June 25, 1998 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
Distributed by:
Keyport Financial Services Corp.
125 High Street, Boston, MA 02110-2712
Issued by:
Keyport Benefit Life Insurance Company
100 Manhattanville Road, Purchase, NY 10577
Keyport Benefit 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
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 6719 BOSTON, MA
POSTAGE WILL BE PAID BY ADDRESSEE
KEYPORT BENEFIT SERVICE OFFICE
125 HIGH STREET
BOSTON, MA 02110-2712
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES.
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
Variable Account A
OF
KEYPORT BENEFIT LIFE INSURANCE COMPANY
This Prospectus offers Group Variable Annuity Contracts (the "Contracts")
and the related Certificates (the "Certificates") that are designed to fund
benefits under certain group arrangements including those that qualify for
special tax treatment under the Internal Revenue Code of 1986 (the "Code").
As required by certain states, the Certificates may be offered as
individual contracts. Unless otherwise noted or the context so requires
all references to the Certificates include the Contracts and the individual
Contracts. The Certificates are offered on a flexible payment basis.
The variable annuity Contract (form number DVA(1)NY) and the Certificates
described in this prospectus provide for accumulation of Certificate Values
on a variable basis, and payments of periodic annuity payments on either a
variable or a fixed basis. The Certificates are designed for use by
individuals for retirement planning purposes.
This Prospectus generally describes the variable features of the
Certificate. Purchase Payments will be allocated to a segregated investment
account of Keyport Benefit Life Insurance Company ("Keyport Benefit"),
designated Variable Account A ("Variable Account").
The Variable Account invests in shares of the following Eligible Funds of
Manning & Napier Insurance Fund, Inc. ("Manning & Napier Insurance Fund")
at their net asset value: Manning & Napier Moderate Growth Portfolio
("MNMGP"), Manning & Napier Growth Portfolio ("MNGP"), Manning & Napier
Maximum Horizon Portfolio ("MNMHP"), Manning & Napier Small Cap Portfolio
("MNSCP"), Manning & Napier Equity Portfolio ("MNEP"), and Manning & Napier
Bond Portfolio ("MNBP"). The Variable Account also invests in shares of
the following Eligible Fund of SteinRoe Variable Investment Trust
("SteinRoe Trust") at its net asset value: Stein Roe Money Market Fund,
Variable Series ("SRMMF").
The Variable Account may offer other forms of the Contracts and
Certificates with features, and fees and charges which vary from the
Certificates, and that provide for investment in other Sub-Accounts which
invest in different or additional mutual funds. Other Contracts and
Certificates will be described in separate prospectuses and statements of
additional information. The agent selling the Contracts and Certificates
has information concerning the eligibility for and the availability of the
other forms of the Contracts and Certificates.
A Statement of Additional Information dated the same as this prospectus has
been filed with the Securities and Exchange Commission and is herein
incorporated by reference. It is available, at no charge, by writing the
Principal Underwriter, Keyport Financial Services Corp. at 125 High Street,
Boston, MA 02110, by calling Keyport Benefit's Service Office at (800) 437-
4466, or by returning the postcard on the back cover of this prospectus. It
may also be obtained by writing Manning & Napier Insurance Fund, Inc. at
P.O. Box 40610, Rochester, New York 14604, or calling (800) 466-3863. A
table of contents for the Statement of Additional Information is on Page
17.
The Certificates may be sold by or through banks or other depository
institutions. The Contract and Certificates: are not insured by the FDIC;
are not a deposit or other obligation of, or guaranteed by, the depository
institution; and are subject to investment risks, including the possible
loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR SHOULD
KNOW BEFORE INVESTING. THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE OR
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS
AUTHORIZED BY KEYPORT BENEFIT TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THIS OFFERING, AND IF GIVEN OR MADE, SUCH UNAUTHORIZED
INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON.
The date of this prospectus is June 25, 1998
TABLE OF CONTENTS
Page
Glossary of Special Terms 3
Summary of Expenses 4
Synopsis 5
Performance Information 5
Keyport Benefit and the Variable Account 6
Year 2000 Matters 6
Purchase Payments and Applications 6
Investments of the Variable Account 7
Allocations of Purchase Payments 7
Eligible Funds 7
Transfer of Variable Account Value 8
Substitution of Eligible Funds and Other
Variable Account Changes 9
Deductions 9
Deductions for Certificate Maintenance Charge 9
Deductions for Mortality and Expense Risk Charge 10
Deductions for Transfers of Variable Account Value 10
Deductions for Premium Taxes 10
Deductions for Income Taxes 10
Total Variable Account Expenses 10
Other Services 11
The Certificates 10
Variable Account Value 10
Valuation Periods 11
Net Investment Factor 11
Modification of the Certificate 11
Right to Revoke 11
Death Provisions for Non-Qualified Certificates 11
Death Provisions for Qualified Certificates 12
Certificate Ownership 12
Assignment 13
Partial Withdrawals and Surrender 13
Annuity Provisions 13
Annuity Benefits 13
Income Date and Annuity Option 13
Change in Income Date and Annuity Option 13
Annuity Options 13
Variable Annuity Payment Values 14
Proof of Age, Sex, and Survival of Annuitant 14
Suspension of Payments 14
Tax Status 15
Introduction 15
Taxation of Annuities in General 15
Qualified Plans 16
Individual Retirement Annuities 16
Variable Account Voting Privileges 16
Sales of the Certificates 17
Legal Proceedings 17
Inquiries by Certificate Owners 17
Table of Contents_Statement of Additional Information 17
Appendix A_Telephone Instructions 18
GLOSSARY OF SPECIAL TERMS
Accumulation Unit: An accounting unit of measure used to calculate Variable
Account Value.
Annuitant: The Annuitant is the natural person to whom any annuity payments
will be made starting on the Income Date. The Annuitant may not be over
age 80 on the Certificate Date (age 75 for Qualified Certificates and age
90 for Roth IRA Qualified Certificates).
Certificate Anniversary: The same month and day as the Certificate Date in
each subsequent year of the Certificate.
Certificate Date: The effective date of the Certificate; it is shown on
Page 3 of the Certificate Schedule.
Certificate Owner: The person (or persons in the case of joint ownership)
who possesses all the ownership rights under the Certificate. The primary
Certificate Owner may not be over age 80 on the Certificate Date (age 75
for Qualified Certificates, age 90 for Roth IRA Qualified Certificates and
age 85 for a joint Owner).
Certificate Value: The Variable Account Value.
Certificate Withdrawal Value: The Certificate Value less any premium taxes
and Certificate Maintenance Charge.
Certificate Year: Any period of 12 months commencing with the Certificate
Date and each Certificate Anniversary thereafter shall be a Certificate
Year.
Designated Beneficiary: The person who may be entitled to receive benefits
following the death of the Annuitant, Certificate Owner, or joint
Certificate Owner. The Designated Beneficiary will be the first person
among the following who is alive on the date of death: primary Certificate
Owner; joint Certificate Owner; primary beneficiary; contingent
beneficiary; and if none of the above is alive, the primary Certificate
Owner's estate. If the primary Certificate Owner and joint Certificate
Owner are both alive, they will be the Designated Beneficiary together.
Eligible Funds: The mutual funds that are eligible investments for the
Variable Account under the Certificates.
In Force: The status of the Certificate before the Income Date so long as
it is not totally surrendered, the Certificate Value under a Certificate
does not go to zero, and there has not been a death of the Annuitant or any
Certificate Owner that will cause the Certificate to end within at most
five years of the date of death.
Income Date: The date on which annuity payments are to begin.
Non-Qualified Certificate: Any Certificate that is not issued under a
Qualified Plan.
Office: Keyport Benefit's executive office which is 125 High Street,
Boston, Massachusetts 02110.
Qualified Certificate: Certificates issued under Qualified Plans.
Qualified Plan: A retirement plan established pursuant to the provisions of
Section 408(b) or 408A of the Internal Revenue Code.
Service Office: Keyport Benefit's service office which is 125 High Street,
Boston, Massachusetts 02110.
Variable Account: A separate investment account of Keyport Benefit into
which Purchase Payments under the Certificates may be allocated. The
Variable Account is divided into Sub-Accounts ("Sub-Account") that
correspond to the Eligible Funds in which they invest.
Variable Account Value: The value of all Variable Account amounts
accumulated under the Certificate prior to the Income Date.
Written Request: A request written on a form satisfactory to Keyport
Benefit, signed by the Certificate Owner and a disinterested witness, and
filed at Keyport Benefit's Service Office.
SUMMARY OF EXPENSES
The expense summary format below, including the examples, was adopted by
the Securities and Exchange Commission to assist the owner of a variable
annuity certificate in understanding the transaction and operating expenses
the owner will directly or indirectly bear under a certificate. The values
reflect expenses of the Variable Account as well as the Eligible Funds
under the Certificates. The expenses shown for the Eligible Funds and the
examples should not be considered a representation of future expenses.
Certificate Owner Transaction Expenses
Sales Load Imposed on Purchases: 0%
Maximum Contingent Deferred Sales Charge
(as a percentage of Purchase Payments): 0%
Maximum Total Certificate Owner Transaction Expenses1
(as a percentage of Purchase Payments): 0%
Annual 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)
Other Total
Management Fees Expenses Fund Operating
(After Any (After Any Expenses (After
Waiver and/or Waiver and/or Any Waiver and/or
Reimbursement)3 Reimbursement)3 Reimbursement)3
MNMGP 0.00% 1.20% 1.20%(14.16%)
MNGP 0.00% 1.20% 1.20%(10.98%)
MNMHP 0.00% 1.20% 1.20%(12.76%)
MNSCP 0.00% 1.20% 1.20%(12.53%)
MNEP 0.00% 1.20% 1.20%(12.44%)
MNBP 0.00% .85% .85%(14.27%)
SRMMF .35% .25% .60%
THE ABOVE EXPENSES FOR THE ELIGIBLE FUNDS WERE PROVIDED BY MANNING & NAPIER
INSURANCE FUND AND STEINROE TRUST. KEYPORT BENEFIT HAS NOT INDEPENDENTLY
VERIFIED THE ACCURACY OF THE INFORMATION.
Example _ Whether the Certificate stays in force through the periods shown
or is surrendered or annuitized4 at the end of the periods shown, a $1,000
investment in each Sub-Account listed would be subject to the expenses
shown, assuming 5% annual return on assets.
Sub-Account 1 Year 3 Years 5 Years 10 Years
MNMGP $15 $49 $89 $220
MNGP 15 49 89 220
MNMHP 15 49 89 220
MNSCP 15 49 89 220
MNEP 15 49 89 220
MNBP 12 38 69 172
SRMMF 9 30 55 136
1Keyport Benefit reserves the right to impose a transfer fee after prior
notice to Certificate Owners, but currently does not impose any charge.
