 91 1,021
Accrued surrender charges on deposit funds 1,531 426
Bonds purchased at market premium 3,318
Recapture of statutory reinsurance 21,777
Other 292 93
Total deferred tax assets 30,331 4,679
Deferred tax liabilities:
Future policy benefits (23,343) (11,483)
Deferred acquisition costs (21,504) (20,772)
Bonds purchased at market discount (2,115)
Bonds market valuation adjustment (83,366) (68,569)
Unrealized gain on other long-term investments (380) (1,649)
Reconciliation of taxes on other long-term
Investments (1,145) (951)
Cumulative foreign currency translations (1,370) (852)
Deferred and uncollected premium adjustment (791) (646)
Other (332) (409)
Total deferred tax liabilities (132,231) (107,446)
Net deferred tax liability $ (101,900) $ (102,767)
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.
<PAGE>
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 "policyholders' surplus account." In the event that
those amounts are distributed to stockholders', or the balance of the
account exceeds certain limitations under the Internal Revenue Code, the
excess amounts would become taxable at current rates. The policyholders'
surplus account balance at December 31, 1998 and 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 in 1998 and 1997.
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 future
policy benefits, net of reinsurance recoverables:
Year ended December 31
1998 1997
Unpaid claim liabilities, at beginning of year $254,002 $163,035
Less reinsurance recoverables 490 238
Net balance at beginning of year 253,512 162,797
Claims incurred related to:
Current year 247,527 196,941
Prior years - incurred 9,693 6,432
Prior years - interest 13,400 9,132
Total incurred 270,620 212,505
Claims paid related to:
Current year 78,851 76,710
Prior years 79,198 45,080
Total paid 158,049 121,790
Net balance at end of year 366,083 253,512
Add reinsurance recoverables 852 490
Unpaid claim liabilities, at end of year $366,935 $254,002
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
5. Unpaid Claims Liability for Group Accident and Health Business
(continued)
The adverse development during 1998 and 1997 primarily 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 1998 and 1997.
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, 1998, 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 (deficit) surplus held for the benefit of
participating policyholders and stockholders was $(14,047) and $73,746,
respectively, at December 31, 1998. Dividends paid to policyholders were
$10,996 in 1998, and there were no dividends paid to stockholders in 1998.
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.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
7. Commitments and Contingencies (continued)
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, 1998, 1997 and 1996, the
Company has accrued $645, $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 $23,
$443 and $150 in 1998, 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
revenues were $2,016, $1,700 and $1,503 for the years ended December 31,
1998, 1997 and 1996, respectively.
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.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
9. Benefit Plans (continued)
In 1997, Liberty Mutual adopted SFAS 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, 1998 and 1997, assets of the Plans totaling $1,548,141 and
$1,197,094, respectively, were held in separate accounts managed by the
Company.
Under the intercompany pooling agreement, there was no pension expense
charged to the Company in 1998 and 1997 and $395 of pension expense charged
to the Company in 1996.
(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, $372, $166 and $236 of
postretirement expense was charged to the Company in 1998, 1997 and 1996,
respectively.
(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 1998,
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 1998, 1997
and 1996, Liberty Mutual made matching contributions of $1.00, $1.00 and
$0.87, respectively, for each dollar contributed by employees, up to 6% of
their annual compensation. Liberty Mutual's expense was $40,278, $36,850
and $30,075 in 1998, 1997 and 1996, respectively. Under the intercompany
pooling arrangement, the Company's expense related to the Thrift-Incentive
Plan is borne by Liberty Mutual.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
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 general expenses
incurred in 1998, 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
$17,249, $15,768 and $13,903 in 1998, 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
$9,329, $8,252 and $4,967 in 1998, 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 $137,663, $136,161 and $91,754 in 1998, 1997 and
1996, respectively. The related policy and contract reserves with respect
to all structured settlement annuity contracts purchased by Liberty Mutual
amounted to $714,886 and $595,146 at December 31, 1998 and 1997,
respectively.
Liberty Mutual deposited $3,206 and $774 with the Company in 1998 and
1997, respectively, to fund certain Liberty Mutual environmental claim
transactions. Such amounts have been included in the liability for
policyholders' and beneficiaries' funds at December 31, 1998 and 1997,
respectively.
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 $4,280, $6,002 and $3,194 in 1998, 1997 and 1996,
respectively. The related policy and contract reserves with respect to
these structured settlement annuity contracts assumed by the Company
amounted to $13,223 and $8,501 at December 31, 1998 and 1997,
respectively.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
11. Deferred Policy Acquisition Costs
Details with respect to deferred policy acquisition costs are summarized as
follows:
Year ended December 31
1998 1997
Balance, beginning of year $ 89,154 $ 77,424
Additions 31,405 28,736
Amortization (18,485) (12,027)
Valuation adjustment for unrealized
gain on fixed maturities (3,218) (4,979)
Balance, end of year $ 98,856 $ 89,154
12. Statutory Financial Information
The Company prepares their statutory-basis financial statements in
accordance with accounting practices prescribed or permitted by the
Division of Insurance of the Commonwealth of Massachusetts. Prescribed
statutory accounting practices include state laws, regulations and
administrative rules, as well as guidance published by the NAIC. Permitted
accounting practices encompass all accounting practices that are not
prescribed by the sources noted above.