Premium taxes are not shown. Keyport Benefit deducts the amount of premium
taxes, if any, when paid unless Keyport Benefit elects to defer such
deduction.
2All Manning & Napier Insurance Fund and SteinRoe Trust expenses are for
1997. 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 waive and/or
reimburse all expenses, including management fees, in excess of the
following percentage of the average annual net assets of each Eligible
Fund: 1.2% for MNMGP, MNGP, MNMHP, MNSCP, and MNEP, and .85% for MNBP.
Absent the fee waiver and expense reimbursement, management fees would have
been 1.00% for MNMGP, MNGP, MNMHP, MNSCP, and MNEP, and .50% for MNBP, and
other expenses would have been: for MNMGP--13.16%; for MNGP--9.98%; for
MNMHP--11.76%; for MNSCP--11.53%; for MNEP--11.44%; and for MNBP--13.77%.
The total percentages shown in the table for MNMGP, MNGP, MNMHP, MNSCP,
MNEP, and MNBP are after fee waiver and expense reimbursement. Each
percentage shown in the parentheses is what the total expenses would be in
the absence of fee waiver and expense reimbursement: for MNMGP--14.16%; for
MNGP--10.98%; for MNMHP--12.76%; for MNSCP--12.53%; for MNEP--12.44%; and
for MNBP--14.27%. The Manning & Napier Insurance Fund manager's fee waiver
and reimbursement of expenses agreement is voluntary and may be terminated
at any time.
The manager of SteinRoe Trust has agreed to reimburse all expenses,
including management fees, in excess of .65% of the average net assets of
SRMMF, so long as such reimbursement would not result in SRMMF's inability
to qualify as a regulated investment company under the Internal Revenue
Code. The SteinRoe Trust manager's reimbursement of expenses agreement is
effective until April 30, 1999. The SteinRoe Trust's manager was not
required to reimburse expenses as of the date of this Prospectus.
4The annuity is designed for retirement planning purposes. Surrenders
prior to the Income Date are not consistent with the long-term purposes of
the Certificate and the applicable tax laws.
The example should not be considered a representation of past or future
expenses and charges of the Sub-Accounts. Actual expenses may be greater
or less than those shown. Similarly, the assumed 5% annual rate of return
is not an estimate or a guarantee of future investment performance. See
"Deductions" in this Prospectus, "Management" in the prospectus for Manning
& Napier Insurance Fund, and "How the Funds are Managed" in the prospectus
for SteinRoe Trust.
SYNOPSIS
The following Synopsis should be read in conjunction with the detailed
information in this Prospectus and the Statement of Additional Information.
Please refer to the Glossary of Special Terms for the meaning of certain
defined terms. Variations from the information appearing in this Prospectus
due to individual state requirements are described in supplements which are
attached to this Prospectus, or in endorsements to the Certificates, as
appropriate.
The Certificate allows Certificate Owners to allocate Purchase Payments to
the Variable Account. The Variable Account is a separate investment
account maintained by Keyport Benefit. Certificate Owners may allocate
payments to, and receive annuity payments from the Variable Account. If
the Certificate Owner allocates payments to the Variable Account, the
accumulation values and annuity payments will fluctuate according to the
investment experience of the Sub-Accounts chosen.
The Certificate permits Purchase Payments to be made on a flexible Purchase
Payment basis. The minimum initial payment is $5,000 and $2,000 for
individual retirement annuities. The minimum amount for each subsequent
payment is $1,000 or such lesser amount as Keyport Benefit may permit from
time to time. (See "Purchase Payments and Applications" on Page 6.)
There are no deductions made from Purchase Payments for sales charges at
the time of purchase or upon surrender.
Keyport Benefit deducts a Mortality and Expense Risk Charge, which is equal
on an annual basis to .35% of the average daily net asset values in the
Variable Account attributable to the Certificates. (See "Deductions for
Mortality and Expense Risk Charge" on Page 10.)
Keyport Benefit deducts an annual Contract Maintenance Charge (currently
$35.00) from the Variable Account Value for administrative expenses. Prior
to the Income Date, Keyport Benefit reserves the right to change this
charge for future years. (See "Deductions for Certificate Maintenance
Charge" on Page 9.)
Keyport Benefit reserves the right to deduct a charge of $25 for each
transfer in excess of 12 per Certificate Year but currently does not do so.
Premium taxes will be charged against the Certificate Value. Currently
such premium taxes range from 0% to 5.0%. (See "Deductions for Premium
Taxes" on Page 10.)
There are no federal income taxes on increases in the value of a
Certificate until a distribution occurs, in the form of a lump sum payment,
annuity payments, or the making of a gift or assignment of the Certificate.
A federal penalty tax (currently 10%) may also apply. (See "Tax Status" on
Page 15.)
The Certificate allows the Certificate Owner to revoke the Certificate
generally within 10 days of delivery (see "Right to Revoke" on Page 11).
Since Keyport Benefit will refund the Certificate Value, the Certificate
Owner will bear the investment risk during the revocation period.
The Certificates described in this prospectus have not previously been made
available for sale. Therefore, no condensed financial information is
provided. The full financial statements for Keyport Benefit 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 intended to indicate either past performance
under an actual Certificate or future performance.
The Sub-Accounts may advertise total return information for various periods
of time. Total return performance information is based on the overall
percentage change in value of a hypothetical investment in the specific Sub-
Account over a given period of time.
Average annual total return information shows the average percentage change
in the value of an investment in the Sub-Account from the beginning date of
the measuring period to the end of that period. This standardized version
of average annual total return reflects all historical investment results,
less all charges and deductions applied against the Sub-Account and a
Certificate. Average total return does not take into account any premium
taxes and would be lower if these taxes were included.
In order to calculate average annual total return, Keyport Benefit divides
the change in value of a Sub-Account under a Certificate surrendered on a
particular date by a hypothetical $1,000 investment in the Sub-Account made
by the Certificate Owner at the beginning of the period illustrated. The
resulting total rate for the period is then annualized to obtain the
average annual percentage change during the period. Annualization assumes
that the application of a single rate of return each year during the period
will produce the ending value, taking into account the effect of
compounding.
The Sub-Accounts may present additional total return information computed
on a different basis.
The Sub-Accounts may present total return information calculated by
dividing the change in a Sub-Account's Accumulation Unit value over a
specified time period by the Accumulation Unit value of that Sub-Account at
the beginning of the period. This computation results in a 12-month change
rate or, for longer periods, a total rate for the period which Keyport
Benefit annualizes in order to obtain the average annual percentage change
in the Accumulation Unit value for that period. The change percentages do
not take into account the Certificate Maintenance Charge and premium tax
charges. The percentages would be lower if these charges were included.
The 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 7-day period. This income is annualized by
assuming that the amount of income generated by the investment during that
week is generated each week over a 52-week period and is shown as a
percentage. The yield reflects the deduction of all charges assessed
against the Sub-Account and a Certificate but does not take into account
premium tax charges. The yield would be lower if these charges were
included.
The effective yield of the SRMMF Sub-Account is calculated in a similar
manner but, when annualizing such yield, income earned by the Sub-Account
is assumed to be reinvested. This compounding effect causes effective
yield to be higher than yield.
KEYPORT BENEFIT AND THE VARIABLE ACCOUNT
Keyport Benefit Life Insurance Company was organized under the laws of the
State of New York in 1987 as a stock life insurance company, and is a
wholly-owned subsidiary of Keyport Life Insurance Company. The executive
offices of Keyport Benefit are at 125 High Street, Boston, Massachusetts
02110. The home office is located at 100 Manhattanville Road, Purchase, New
York 10577. Keyport Benefit is admitted to conduct life insurance business
in New York and Rhode Island.
The Variable Account was established by Keyport Benefit pursuant to the
provisions of New York Law on February 6, 1998. The Variable Account meets
the definition of "separate account" under the federal securities laws. The
Variable Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. Such
registration does not involve supervision of the management of the Variable
Account or Keyport Benefit by the Securities and Exchange Commission.
Keyport Benefit is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may use the IMSA logo and membership in
IMSA in advertisements. Being a member means that Keyport Benefit has
chosen to participate in IMSA's Life Insurance Ethical Market Conduct
Program.
Keyport Benefit is one of the Liberty Financial Companies. Keyport Benefit
is ultimately controlled by Liberty Mutual Insurance Company of Boston,
Massachusetts, a multi-line insurance and financial services institution.
Obligations under the Certificates are the obligations of Keyport Benefit.
Although the assets of the Variable Account are the property of Keyport
Benefit, these assets are held separately from the other assets of Keyport
Benefit and are not chargeable with liabilities arising out of any other
business Keyport Benefit may conduct. Income, capital gains and/or capital
losses, whether or not realized, from assets allocated to the Variable
Account are credited to or charged against the Variable Account without
regard to the income, capital gains, and/or capital losses arising out of
any other business Keyport Benefit may conduct. Thus, Keyport Benefit does
not guarantee the investment performance of the Variable Account. The
Variable Account Value and the amount of variable annuity payments will
vary with the investment performance of the investments in the Variable
Account.
YEAR 2000 MATTERS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous
results by or at the year 2000. This potential problem has become known as
the "Year 2000 issue". The Year 2000 issue affects virtually all companies
and organizations.
Computer applications which are affected by the Year 2000 issue could
impact Keyport Benefit's business functions in various ways, ranging from a
complete inability to perform critical business functions to a loss of
productivity in varying degrees. Likewise, the failure of some computer
applications could have no impact on critical business functions.
Keyport Benefit is assessing and addressing the Year 2000 issue by
implementing a four-step plan. The first two steps involve inventorying all
the computer applications which support Keyport Benefit's business
functions and prioritizing computer applications which are affected by the
Year 2000 issue based upon the degree of impact each has on the functioning
of Keyport Benefit's business units. The first two steps of the plan are
substantially complete.
The final two steps of the four-step plan involve remediation of affected
computer applications (i.e., repairing or replacing programs, including
those which interface with third-party computer applications that have
unremediated Year 2000 issues, and appropriate testing) and reinstallation
of computer applications. For computer applications which are "mission
critical" (i.e., their failure would result in the complete inability to
perform critical business functions), Keyport Benefit expects to complete
the final two steps of the plan by December 31, 1998. Remediation and
reinstallation of non-critical computer applications is scheduled to be
completed by December 31, 1999.
Keyport Benefit believes that the Year 2000 issue could have a material
impact on Keyport Benefit's operations if the four-step plan is not timely
implemented. However, based upon the progress that is being made, Keyport
Benefit believes that the timetable for implementing the plan will be met
and that the Year 2000 issue will not pose significant operational problems
for its computer systems.