During 1998, the Company entered into a reinsurance agreement with Liberty
Mutual Insurance Company to cede to Liberty Mutual 100% of its existing
group long and short-term disability, individual accident and sickness, and
student accident and health business. The Company received permission from
the Commonwealth of Massachusetts to treat this agreement as prospective
reinsurance in its entirety for 1998. This agreement increased the
Company's statutory net gain from operations before federal income taxes by
$64,898 in 1998. There are no other material permitted practices.
Statutory net income (loss) and capital and surplus is as follows:
1998 1997 1996
Statutory net income (loss) $ 9,741 $ (8,549) $ 3,554
Statutory capital and surplus 115,449 126,669 137,933
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
13. Stockholders' Equity
The components of accumulated other comprehensive income are as follows:
Foreign Accumulated
Net Currency Other
Unrealized Translation Comprehensive
Gains (Losses) Adjustment Income
Balance at January 1, 1996 $ 122,875 $ 957 $ 123,832
Gross unrealized losses (net of
deferred income tax benefit
of $20,222) (37,556) (37,556)
Less reclassification adjustment
for gains, realized in net income
(net of tax expense of $2,353) (4,369) (4,369)
Adjustment to deferred policy
acquisition costs (net of deferred
income tax expense of $205) 380 380
Net unrealized losses (41,545) (41,545)
Foreign currency translation
adjustment 182 182
Balance at December 31, 1996 81,330 1,139 82,469
Gross unrealized gains (net of
deferred income tax expense
of $30,951) 57,480 57,480
Less reclassification adjustment
for gains, realized in net income
(net of tax expense of $2,826) (5,248) (5,248)
Adjustment to deferred policy
acquisition costs and present value
of future profits (net of deferred
income tax benefit of $1,743) (3,236) (3,236)
Net unrealized gains 48,996 48,996
Foreign currency translation
adjustment 444 444
Balance at December 31, 1997 130,326 1,583 131,909
Gross unrealized gains (net
of deferred income tax expense
of $20,552) 38,168 38,168
Less reclassification adjustment
for gains, realized in net income
(net of tax expense of $6,409) (11,902) (11,902)
Adjustment to deferred policy
acquisition costs (net of deferred
income tax benefit of $1,126) (2,092) (2,092)
Net unrealized gains 24,174 24,174
Foreign currency translation
adjustment 961 961
Balance at December 31, 1998 $ 154,500 $ 2,544 $ 157,044
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
13. Stockholders' Equity (continued)
Net unrealized investment gains, included in the balance sheets as a
component of stockholders' equity are summarized as follows:
At December 31
1998 1997 1996
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities $ 248,776 $ 204,228 $ 121,967
Equity investments and other 1,086 4,714 6,576
Total 249,862 208,942 128,543
Amounts of unrealized investment gains
attributable to:
Deferred policy acquisition costs (11,616) (8,398) (3,419)
Deferred federal income taxes (83,746) (70,218) (43,794)
Total (95,362) (78,616) (47,213)
Net unrealized investment gains $ 154,500 $ 130,326 $ 81,330
14. Segment Information
The Company's business is organized in three principal segments:
Individual Life and Annuity, Group Life and Disability, and Group Pension
and Other. In the Individual Life and Annuity segment, the Company sells
a variety of individual products, including participating whole life, term
insurance, universal life, structured settlements, and immediate and
deferred annuity contracts. These products are sold through a combination
of distribution methods, including Company agents, Liberty Mutual personal
markets agents, direct marketers, and banks. In the Group Life and
Disability segment, the Company sells group life and long-term and short-
term disability products to corporate and organizational customers through
the Company's group market agency force. The Group Pension and Other
segment is a closed block of active pension customers, as well as
international customer life and disability products.
.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates performance based on the income from
continuing operations before federal income taxes and earnings of
participating policies of the segments.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
14. Segment Information (continued)
The following table summarizes selected financial information by segment:
Year ended December 31
1998 1997 1996
Revenues:
Individual Life and Annuity $ 274,175 $ 250,751 $ 186,696
Group Life and Disability 351,384 301,684 203,911
Group Pension and Other 57,365 32,609 32,835
Total revenues $ 682,924 $ 585,044 $ 423,442
Income (loss) from continuing
operations before federal
income taxes and earnings of
participating policies:
Individual Life and Annuity $ 31,446 $ 28,874 $ 24,319
Group Life and Disability (23,160) (11,588) 8,377
Group Pension and Other 2,282 1,506 1,075
Total income from continuing
operations before federal
income taxes and earnings of
participating policies $ 10,568 $ 18,792 $ 33,771
At December 31
1998 1997
Assets:
Individual Life and Annuity $ 1,875,583 $ 1,640,099
Group Life and Disability 571,695 522,569
Group Pension and Other 2,454,336 1,850,032
Total assets $ 4,901,614 $ 4,012,700
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
15. 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 maturates 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.