Keyport Benefit does not expect that the cost of addressing the Year 2000
issue will be material to its financial condition or its results of
operations.
PURCHASE PAYMENTS AND APPLICATIONS
The initial Purchase Payment is due on the Certificate Date. The minimum
initial Purchase Payment is $5,000 and $2,000 for individual retirement
annuities. Additional Purchase Payments can be made at the Certificate
Owner's option. Each subsequent Purchase Payment must be at least $1,000
or such lesser amount as Keyport Benefit may permit from time to time.
Keyport Benefit may reject any Purchase Payment.
If the application for a Certificate is in good order and it calls for
amounts to be allocated to the Variable Account, Keyport Benefit will apply
the initial Purchase Payment to the Variable Account and credit the
Certificate with Accumulation Units within two business days of receipt.
If the application for a Certificate is not in good order, Keyport Benefit
will attempt to get it in good order within five business days. If it is
not complete at the end of this period, Keyport Benefit will inform the
applicant of the reason for the delay and that the Purchase Payment will be
returned immediately unless the applicant specifically consents to Keyport
Benefit's keeping the Purchase Payment until the application is complete.
Once the application is complete, the Purchase Payment will be applied
within two business days of its completion. Keyport Benefit has reserved
the right to reject any application.
Keyport Benefit confirms, in writing, to the Certificate Owner the
allocation of all Purchase Payments and the re-allocation of values after
any requested transfer. Keyport Benefit must be notified immediately by
the Certificate Owner of any processing error.
Keyport Benefit will permit others to act on behalf of an applicant in
certain instances, including the following two examples. First, Keyport
Benefit will accept an application for a Certificate that contains a
signature signed under a power of attorney if a copy of that power of
attorney is submitted with the application. Second, Keyport Benefit will
issue a Certificate that is replacing an existing life insurance or annuity
policy that was issued by Keyport Benefit or an affiliated company, without
having previously received a signed application from the applicant.
Certain dealers or other authorized persons such as employers and Qualified
Plan fiduciaries will inform Keyport Benefit of an applicant's answers to
the questions in the application by telephone or by order ticket and cause
the initial Purchase Payment to be paid to Keyport Benefit. If the
information is in good order, Keyport Benefit will issue the Certificate
with a copy of an application completed with that information. The
Certificate will be delivered to the Certificate Owner with a letter from
Keyport Benefit that will give the Certificate Owner an opportunity to
respond to Keyport Benefit if any of the application information is
incorrect. Alternatively, Keyport Benefit's letter may request the
Certificate Owner to confirm the correctness of the information by signing
either a copy of the application or a Certificate delivery receipt that
ratifies the application in all respects (in either case, a copy of the
signed document would be returned to Keyport Benefit for its permanent
records). All purchases are confirmed, in writing, to the applicant by
Keyport Benefit. Keyport Benefit's liability under a Certificate extends
only to amounts so confirmed.
INVESTMENTS OF THE VARIABLE ACCOUNT
Allocations of Purchase Payments
Purchase Payments applied to the Variable Account will be invested in one
or more of the Eligible Fund Sub-Accounts designated as permissible
investments in accordance with the selection made by the Certificate Owner
in the application. Any selection must specify the percentage of the
Purchase Payment that is allocated to each Sub-Account. The percentage for
each Sub-Account, if not zero, must be at least 10% and must be a whole
number. A Certificate Owner may change the allocation percentages without
fee, penalty or other charge. Allocation changes must be made by Written
Request unless the Certificate Owner has by Written Request authorized
Keyport Benefit to accept telephone allocation instructions from the
Certificate Owner or from a person acting for the Certificate Owner as an
attorney-in-fact under a power of attorney. By authorizing Keyport Benefit
to accept telephone changes, a Certificate Owner agrees to accept and be
bound by the conditions and procedures established by Keyport Benefit from
time to time. The current conditions and procedures are in Appendix A and
Certificate Owners authorizing telephone allocation instructions will be
notified, in advance, of any changes.
The Variable Account is segmented into Sub-Accounts. Each Sub-Account
contains the shares of one of the Eligible Funds and such shares are
purchased at net asset value. Eligible Funds and Sub-Accounts may be added
or withdrawn as permitted by applicable law. The Sub-Accounts in the
Variable Account and the corresponding Eligible Funds currently are as
follows:
Eligible Funds of Manning & Napier Insurance Fund Sub-Accounts
Manning & Napier Moderate Growth Portfolio ("MNMGP") MNMGP Sub-Account
Manning & Napier Growth Portfolio ("MNGP") MNGP Sub-Account
Manning & Napier Maximum Horizon Portfolio ("MNMHP") MNMHP Sub-Account
Manning & Napier Small Cap Portfolio ("MNSCP") MNSCP Sub-Account
Manning & Napier Equity Portfolio ("MNEP") MNEP Sub-Account
Manning & Napier Bond Portfolio ("MNBP") MNBP Sub-Account
Eligible Fund of SteinRoe Trust Sub-Account
Stein Roe Money Market Fund, Variable Series ("SRMMF") SRMMF Sub-Account
(formerly named Cash Income Fund)
Eligible Funds
The Eligible Funds which are the permissible investments of the Variable
Account are the separate funds of Manning & Napier Insurance Fund, the
separate funds of SteinRoe Trust, and any other mutual funds with which
Keyport Benefit and the Variable Account may enter into a participation
agreement for the purpose of making such mutual funds available as Eligible
Funds under certain Certificates.
Manning & Napier Insurance Fund is an open-end management investment
company that offers separate series (Portfolios). Manning & Napier
Advisors, Inc. ("Manning & Napier Advisors"), 1100 Chase Square, Rochester,
New York 14604, acts as Manning & Napier Insurance Fund's investment
adviser. Mr. William Manning controls the Advisor by virtue of his
ownership of the securities of the Advisor. Manning & Napier Advisors also
is generally responsible for supervision of the overall business affairs of
Manning & Napier Insurance Fund, including supervision of service providers
to the Fund and direction of Manning & Napier Advisors' directors, officers
or employees who may be elected as officers of Manning & Napier Insurance
Fund to serve as such.
Stein Roe & Farnham Incorporated ("Stein Roe"), One South Wacker Drive,
Chicago, Illinois 60606, is the investment adviser for the Eligible Fund of
SteinRoe Trust. In 1986, Stein Roe was organized and succeeded to the
business of Stein Roe & Farnham, a partnership. Stein Roe is an affiliate
of Keyport Benefit. Stein Roe and its predecessor have provided investment
advisory and administrative services since 1932.
The investment objectives of the Eligible Funds are briefly described
below. More detailed information, including investor considerations
related to the risks of investing in a particular Eligible Fund, may be
found in the current prospectus for that Fund. An investor should read
that prospectus carefully before selecting a Sub-Account that invests in an
Eligible Fund. The prospectus is available, at no charge, from a
salesperson or by writing the Principal Underwriter, Keyport Financial
Services Corp. at 125 High Street, Boston, MA 02110 or by calling (800) 437-
4466. The prospectus may also be obtained by writing Manning & Napier
Insurance Fund, Inc., at P.O. Box 40610, Rochester, NY 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
(MNMGP Sub-Account) Seeks with equal emphasis
long-term growth and
preservation of capital.
Manning & Napier Growth Portfolio
(MNGP Sub-Account) Seeks long-term growth of
capital. The secondary
objective is the
preservation of capital.
Manning & Napier Maximum Horizon Portfolio
(MNMHP Sub-Account) Seeks to achieve the high
level of long-term
capital growth typically
associated with the stock
market.
Manning & Napier Small Cap Portfolio
(MNSCP Sub-Account) Seeks to achieve long-term
growth of capital by
investing principally in
the equity securities of
small issuers.
Manning & Napier Equity Portfolio
(MNEP Sub-Account) Seeks long-term growth of
capital.
Manning & Napier Bond Portfolio
(MNBP Sub-Account) Seeks to maximize total
return in the form of
both income and capital
appreciation by investing
in fixed income
securities without regard
to maturity.
Eligible Fund of SteinRoe Trust and
Variable Account Sub-Account Investment Objective
Stein Roe Money Market Fund, Variable Series Seeks to provide high
(SRMMF Sub-Account) current income from
short-term money market
instruments while
emphasizing preservation
of capital and
maintaining excellent
liquidity.
There is no assurance that the Eligible Funds will achieve their stated
objectives.
The Manning & Napier Insurance Fund and SteinRoe Trust are funding vehicles
for variable annuity contracts and variable life insurance policies offered
by separate accounts of Keyport Benefit and of insurance companies
affiliated and unaffiliated with Keyport Benefit. The risks involved in
this "mixed and shared funding" are disclosed in the Manning & Napier
Insurance Fund and in the SteinRoe Trust prospectuses under the captions
"Sales And Redemptions" and "The Trust", respectively.
Transfer of Variable Account Value
Certificate Owners may transfer Variable Account Value from one Sub-Account
to another Sub-Account.
The Certificate allows Keyport Benefit to charge a transfer fee and to
limit the number of transfers that can be made in a specified time period.
Certificate Owners should be aware that transfer limitations may prevent a
Certificate Owner from making a transfer on the date he or she wants to,
with the result that the Certificate Owner's future Certificate Value may
be lower than it would have been had the transfer been made on the desired
date.
Currently, Keyport Benefit has no limit on the number or frequency of
transfers and it is not charging a transfer fee of $25 for each transfer in
excess of 12 per Certificate Year. For transfers under different
Certificates that are being requested under powers of attorney with a
common attorney-in-fact or that are, in Keyport Benefit's determination,
based on the recommendation of a common investment adviser or
broker/dealer, there is a transfer limitation of one transfer every 30 days
or such other time period as Keyport Benefit may permit.
Keyport Benefit is also limiting each transfer to a maximum of $500,000 or
such greater amount as Keyport Benefit may permit. All transfers requested
for a Certificate on the same day will be treated as a single transfer and
the total combined transfer amount will be subject to the $500,000
limitation. If the $500,000 limitation is exceeded, no amount of the
transfer will be executed by Keyport Benefit.
In applying the $500,000 limitation, Keyport Benefit may treat as one
transfer all transfers requested by a Certificate Owner for multiple
Certificates he or she owns. If the $500,000 limitation is exceeded for
multiple transfers requested on the same day that are treated as a single
transfer, no amount of the transfer will be executed by Keyport Benefit.
In applying the $500,000 limitation to transfers requested by a common
attorney-in-fact or investment adviser, Keyport Benefit will treat as one
transfer all transfers requested under different Certificates that are
being requested under powers of attorney with a common attorney-in-fact or
that are, in Keyport Benefit's determination, based on the recommendation
of a common investment adviser or broker/dealer. If the $500,000
limitation is exceeded for multiple transfers requested on the same day
that are treated as a single transfer, no amount of the transfer will be
executed by Keyport Benefit. If a transfer is executed under one
Certificate and, within the next 30 days, a transfer request for another
Certificate is determined by Keyport Benefit to be related to the executed
transfer under this paragraph's rules, the transfer request will not be
executed by Keyport Benefit. In order for it to be executed, it would need
to be requested again after the 30 day period has expired and it, along
with any other transfer requests that are collectively treated as a single
transfer, would need to total less than $500,000.
Keyport Benefit's interest in applying these limitations is to protect the
interests of both Certificate Owners who are not engaging in significant
transfer activity and Certificate Owners who are engaging in such activity.
Keyport Benefit has determined that the actions of Certificate Owners
engaging in significant transfer activity among Sub-Accounts may cause an
adverse effect on the performance of the Eligible Fund for the Sub-Account
involved. The movement of Sub-Account values from one Sub-Account to
another may prevent the appropriate Eligible Fund from taking advantage of
investment opportunities because it must maintain a liquid position in
order to handle redemptions. Such movement may also cause a substantial
increase in Fund transaction costs which must be indirectly borne by
Certificate Owners.
Certificate Owners will be notified, in advance, of the imposition of any
transfer fee or of a change in the limitation on the number of transfers.
The fee will not exceed $25.
Transfers must be made by Written Request unless the Certificate Owner has
by Written Request authorized Keyport Benefit to accept telephone transfer
requests from the Certificate Owner or from a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney. By
authorizing Keyport Benefit to accept telephone transfer instructions, a
Certificate Owner agrees to accept and be bound by the conditions and
procedures established by Keyport Benefit from time to time. The current
conditions and procedures are in Appendix A and Certificate Owners
authorizing telephone transfers will be notified, in advance, of any
changes. Written transfer requests may be made by a person acting for the
Certificate Owner as an attorney-in-fact under a power of attorney.
Transfer requests received by Keyport Benefit before the close of trading
on the New York Stock Exchange (currently 4:00 PM Eastern Time) will be
initiated at the close of business that day. Any requests received later
will be initiated at the close of the next business day. Each request from
a Certificate Owner to transfer value will be executed by both redeeming
and acquiring Accumulation Units on the day Keyport Benefit initiates the
transfer.
If 100% of any Sub-Account's value is transferred and the allocation
formula for Purchase Payments includes that Sub-Account, then the
allocation formula for future Purchase Payments will automatically change
unless the Certificate Owner instructs otherwise. For example, if the
allocation formula is 50% to Sub-Account A and 50% to Sub-Account B and all
of Sub-Account A's value is transferred to Sub-Account B, the allocation
formula will change to 100% to Sub-Account B unless the Certificate Owner
instructs otherwise.
Substitution of Eligible Funds and Other Variable Account Changes
If the shares of any of the Eligible Funds should no longer be available
for investment by the Variable Account or if in the judgment of Keyport
Benefit's management further investment in such fund shares should become
inappropriate in view of the purpose of the Certificate, Keyport Benefit
may add or substitute shares of another Eligible Fund or of another mutual
fund for Eligible Fund shares already purchased under the Certificate. No
substitution of Fund shares in any Sub-Account may take place without prior
approval of the Securities and Exchange Commission and notice to
Certificate Owners, to the extent required by the Investment Company Act of
1940.
Keyport Benefit has also reserved the right, subject to compliance with the
law as currently applicable or subsequently changed: (a) to operate the
Variable Account in any form permitted under the Investment Company Act of
1940 or in any other form permitted by law; (b) to take any action
necessary to comply with or obtain and continue any exemptions from the
Investment Company Act of 1940 or to comply with any other applicable law;
(c) to transfer any assets in any Sub-Account to another Sub-Account, or to
one or more separate investment accounts, or to Keyport Benefit's general
account; or to add, combine or remove Sub-Accounts in the Variable Account;
and (d) to change the way Keyport Benefit assesses charges, so long as the
aggregate amount is not increased beyond that currently charged to the
Variable Account and the Eligible Funds in connection with the
Certificates.
DEDUCTIONS
Deductions for Certificate Maintenance Charge
Keyport Benefit has responsibility for all administration of the
Certificates and the Variable Account. This administration includes, but is
not limited to, preparation of the Certificates, maintenance of Certificate
Owners' records, and all accounting, valuation, regulatory and reporting
requirements. Keyport Benefit makes a Certificate Maintenance Charge for
such services during the accumulation and annuity payment periods. At the
present time the Certificate Maintenance Charge is $35 per Certificate
Year. PRIOR TO THE INCOME DATE THE CERTIFICATE MAINTENANCE CHARGE IS NOT
GUARANTEED AND MAY BE CHANGED BY KEYPORT BENEFIT.
Prior to the Income Date, the full amount of the charge will be deducted
from the Variable Account Value on each Certificate Anniversary and on the
date of any total surrender not falling on the Certificate Anniversary. On
the Income Date, a pro-rata portion of the charge due on the next
Certificate Anniversary will be deducted from the Variable Account Value.
This pro-rata charge covers the period from the prior Certificate
Anniversary to the Income Date. For example, if the Income Date occurs 73
days after that prior anniversary, then one-fifth (i.e., 73 days/365 days)
of the annual charge would be deducted on the Income Date. The charge will
be deducted from each Sub-Account in the proportion that the value of each
bears to the Variable Account Value.
Once annuity payments begin on the Income Date or once they begin after
surrender benefits are applied under a settlement option, the yearly cost
of the Certificate Maintenance Charge for a payee's annuity will be the
same as the yearly amount in effect immediately before the annuity payments
begin. Keyport Benefit may not later change the amount of the Certificate
Maintenance Charge deducted from the annuity payments. The charge will be
deducted on a pro-rata basis from each annuity payment. For example, if
annuity payments are monthly, then one-twelfth of the annual charge will be
deducted from each payment.
Deductions for Mortality and Expense Risk Charge
Although variable annuity payments made to Annuitants will vary in
accordance with the investment performance of the investments of the
Variable Account, they will not be affected by the mortality experience
(death rate) of persons receiving such payments or of the general
population. Keyport Benefit guarantees the Death Benefits described below
(see "Death Benefit"). Keyport Benefit assumes an expense risk since the
Certificate Maintenance Charge after the Income Date will stay the same and
not be affected by variations in expenses.
To compensate it for assuming these mortality and expense risks, for each
Valuation Period Keyport Benefit deducts from each Sub-Account a Mortality
and Expense Risk Charge equal on an annual basis to .35% of the average
daily net asset value of the Sub-Account. The charge is deducted during
both the accumulation and annuity periods (i.e., both before and after the
Income Date). Less than the full charge will be deducted from Sub-Account
values attributable to Certificates issued to employees of Keyport Benefit
and other persons specified in "Sales of the Certificates".
Deductions for Transfers of Variable Account Value
The Certificate allows Keyport Benefit to charge a transfer fee. Currently
no fee is being charged. Certificate Owners will be notified, in advance,
of the imposition of any fee. The fee will not exceed $25.
Deductions for Premium Taxes
Keyport Benefit deducts the amount of any premium taxes levied by any state
or governmental entity when paid unless Keyport Benefit elects to defer
such deduction. Such premium taxes depend, among other things, on the type
of Certificate (Qualified or Non-Qualified), on the state of residence of
the Certificate Owner, the state of residence of the Annuitant, the status
of Keyport Benefit within such states, and the insurance tax laws of such
states. For New York Certificates, the current premium tax rate is 0%.
Deductions for Income Taxes
Keyport Benefit will deduct from any amount payable under the Certificate
any income taxes that a governmental authority requires Keyport Benefit to
withhold with respect to that amount. See "Income Tax Withholding".
Total Variable Account Expenses
The Variable Account's total expenses in relation to the Certificate will
be the Certificate Maintenance Charge and the Mortality and Expense Risk
Charge.
The value of the assets in the Variable Account will reflect the value of
Eligible Fund shares and therefore the deductions from and expenses paid
out of the assets of the Eligible Funds. These deductions and expenses are
described in the Eligible Fund prospectus.
OTHER SERVICES
The Program. Keyport Benefit offers the following investment related
program which is available only prior to the Income Date: Systematic
Withdrawal Program. This Program has its own requirements, as discussed
below. Keyport Benefit reserves the right to terminate the Program.
If the Certificate Owner has submitted the required telephone authorization
form, certain changes may be made by telephone. The current conditions and
procedures are described in Appendix A.
Systematic Withdrawal Program. To the extent permitted by law, Keyport
Benefit will make monthly, quarterly, semi-annual or annual distributions
of a predetermined dollar amount to a Certificate Owner that has enrolled
in the Systematic Withdrawal Program. Under the Program, all distributions
will be made directly to the Certificate Owner and will be treated for
federal tax purposes as any other withdrawal or distribution of Certificate
Value. (See "Tax Status".) A Certificate Owner may specify the amount of
each partial withdrawal, subject to a minimum of $100.
Unless the Certificate Owner specifies the Sub-Account or Sub-Accounts from
which withdrawals of Certificate Value shall be made or if the amount in a
specified Sub-Account is less than the predetermined amount, Keyport
Benefit will make withdrawals under the Program from the Sub-Accounts in
amounts proportionate to the amounts in the Sub-Accounts. All withdrawals
under the Program will be effected by canceling the number of Accumulation
Units equal in value to the amount to be distributed to the Certificate
Owner.
THE CERTIFICATES
Variable Account Value
The Variable Account Value for a Certificate is the sum of the value of
each Sub-Account to which values are allocated under a Certificate. The
value of each Sub-Account is determined at any time by multiplying the
number of Accumulation Units attributable to that Sub-Account by the
Accumulation Unit value for that Sub-Account at the time of determination.
The Accumulation Unit value is an accounting unit of measure used to
determine the change in an Accumulation Unit's value from Valuation Period
to Valuation Period.
Each Purchase Payment that is made results in additional Accumulation Units
being credited to the Certificate and the appropriate Sub-Account
thereunder. The number of additional units for any Sub-Account will equal
the amount allocated to that Sub-Account divided by the Accumulation Unit
value for that Sub-Account at the time of investment.
Valuation Periods
The Variable Account is valued each Valuation Period using the net asset
value of the Eligible Fund shares. A Valuation Period is the period
commencing at the close of trading on the New York Stock Exchange on each
Valuation Date and ending at the close of trading for the next succeeding
Valuation Date. A Valuation Date is each day that the New York Stock
Exchange is open for business. The New York Stock Exchange is currently
closed on weekends, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net Investment Factor
The Variable Account Value will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect value, Keyport Benefit utilizes an Accumulation Unit
value. Each Sub-account has its own Accumulation Units and value per Unit.