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.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
15. Fair Value of Financial Instruments (continued)
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, 1998 At December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Fixed maturities $2,506,333 $2,506,333 $2,143,658 $2,143,658
Equity securities 1 1 3,187 3,187
Policy loans 53,153 53,153 49,331 49,331
Short-term investments 38,359 38,359 57,956 57,956
Other invested assets 50,760 50,760 43,747 43,747
Individual and group annuities 100,748 99,988 131,549 131,297
16. Discontinued Operations
On December 31, 1993, the Company discontinued its Group Medical insured
and administrative services line of business. Substantially all of the
insured operating assets and future policy liabilities, as of December 31,
1993, were ceded to Liberty Mutual effective January 1, 1994, until the
termination date of the contracts. After termination there is no additional
insurance risk associated with this particular line of business and all
insured operating assets and future policy liabilities will be
extinguished.
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
17. 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 the
date "00" as the year 1900 rather than the Year 2000. This may cause a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
The Company has allocated significant resources to examining all relevant
internal computing systems to identify areas that may require changes.
Efforts include an examination of both internally developed and purchased
software applications to ensure vendor Year 2000 compliance and working
with major vendors to ensure Year 2000 compliance. As of December 31, 1998,
the Company had substantially completed their Year 2000 efforts and will
continue monitoring and working toward infrastructure readiness throughout
1999.
<PAGE>
PART C
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part B:
Variable Account J
Statements of Assets and Liabilities - December 31, 1998
Statements of Operations and Changes in Net Assets for the years
ended December 31, 1998 and 1997
Notes to Financial Statements
Liberty Life Assurance Company of Boston:
Balance Sheets for the years ended December 31, 1998 and 1997.
Statements of Income for the years ended December 31, 1998,
1997, and 1996.
Statements of Stockholders' Equity for the years ended December
31, 1998, 1997, and 1996.
Statements of Cash Flows for the years ended December 31, 1998,
1997, and 1996.
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) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
**** (13) Schedule for Computations of Performance Quotations
* (15) Chart of Affiliations
* (16) Powers of Attorney
* (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.
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 March 31, 1999, there were 0 Qualified Contract Owners and 1 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; Variable Account A of Keyport Benefit Life
Insurance Company; and for the Independence Variable Annuity Account and
Independence Variable Life Account of Independence Life and Annuity Company
all are affiliated companies of Liberty Life.
The directors and officers are:
Name and Principal Position and Offices
Business Address* with Underwriter
Jacob M. Herschler Director
Paul T. Holman Director and Assistant Clerk
James J. Klopper Director, President and Clerk
Daniel C. Bryant Vice President
Rogelio P. Japlit Treasurer
Donald A. Truman Assistant Clerk
*125 High Street, Boston, Massachusetts 02110.
Item 30. Location of Accounts and Records.
Liberty Life Assurance Company of Boston, 175 Berkeley St., Boston, MA
02117
Keyport Life Insurance Company, 125 High St., Boston, MA 02110
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
The Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or included in
the prospectus that the applicant can remove to send for a Statement of
Additional Information.
The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
Registrant represents that it is relying on the November 28, 1988 no-
action letter (Ref. No. IP-6-88) relating to variable annuity contracts
offered as funding vehicles for retirement plans meeting the requirements
of Section 403(b) of the Internal Revenue Code. Registrant further
represents that it has complied with the provisions of paragraphs (1) - (4)
of that letter. Specimen of acknowledgement form used to comply with
paragraph (4) is incorporated by reference to the Registration Statement
Form N-4 (Files No. 333-29811; 811-08269) filed on or about June 18, 1997.
Representation
Depositor represents that the fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by
the Depositor. Further, this representation applies to each form of the
contract described in a prospectus and statement of additional information
included in this Registration Statement.
<PAGE>
SIGNATURES
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it 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 28th day
of April, 1999.
Variable Account J
(Registrant)
BY: Liberty Life Assurance Company of Boston
(Depositor)
BY: /s/Elliot J. Williams
Elliot J. Williams, Treasurer
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the
dates indicated.
/s/GARY L. COUNTRYMAN* /s/EDMUND F. KELLY*
GARY L. COUNTRYMAN EDMUND F. KELLY
Chairman of the Board President
/s/J. PAUL CONDRIN,III* /s/ELLIOT J. WILLIAMS 4/28/99
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 04/28/99
/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.
<PAGE>
EXHIBIT INDEX
Item Page
(10) Consent of Independent Auditors
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 8, 1999, with respect to the financial statements of Liberty Life
Assurance Company of Boston, and March 12, 1999, with respect to the
financial statements of Liberty Life Assurance Company of Boston-Variable
Account J, included in this Post-Effective Amendment No. 8 to the
Registration Statement (Form N-4, Nos. 333-29811 and 811-08269).
/s/ERNST & YOUNG LLP
Boston, Massachusetts
April 26, 1999
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