The Unit value applicable during any Valuation Period is determined at the
end of that period.
When Keyport Benefit first purchased Eligible Fund shares on behalf of the
Variable Account, Keyport Benefit valued each Accumulation Unit at a
specified dollar amount. The Unit value for each Sub-Account in any
Valuation Period thereafter is determined by multiplying the value for the
prior period by a net investment factor. This factor may be greater or
less than 1.0; therefore, the Accumulation Unit may increase or decrease
from Valuation Period to Valuation Period. Keyport Benefit calculates a
net investment factor for each Sub-Account by dividing (a) by (b) and then
subtracting (c) (i.e., (a/b) _ c), where:
(a) is equal to:
(i) the net asset value per share of the Eligible Fund at the end of
the Valuation Period; plus
(ii) the per share amount of any distribution made by the Eligible Fund
if the "ex-dividend" date occurs during that same Valuation
Period.
(b) is the net asset value per share of the Eligible Fund at the end of
the prior Valuation Period.
(c) is equal to:
(i) the Valuation Period equivalent of the daily Mortality and Expense
Risk Charge; plus
(ii) a charge factor, if any, for any tax provision established by
Keyport Benefit as a result of the operations of that Sub-Account.
Modification of the Certificate
Only Keyport Benefit's President or Secretary may agree to alter the
Certificate or waive any of its terms. Any changes must be made in writing
and with the Certificate Owner's consent, except as may be required by
applicable law.
Right to Revoke
The Certificate Owner may return the Certificate within 10 days after he or
she receives it by delivering or mailing it to either Keyport Benefit's
Service Office or Manning & Napier Insurance Fund, Inc. 1100 Chase Square,
P.O. Box 40610, Rochester, New York, 14604. The return of the Certificate
by mail will be effective when the postmark is affixed to a properly
addressed and postage-prepaid envelope. The returned Certificate will be
treated as if Keyport Benefit never issued it and Keyport Benefit will
refund the Certificate Value.
DEATH PROVISIONS FOR NON-QUALIFIED CERTIFICATES
Death of Primary Owner, Joint Owner or Certain Non-Owner Annuitant
These provisions apply if, before the Income Date while the Certificate is
In Force, the primary Certificate Owner or any joint Certificate Owner dies
(whether or not the decedent is also the Annuitant) or the Annuitant dies
under a Certificate with a non-natural Certificate Owner such as a trust.
The Designated Beneficiary will control the Certificate after such a death.
If the decedent's surviving spouse (if any) is the sole Designated
Beneficiary, the surviving spouse will automatically become the new sole
primary Certificate Owner as of the decedent's date of the death. And, if
the Annuitant is the decedent, the new Annuitant will be any living
contingent annuitant, otherwise the surviving spouse. The Certificate may
continue until another death occurs (i.e., until the death of the
Annuitant, primary Certificate Owner or joint Certificate Owner). Except
for this paragraph, all "Death Provisions" will apply to that subsequent
death.
In all other cases, the Certificate can continue up to five years from the
date of death. During this period, the Designated Beneficiary may exercise
all ownership rights, including the right to make transfers or partial
surrenders or the right to totally surrender the Certificate for its
Surrender Value. If the Certificate is still in effect at the end of the
five-year period, Keyport Benefit will automatically end it then by paying
the Certificate Value to the Designated Beneficiary. If the Designated
Beneficiary is not alive then, Keyport Benefit will pay any person(s) named
by the Designated Beneficiary in a Written Request; otherwise the
Designated Beneficiary's estate.
The covered person under this paragraph shall be the primary Certificate
Owner or, if there is a non-natural Certificate Owner such as a trust, the
Annuitant shall be the covered person. If the covered person dies, the
Certificate Value will be increased, as provided below, if it is less than
the Death Benefit Amount ("DBA"). The DBA is:
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, including any applicable surrender charge.
When Keyport Benefit receives due proof of the covered person's death,
Keyport Benefit will compare, as of the date of death, the Certificate
Value to the DBA. If the Certificate Value was less than the DBA, Keyport
Benefit will increase the current Certificate Value by the amount of the
difference. Note that while the amount of the difference is determined as
of the date of death, that amount is not added to the Certificate Value
until Keyport Benefit receives due proof of death. The amount to be
credited will be allocated to the Variable Account based on the Purchase
Payment allocation selection that is in effect when Keyport Benefit
receives due proof of death. If the Certificate is not surrendered, it
will continue for the time period specified above.
Payment of Benefits. Instead of receiving a lump sum, the Certificate
Owner or any Designated Beneficiary may direct by Written Request that
Keyport Benefit pay any benefit of $5,000 or more under an annuity payment
option that meets the following: (a) the first payment to the Designated
Beneficiary must be made no later than one year after the date of death;
(b) payments must be made over the life of the Designated Beneficiary or
over a period not extending beyond that person's life expectancy; and (c)
any payment option that provides for payments to continue after the death
of the Designated Beneficiary will not allow the successor payee to extend
the period of time over which the remaining payments are to be made.
Death of Certain Non-Certificate Owner Annuitant. These provisions apply
if, before the Income Date while the Certificate is In Force, (a) the
Annuitant dies, (b) the Annuitant is not a Certificate Owner, and (c) the
Certificate Owner is a natural person. The Certificate will continue in
force after the Annuitant's death. The new Annuitant will be any living
contingent annuitant, otherwise the primary Certificate Owner. If the
Annuitant is the first to die of the Certificate's primary Certificate
Owner, Joint Certificate Owner and Annuitant, then the Annuitant is the
Covered Person and the Certificate Value will be increased, as provided
below, if it is less than the Death Benefit Amount ("DBA"), as defined
above. When Keyport Benefit receives due proof of the Annuitant's death,
Keyport Benefit will compare, as of the date of death, the Certificate
Value to the DBA. If the Certificate Value was less than the DBA, Keyport
Benefit will increase the current Certificate Value by the amount of the
difference. Note that while the amount of the difference is determined as
of the date of death, that amount is not added to the Certificate Value
until Keyport Benefit receives due proof of death. The amount to be
credited will be allocated to the Variable Account based on the Purchase
Payment allocation selection that is in effect when Keyport Benefit
receives due proof of death.
DEATH PROVISIONS FOR QUALIFIED CERTIFICATES
Death of Annuitant. If the Annuitant dies before the Income Date while the
Certificate is In Force, the Designated Beneficiary will control the
Certificate after such a death. The Certificate Value will be increased,
as provided below, if it is less than the Death Benefit Amount ("DBA") as
defined above. When Keyport Benefit receives due proof of the Annuitant's
death, Keyport Benefit will compare, as of the date of death, the
Certificate Value to the DBA. If the Certificate Value was less than the
DBA, Keyport Benefit will increase the current Certificate Value by the
amount of the difference. Note that while the amount of the difference is
determined as of the date of death, that amount is not added to the
Certificate Value until Keyport Benefit receives due proof of death. The
amount to be credited will be allocated to the Variable Account based on
the Purchase Payment allocation selection that is in effect when Keyport
Benefit receives due proof of death.
If the Certificate is not surrendered, it may continue for the time period
permitted by the Internal Revenue Code provisions applicable to the
particular Qualified Plan. During this period, the Designated Beneficiary
may exercise all ownership rights, including the right to make transfers or
partial withdrawals or the right to totally surrender the Certificate for
its Certificate Withdrawal Value. If the Certificate is still in effect at
the end of the period, Keyport Benefit will automatically end it then by
paying the Certificate Withdrawal Value to the Designated Beneficiary. If
the Designated Beneficiary is not alive then, Keyport Benefit will pay any
person(s) named by the Designated Beneficiary in a Written Request;
otherwise the Designated Beneficiary's estate.
Payment of Benefits. Instead of receiving a lump sum, the Certificate
Owner or any Designated Beneficiary may direct by Written Request that
Keyport Benefit pay any benefit of $5,000 or more under an annuity payment
option that meets the following: (a) the first payment to the Designated
Beneficiary must be made no later than one year after the date of death;
(b) payments must be made over the life of the Designated Beneficiary or
over a period not extending beyond that person's life expectancy; and (c)
any payment option that provides for payments to continue after the death
of the Designated Beneficiary will not allow the successor payee to extend
the period of time over which the remaining payments are to be made.
CERTIFICATE OWNERSHIP
The Certificate Owner shall be the person designated in the application.
The Certificate Owner may exercise all the rights of the Certificate.
Joint Certificate Owners are permitted but not contingent Certificate
Owners.
The Certificate Owner may by Written Request change the Certificate Owner,
primary beneficiary, contingent beneficiary or contingent annuitant. An
irrevocably-named person may be changed only with the written consent of
such person.
Because a change of Certificate Owner by means of a gift (i.e., a transfer
without full and adequate consideration) may be a taxable event, a
Certificate Owner should consult a competent tax adviser as to the tax
consequences resulting from such a transfer.
Any Qualified Certificate may have limitations on transfer of ownership. A
Certificate Owner should consult the Plan Administrator and a competent tax
adviser as to the tax consequences resulting from such a transfer.
ASSIGNMENT
The Certificate Owner may assign the Certificate at any time. A copy of
any assignment must be filed with Keyport Benefit. The Certificate Owner's
rights and those of any revocably-named person will be subject to the
assignment. Any Qualified Certificate may have limitations on
assignability.
Because an assignment may be a taxable event, a Certificate Owner should
consult a competent tax adviser as to the tax consequences resulting from
any such assignment.
PARTIAL WITHDRAWALS AND SURRENDER
The Certificate Owner may make partial withdrawals from the Certificate.
Keyport Benefit must receive a Written Request and the minimum amount to be
withdrawn must be at least $300 or such lesser amount as Keyport Benefit
may permit in conjunction with a Systematic Withdrawal Program. If the
Certificate Value after a partial withdrawal would be below $2,500, Keyport
Benefit will treat the request as a withdrawal of only the excess amount
over $2,500. Unless the request specifies otherwise, the total amount
withdrawn will be deducted from all Sub-Accounts of the Variable Account in
the ratio that the value in each Sub-Account bears to the total Variable
Account Value.
The Certificate Owner may totally surrender the Certificate by making a
Written Request. Surrendering the Certificate will end it. Upon
surrender, the Certificate Owner will receive the Certificate Withdrawal
Value.
Keyport Benefit will pay the amount of any surrender within seven days of
receipt of such request. Alternatively, the Certificate Owner may purchase
for himself or herself an annuity option with any surrender benefit of at
least $5,000. Keyport Benefit's consent is needed to choose an option if
the Certificate Owner is not a natural person.
Annuity Options based on life contingencies cannot be surrendered after
annuity payments have begun. Option A, which is not based on life
contingencies, may be surrendered if a variable payout has been selected.
Because of the potential tax consequences of a full or partial surrender, a
Certificate Owner should consult a competent tax adviser regarding a
surrender.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Income Date and the Certificate is In
Force, payments will begin under the annuity option or options the
Certificate Owner has chosen. The amount of the payments will be
determined by applying the Certificate Value (less any premium taxes not
previously deducted and less any applicable Certificate Maintenance Charge)
on the Income Date in accordance with the option selected.
Income Date and Annuity Option
The Certificate Owner may select an Income Date and Annuity Option at the
time of application. If the Certificate Owner does not select an Annuity
Option, Option B will automatically be designated. If the Certificate
Owner does not select an Income Date for the Annuitant, the Income Date
will automatically be the ealier of (i) the later of the Annuitant's 90th
birthday and the 10th Certificate Anniversary and (ii) any maximum date
permitted under state law.
Change in Income Date and Annuity Option
The Certificate Owner may choose or change an Annuity Option or the Income
Date by making a Written Request to Keyport Benefit at least 30 days prior
to the Income Date. However, any Income Date must be: (a) for fixed
annuity options, not earlier than the first Certificate Anniversary; and
(b) not later than the earlier of (i) the later of the Annuitant's 90th
birthday and the 10th Certificate Anniversary and (ii) any maximum date
permitted under state law.
Annuity Options
The Annuity Options are:
Option A: Income for a Fixed Number of Years;
Option B: Life Income with 10 Years of Payments Guaranteed; and
Option C: Joint and Last Survivor Income.
Other options may be arranged by mutual consent. Each option is available
in two forms--as a variable annuity for use with the Variable Account and
as a fixed annuity for use with Keyport Benefit's general account.
Variable annuity payments will fluctuate while fixed annuity payments will
not. The dollar amount of each fixed annuity payment will be determined by
deducting from the Certificate Value any premium taxes not previously
deducted and any applicable Certificate Maintenance Charge and then
dividing the remainder by $1,000 and multiplying the result by the greater
of: (a) the applicable factor shown in the appropriate table in the
Certificate; or (b) the factor currently offered by Keyport Benefit at the
time annuity payments begin. This current factor may be based on the sex
of the payee unless to do so would be prohibited by law.
If no Annuity Option is selected, Option B will automatically be applied.
Unless the Certificate Owner chooses otherwise, Variable Account Value,
less any premium taxes not previously deducted and less any applicable
Certificate Maintenance Charge will be applied to a variable annuity
option. Whether variable or fixed, the same Certificate Value applied to
each option will produce a different initial annuity payment as well as
different subsequent payments.
The payee is the person who will receive the sum payable under an annuity
option. Any annuity option that provides for payments to continue after
the death of the payee will not allow the successor payee to extend the
period of time over which the remaining payments are to be made.
If the amount available to apply under any variable or fixed option is less
than $5,000, Keyport Benefit has reserved the right to pay such amount in
one sum to the payee in lieu of the payment otherwise provided for.
Annuity payments will be made monthly unless quarterly, semi-annual or
annual payments are chosen by Written Request. However, if any payment
provided for would be or becomes less than $100, Keyport Benefit has the
right to reduce the frequency of payments to such an interval as will
result in each payment being at least $100.
Option A: Income For a Fixed Number of Years. Keyport Benefit will pay an
annuity for a chosen number of years, not fewer than 5 nor over 50 (a
period of years over 30 may be chosen only if it does not exceed the
difference between age 100 and the Annuitant's age on the date of the first
payment). Option A is referred to as Preferred Income Plan (PIP). At any
time while variable annuity payments are being made, the payee may elect to
receive the following amount: the present value of the remaining payments,
commuted at the interest rate used to create the annuity factor for this
option (this interest rate is 5% per year, unless 3% per year is chosen by
Written Request at the time the option is selected). Instead of receiving
a lump sum, the payee can elect another payment option. If, at the death
of the payee, Option A payments have been made for less than the chosen
number of years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this option. For the variable annuity,
this interest rate is 5% per year, unless 3% per year had been chosen
by the payee at the time the option was selected.
The Mortality and Expense Risk Charge is deducted during the Option A
payment period if a variable payout has been selected, but Keyport Benefit
has no mortality risk during this period.
Keyport Benefit has available a "level monthly" payment option that can be
chosen for variable payments under Option A. Under this option, the monthly
payment amount changes every twelve months instead of every month as would
be the case under the standard monthly payment frequency. The "level
monthly" option converts an annual payment amount into twelve equal monthly
payments as follows. Each annual payment will be determined as described
below in "Variable Annuity Payment Values". Each annual payment will then
be placed in Keyport Benefit's general account, from which it will be paid
out in twelve equal monthly payments. The sum of the twelve monthly
payments will exceed the annual payment amount because of an interest rate
factor used by Keyport Benefit that will vary from year to year. If the
payments are commuted, (1) the commutation method described above for
calculating the present value of remaining payments applies to any
remaining annual payments and (2) any unpaid monthly payments out of the
current twelve will be commuted at the interest rate that was used to
determine those twelve current monthly payments.
See "Annuity Payments" for the manner in which Option A may be taxed.
Option B: Life Income with 10 Years of Payments Guaranteed. Keyport
Benefit will pay an annuity during the lifetime of the payee. If, at the
death of the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee; or
(b) that successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this option. For the variable annuity,
this interest rate is 5% per year, unless 3% per year had been chosen
by the payee at the time the option was selected.
The amount of the annuity payments will depend on the age of the payee on
the Income Date and it may also depend on the payee's sex.
Option C: Joint and Last Survivor Income. Keyport Benefit will pay an
annuity for as long as either the payee or a designated second natural
person is alive. The amount of the annuity payments will depend on the age
of both persons on the Income Date and it may also depend on each person's
sex. IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT
IF BOTH PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT OR TO RECEIVE
ONLY TWO ANNUITY PAYMENTS IF BOTH PAYEES DIE AFTER RECEIPT OF THE SECOND
PAYMENT AND SO ON.
Variable Annuity Payment Values
The amount of the first variable annuity payment is determined by Keyport
Benefit using an annuity purchase rate that is based on an assumed annual
investment return of 5% per year, unless 3% is chosen by Written Request.
Subsequent variable annuity payments will fluctuate in amount and reflect
whether the actual investment return of the selected Sub-Account(s) (after
deducting the Mortality and Expense Risk Charge) is better or worse than
the assumed investment return. The total dollar amount of each variable
annuity payment will be equal to: (a) the sum of all Sub-Account payments;
less (b) the pro-rata amount of the annual Certificate Maintenance Charge.
Currently, a payee can instruct Keyport Benefit to change the Sub-
Account(s) used to determine the amount of the variable annuity payments
once every 6 months.
Proof of Age, Sex, and Survival of Annuitant
Keyport Benefit may require proof of age, sex or survival of any payee upon
whose age, sex or survival payments depend. If the age or sex has been
misstated, Keyport Benefit will compute the amount payable based on the
correct age and sex. If income payments have begun, any underpayments
Keyport Benefit may have made will be paid in full with the next annuity
payment. Any overpayments, unless repaid in one sum, will be deducted from
future annuity payments until Keyport Benefit is repaid in full.
SUSPENSION OF PAYMENTS
Keyport Benefit reserves the right to suspend or postpone any type of
payment from the Variable Account for any period when: (a) the New York
Stock Exchange is closed other than customary weekend or holiday closings;
(b) trading on the Exchange is restricted; (c) an emergency exists as a
result of which it is not reasonably practicable to dispose of securities
held in the Variable Account or determine their value; or (d) the
Securities and Exchange Commission permits delay for the protection of
security holders. The applicable rules and regulations of the Securities
and Exchange Commission shall govern as to whether the conditions described
in (b) and (c) exist.
TAX STATUS
Introduction
The Certificate is designed for use by individuals in retirement plans
which may or may not be Qualified Plans under the provisions of the
Internal Revenue Code (the "Code"). The ultimate effect of federal income
taxes on the Certificate Value, on annuity payments, and on the economic
benefit to the Certificate Owner, Annuitant or Designated Beneficiary
depends on the type of retirement plan for which the Certificate is
purchased and upon the tax and employment status of the individual
concerned. The discussion contained herein is general in nature and is not
intended as tax advice. Each person concerned should consult a competent
tax adviser. No attempt is made to consider any applicable state or other
tax laws. Moreover, the discussion herein is based upon Keyport Benefit's
understanding of current federal income tax laws as they are currently
interpreted. No representation is made regarding the likelihood of
continuation of those current federal income tax laws or of the current
interpretations by the Internal Revenue Service.
Taxation of Annuities in General
Section 72 of the Code governs taxation of annuities in general. There are
no income taxes on increases in the value of a Certificate until a
distribution occurs, in the form of a full surrender, a partial surrender,
an assignment or gift of the Certificate, or annuity payments.
Surrenders, Assignments and Gifts. A Certificate Owner who fully
surrenders his or her Certificate is taxed on the portion of the payment
that exceeds his or her cost basis in the Certificate. For Non-Qualified
Certificates, the cost basis is generally the amount of the Purchase
Payments made for the Certificate and the taxable portion of the surrender
payment is taxed as ordinary income. For Qualified Certificates, the cost
basis is generally zero and the taxable portion of the surrender payment is
generally taxed as ordinary income subject to special 5-year income
averaging. A Designated Beneficiary receiving a lump sum surrender benefit
after the death of the Annuitant or Certificate Owner is taxed on the
portion of the amount that exceeds the Certificate Owner's cost basis in
the Certificate. If the Designated Beneficiary elects to receive annuity
payments within 60 days of the decedent's death, different tax rules apply.
See "Annuity Payments" below. For Non-Qualified Certificates, the tax
treatment applicable to Designated Beneficiaries may be contrasted with the
income-tax-free treatment applicable to persons inheriting and then selling
mutual fund shares with a date-of-death value in excess of their basis.
Partial withdrawals received under Non-Qualified Certificates prior to
annuitization are first included in gross income to the extent Certificate
Value exceeds Purchase Payments. Then, to the extent the Certificate Value
does not exceed Purchase Payments, such withdrawals are treated as a non-
taxable return of principal to the Certificate Owner. For partial
withdrawals under a Qualified Certificate, payments are treated first as a
non-taxable return of principal up to the cost basis and then a taxable
return of income. Since the cost basis of Qualified Certificates is
generally zero, partial surrender amounts will generally be fully taxed as
ordinary income.
A Certificate Owner who assigns or pledges a Non-Qualified Certificate is
treated as if he or she had received the amount assigned or pledged and
thus is subject to taxation under the rules applicable to partial
withdrawals or surrenders. A Certificate Owner who gives away the
Certificate (i.e., transfers it without full and adequate consideration) to
anyone other than his or her spouse is treated for income tax purposes as
if he or she had fully surrendered the Certificate.
A special computational rule applies if Keyport Benefit issues to the
Certificate Owner, during any calendar year, (a) two or more Certificates
or (b) one or more Certificates and one or more of Keyport Benefit's other
annuity contracts. Under this rule, the amount of any distribution
includable in the Certificate Owner's gross income is to be determined
under Section 72(e) of the Code by treating all the Keyport Benefit
contracts as one contract. Keyport Benefit believes that this means the
amount of any distribution under one Certificate will be includable in
gross income to the extent that at the time of distribution the sum of the
values for all the Certificates or contracts exceeds the sum of the cost
bases for all the contracts.
Annuity Payments. The non-taxable portion of each variable annuity payment
is determined by dividing the cost basis of the Certificate by the total
number of expected payments while the non-taxable portion of each fixed
annuity payment is determined by an "exclusion ratio" formula which
establishes the ratio that the cost basis of the Certificate bears to the
total expected value of annuity payments for the term of the annuity. The
remaining portion of each payment is taxable. Such taxable portion is
taxed at ordinary income rates. For Qualified Certificates, the cost basis
is generally zero. With annuity payments based on life contingencies, the
payments will become fully taxable once the payee lives longer than the
life expectancy used to calculate the non-taxable portion of the prior
payments. Because variable annuity payments can increase over time and
because certain payment options provide for a lump sum right of
commutation, it is possible that the IRS could determine that variable
annuity payments should not be taxed as described above but instead should
be taxed as if they were received under an agreement to pay interest. This
determination would result in a higher amount (up to 100%) of certain
payments being taxable.
With respect to the "level monthly" payment option available under Annuity
Option A, pursuant to which each annual payment is placed in Keyport
Benefit's general account and paid out with interest in twelve equal
monthly payments, it is possible the IRS could determine that receipt of
the first monthly payout of each annual payment is constructive receipt of
the entire annual payment. Thus, the total taxable amount for each annual
payment would be accelerated to the time of the first monthly payout and
reported in the tax year in which the first monthly payout is received.
Penalty Tax. Payments received by Certificate Owners, Annuitants, and
Designated Beneficiaries under Certificates may be subject to both ordinary
income taxes and a penalty tax equal to 10% of the amount received that is
includable in income. The penalty tax is not imposed on amounts received:
(a) after the taxpayer attains age 59 1/2; (b) in a series of substantially
equal payments made for life or life expectancy; (c) after the death of the
Certificate Owner (or, where the Certificate Owner is not a human being,
after the death of the Annuitant); (d) if the taxpayer becomes totally and
permanently disabled; or (e) under a Non-Qualified Certificate's annuity
payment option that provides for a series of substantially equal payments,
provided only one Purchase Payment is made to the Certificate, the
Certificate is not issued as a result of a Section 1035 exchange, and the
first annuity payment begins in the first Certificate Year.
Income Tax Withholding. Keyport Benefit is required to withhold federal
income taxes on taxable amounts paid under Certificates unless the
recipient elects not to have withholding apply. Keyport Benefit will
notify recipients of their right to elect not to have withholding apply.
Section 1035 Exchanges. A Non-Qualified Certificate may be purchased with
proceeds from the surrender of an existing annuity contract. Such a
transaction may qualify as a tax-free exchange pursuant to Section 1035 of
the Code. It is Keyport Benefit's understanding that in such an event: (a)
the new Certificate will be subject to the distribution-at-death rules
described in "Death Provisions for Non-Qualified Certificates"; (b)
Purchase Payments made between August 14, 1982 and January 18, 1985 and the
income allocable to them will, following an exchange, no longer be covered
by a "grandfathered" exception to the penalty tax for a distribution of
income that is allocable to an investment made over ten years prior to the
distribution; and (c) Purchase Payments made before August 14, 1982 and the
income allocable to them will, following an exchange, continue to receive
the following "grandfathered" tax treatment under prior law: (i) the
penalty tax does not apply to any distribution; (ii) partial withdrawals
are treated first as a non-taxable return of principal and then a taxable
return of income; and (iii) assignments are not treated as surrenders
subject to taxation. Keyport Benefit's understanding of the above is
principally based on legislative reports prepared by the Staff of the
Congressional Joint Committee on Taxation.
Diversification Standards. The U.S. Secretary of the Treasury has issued
regulations that set standards for diversification of the investments
underlying variable annuity contracts (other than pension plan contracts).
The Eligible Funds are designed to be managed to meet the diversification
requirements for the Certificate as those requirements may change from time
to time. If the diversification requirements are not satisfied, the
Certificate would not be treated as an annuity contract. As a consequence
to the Certificate Owner, income earned on a Certificate would be taxable
to the Certificate Owner in the year in which diversification requirements
were not satisfied, including previously non-taxable income earned in prior
years. As a further consequence, Keyport Benefit would be subjected to
federal income taxes on assets in the Variable Account.
The Secretary of the Treasury announced in September 1986 that he expects
to issue regulations which will prescribe the circumstances in which a
Certificate Owner's control of the investments of a segregated asset
account may cause the Certificate Owner, rather than the insurance company,
to be treated as the owner of the assets of the account. The regulations
could impose requirements that are not reflected in the Certificate.
Keyport Benefit, however, has reserved certain rights to alter the
Certificate and investment alternatives so as to comply with such
regulations. Since the regulations have not been issued, there can be no
assurance as to the content of such regulations or even whether application
of the regulations will be prospective. For these reasons, Certificate
Owners are urged to consult with their own tax advisers.
Qualified Plans
The Certificate is designed for use with Qualified Plans. The tax rules
applicable to participants in Qualified Plans vary according to the type
of plan and the terms and conditions of the plan itself. Therefore, no
attempt is made herein to provide more than general information about the
use of the Certificate with Qualified Plans. Participants under a
Qualified Plan as well as Certificate Owners, Annuitants, and Designated
Beneficiaries are cautioned that the rights of any person to any benefits
under a Qualified Plan may be subject to the terms and conditions of the
plan regardless of the terms and conditions of the Certificate issued in
connection therewith. Following is a brief description of the type of
Qualified Plans offered and of the use of the Certificate in connection
therewith. Purchasers of the Certificate should seek competent advice
concerning the terms and conditions of the particular Qualified Plan and
use of the Certificate with that Plan.
Individual Retirement Annuities
Sections 408(b) and 408A of the Code permit eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" and "Roth IRA", respectively. These individual
retirement annuities are subject to limitations on the amount which may be
contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, distributions from certain types
of Qualified Plans may be placed on a tax-deferred basis into a Section
408(b) Individual Retirement Annuity.
VARIABLE ACCOUNT VOTING PRIVILEGES
In accordance with its view of present applicable law, Keyport Benefit will
vote the shares of the Eligible Funds held in the Variable Account at
regular and special meetings of the shareholders of the Eligible Funds in
accordance with instructions received from persons having the voting
interest in the Variable Account. Keyport Benefit will vote shares for
which it has not received instructions in the same proportion as it votes
shares for which it has received instructions.
However, if the Investment Company Act of 1940 or any regulation thereunder
should be amended or if the present interpretation thereof should change,
and as a result Keyport Benefit determines that it is permitted to vote the
shares of the Eligible Funds in its own right, it may elect to do so.
The person having the voting interest under a Certificate prior to the
Income Date shall be the Certificate Owner. The number of shares held in
each Sub-Account which are attributable to each Certificate Owner is
determined by dividing the Certificate Owner's Variable Account Value in
each Sub-Account by the net asset value of the applicable share of the
Eligible Fund. The person having the voting interest after the Income Date
under an annuity payment option shall be the payee. The number of shares
held in the Variable Account which are attributable to each payee is
determined by dividing the reserve for the annuity payments by the net
asset value of one share. During the annuity payment period, the votes
attributable to a payee decrease as the reserves underlying the payments
decrease.
The number of shares in which a person has a voting interest will be
determined as of the date coincident with the date established by the
respective Eligible Fund for determining shareholders eligible to vote at
the meeting of the Fund and voting instructions will be solicited by
written communication prior to such meeting in accordance with the
procedures established by the Eligible Fund.
Each person having the voting interest in the Variable Account will receive
periodic reports relating to the Eligible Fund(s) in which he or she has an
interest, proxy material and a form with which to give such voting
instructions with respect to the proportion of the Eligible Fund shares
held in the Variable Account corresponding to his or her interest in the
Variable Account.
SALES OF THE CERTIFICATES
Keyport Financial Services Corp. ("KFSC") serves as the Principal
Underwriter for the Certificate described in this Prospectus. The
Certificate will be sold by salespersons who represent Keyport Benefit Life
Insurance Company, an affiliate of KFSC, as variable annuity agents and who
are registered representatives of broker/dealers who have entered into
distribution agreements with KFSC. KFSC is registered under the Securities
Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. It is located at 125 High Street, Boston,
Massachusetts 02110. 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. Keyport Benefit is engaged in various
kinds of routine litigation which in its judgment is not of material
importance in relation to the total capital and surplus of Keyport Benefit.
INQUIRIES BY CERTIFICATE OWNERS
Certificate Owners with questions about their Certificates may either write
Keyport Benefit's Service Office, 125 High Street, Boston, MA 02110, or
call (800) 367-3653 or write Manning & Napier Insurance Fund, Inc. at P.O.
Box 40610 Rochester, New York 14604 or call (800) 466-3863.
TABLE OF CONTENTS_STATEMENT OF ADDITIONAL INFORMATION
Page
Keyport Benefit Life Insurance Company 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 6
Financial Statements 6
Keyport Benefit Life Insurance Company 7
APPENDIX A
TELEPHONE INSTRUCTIONS
Telephone Transfers of Certificate Values
1. If there are joint Certificate Owners, both must authorize Keyport
Benefit and Manning & Napier Insurance Fund, Inc. ("Manning & Napier
Insurance Fund") to accept telephone instructions but either Certificate
Owner can give telephone instructions.
2. All callers will be required to identify themselves. Keyport Benefit
reserves the right to refuse to act upon any telephone instructions in
cases where the caller has not sufficiently identified himself/herself to
Keyport Benefit's or Manning & Napier Insurance Fund's satisfaction.
3. Neither Keyport Benefit, Manning & Napier Insurance Fund, nor any
person acting on its behalf shall be subject to any claim, loss, liability,
cost or expense if it or such person acted in good faith upon a telephone
instruction, including one that is unauthorized or fraudulent; however,
Keyport Benefit and/or Manning & Napier Insurance Fund will employ
reasonable procedures to confirm that a telephone instruction is genuine
and, if Keyport Benefit and/or Manning & Napier Insurance Fund does not,
Keyport Benefit and/or Manning & Napier Insurance Fund may be liable for
losses due to an unauthorized or fraudulent instruction. The Certificate
Owner thus bears the risk that an unauthorized or fraudulent instruction
that is executed may cause the Certificate Value to be lower than it would
be had no instruction been executed.
4. All conversations will be recorded with disclosure at the time of the
call.
5. The application for the Certificate may allow a Certificate Owner to
create a power of attorney by authorizing another person to give telephone
instructions. Unless prohibited by state law, such power will be treated
as durable in nature and shall not be affected by the subsequent
incapacity, disability or incompetency of the Certificate Owner. Either
Keyport Benefit, Manning & Napier Insurance Fund or the authorized person
may cease to honor the power by sending written notice to the Certificate
Owner at the Certificate Owner's last known address. Neither Keyport
Benefit, Manning & Napier Insurance Fund nor any person acting on its
behalf shall be subject to liability for any act executed in good faith
reliance upon a power of attorney.
6. Telephone authorization shall continue in force until (a) Keyport
Benefit and/or Manning & Napier Insurance Fund receives the Certificate
Owner's written revocation, (b) Keyport Benefit and/or Manning & Napier
Insurance Fund discontinues the privilege, or (c) Keyport Benefit and/or
Manning & Napier Insurance Fund receives written evidence that the
Certificate Owner has entered into a market timing or asset allocation
agreement with an investment adviser or with a broker/dealer.
7. Telephone transfer instructions received by Keyport Benefit at 800-367-
3653 and/or Manning & Napier Insurance Fund at (800) 466-3863 before the
close of trading on the New York Stock Exchange (currently 4:00 P.M.
Eastern Time) will be initiated that day based on the unit value prices
calculated at the close of that day. Instructions received after the close
of trading on the NYSE will be initiated the following business day.
8. Once instructions are accepted by Keyport Benefit and/or Manning &
Napier Insurance Fund, they may not be canceled.
9. All transfers must be made in accordance with the terms of the
Certificate and current prospectus. If the transfer instructions are not
in good order, Keyport Benefit and/or Manning & Napier Insurance Fund will
not execute the transfer and will notify the caller within 48 hours.
10. If 100% of any Sub-Account's value is transferred and the allocation
formula for Purchase Payments includes that Sub-Account, then the
allocation formula for future Purchase Payments will change accordingly
unless Keyport Benefit receives telephone instructions to the contrary.
For example, if the allocation formula is 50% to Sub-Account A and 50% to
Sub-Account B and all of Sub-Account A's value is transferred to Sub-
Account B, the allocation formula will change to 100% to Sub-Account B
unless Keyport Benefit is instructed otherwise.
Telephone Changes to Purchase Payment Allocation Percentages
Numbers 1-6 above are applicable.
STATEMENT OF ADDITIONAL INFORMATION
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
VARIABLE ACCOUNT A
OF
KEYPORT BENEFIT LIFE INSURANCE COMPANY ("Keyport Benefit")
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 June 25, 1998. 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
Keyport Benefit Life Insurance Company.....................................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...............6
Financial Statements.......................................................6
Keyport Benefit Life Insurance Company...................................7
The date of this statement of additional information is June 25, 1998.
KEYPORT BENEFIT LIFE INSURANCE COMPANY
Liberty Mutual Insurance Company ("Liberty Mutual"), a multi-line insurance
company, is the ultimate corporate parent of Keyport Benefit. Liberty
Mutual ultimately controls Keyport Benefit through the following
intervening holding company subsidiaries: Liberty Mutual Equity
Corporation, LFC Holdings Inc., Liberty Financial Companies, Inc. ("LFC"),
SteinRoe Services, Inc. and Keyport Life Insurance Company. Liberty Mutual,
as of December 31, 1997, owned, indirectly, approximately 73% of the
combined voting power of the outstanding stock of LFC (with the balance
being publicly held). For additional information about Keyport Benefit, see
page 8 of the prospectus.
VARIABLE ANNUITY BENEFITS
Variable Annuity Payment Values
For each variable payment option, the total dollar amount of each periodic
payment will be equal to: (a) the sum of all Sub-Account payments; less (b)
the pro-rata amount of the annual Certificate Maintenance Charge.
The first payment for each Sub-Account will be determined by deducting any
applicable Certificate Maintenance Charge and any applicable state premium
taxes and then dividing the remaining value of that Sub-Account by $1,000
and multiplying the result by the greater of: (a) the applicable factor
from the Certificate's annuity table for the particular payment option; or
(b) the factor currently offered by Keyport Benefit at the time annuity
payments begin. This current factor may be based on the sex of the payee
unless to do so would be prohibited by law.
The number of Annuity Units for each Sub-Account will be determined by
dividing such first payment by the Sub-Account Annuity Unit value for the
Valuation Period that includes the date of the first payment. The number
of Annuity Units remains fixed for the annuity payment period. Each Sub-
Account payment after the first one will be determined by multiplying (a)
by (b), where: (a) is the number of Sub-Account Annuity Units; and (b) is
the Sub-Account Annuity Unit value for the Valuation Period that includes
the date of the particular payment.
Variable annuity payments will fluctuate in accordance with the investment
results of the underlying Eligible Funds. In order to determine how these
fluctuations affect annuity payments, Keyport Benefit uses an Annuity Unit
value. Each Sub-Account has its own Annuity Units and value per Unit. The
Annuity Unit value applicable during any Valuation Period is determined at
the end of such period.
When Keyport Benefit first purchased Eligible Fund shares on behalf of the
Variable Account, Keyport Benefit valued each Annuity Unit for each Sub-
Account at a specified dollar amount. The Unit value for each Sub-Account
in any Valuation Period thereafter is determined by multiplying the value
for the prior period by a net investment factor. This factor may be
greater or less than 1.0; therefore, the Annuity Unit may increase or
decrease from Valuation Period to Valuation Period. For each assumed
annual investment rate (AIR), Keyport Benefit 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 Contract'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 Keyport Benefit 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 Keyport
Benefit receives the request, Keyport Benefit will: (a) value the Annuity
Units for each Sub-Account to create a total annuity value; (b) apply the
new percentages the payee has selected to this total value; and (c)
recompute the number of Annuity Units for each Sub-Account. This new
number of units will remain fixed for the remainder of the payment period
unless the payee requests another change.
SAFEKEEPING OF ASSETS
Keyport Benefit is responsible for the safekeeping of the assets of the
Variable Account.
Keyport Benefit 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. Keyport Benefit has contracted with Keyport
Life Insurance Company, its corporate parent, to provide all administration
for the Contracts and Certificates, as its agent. Keyport Benefit pays
Keyport Life Insurance Company for the costs it incurs for providing those
administrative services.
PRINCIPAL UNDERWRITER
The Contracts and Certificates, which are offered continuously, are
distributed by Keyport Financial Services Corp. ("KFSC"), which is an
affiliate of Keyport Benefit.
EXPERTS
The statutory-basis financial statements of Keyport Benefit Life Insurance
Company (formerly American Benefit Life Insurance Company) as of December
31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 appearing in this Statement of Additional Information
have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
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.
FINANCIAL STATEMENTS
The Variable Account has not yet commenced operations and therefore no
financial statements are included. The financial statements of Keyport
Benefit are provided as relevant to its ability to meet its financial
obligations under the Certificates.
Report of Independent Auditors
The Board of Directors and Stockholder
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
We have audited the accompanying statutory-basis balance sheets of Keyport
Benefit Life Insurance Company (formerly American Benefit Life Insurance
Company, a wholly-owned subsidiary of American Republic Insurance Company)
as of December 31, 1997 and 1996, and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1997. 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.
As described in Note 1 to the financial statements, the Company presents
its financial statements in conformity with accounting practices prescribed
or permitted by the Insurance Department of the State of New York, which
practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are
presumed to be material.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting
principles, the financial position of Keyport Benefit Life Insurance
Company at December 31, 1997 and 1996, or the results of its operations or
its cash flows for each of the three years in the period ended December 31,
1997.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Keyport Benefit
Life Insurance Company at December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with accounting practices prescribed
or permitted by the Insurance Department of the State of New York.
ERNST & YOUNG LLP
Des Moines, Iowa
March 13, 1998
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Balance Sheets - Statutory-Basis
December 31
1997 1996
Admitted assets
Bonds D at amortized cost $2,995,943 $ 8,416,743
Cash and cash equivalents:
Short-term investments 2,498,556 210,000
Cash 952,919 74,858
3,451,475 284,858
Total cash and investments 6,447,418 8,701,601
Investment income due and accrued 86,829 152,615
Receivable from securities sold - 873
Other admitted assets 9 151
Separate account assets 2,777,522 3,690,792
Total admitted assets $9,311,778 $12,546,032
Liabilities and capital and surplus
Liabilities:
Policy reserves:
Annuity $ 73,095 $ 88,053
Accident and health 95,961 79,526
169,056 167,579
Policy and contract claims 47,460 45,600
Due to parent under tax allocation agreement 87,449 132,559
Transfer to separate accounts due or accrued, net (3,214) (10,285)
Asset valuation reserve - 58,296
Interest maintenance reserve 38,672 20,116
Other liabilities 105,833 20,825
Separate account liabilities 2,777,522 3,690,792
Total liabilities 3,222,778 4,125,482
Lease commitment (Note 9)
Capital and surplus:
Common Stock, par value $2,000
per share D 1,000 shares authorized,
issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 2,500,000 5,000,000
Separate account contingency reserve - 92,270
Unassigned surplus 1,589,000 1,328,280
Total capital and surplus 6,089,000 8,420,550
Total liabilities and capital and surplus $9,311,778 $12,546,032
See accompanying notes.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Statements of Operations - Statutory-Basis
Year ended December 31
1997 1996 1995
Premiums and other considerations:
Annuity deposits $ 37,387 $ 43,705 $ 51,449
Accident and health - 9,100 18,200
37,387 52,805 69,649
Net investment income 562,822 590,018 570,073
Miscellaneous income 7,902 7,651 134,395
608,111 650,474 774,117
Benefits and expenses:
Benefits paid or provided for:
Surrender benefits 1,312,171 1,804,050 3,285,960
Annuity and other benefits 27,546 86,818 58,768
Accident and health benefits 27,420 - 37,326
Decrease in policy reserves 1,477 (30,370) (131,774)
1,368,614 1,860,498 3,250,280
Insurance expenses:
Commissions 3,149 4,479 6,175
General insurance expenses 389,107 327,700 300,049
Insurance taxes, licenses and fees 27,001 7,749 7,039
Net transfers from separate account (1,356,208)(1,895,913)(3,230,846)
(936,951)(1,555,985)(2,917,583)
431,663 304,513 332,697
Gain from operations before federal
income taxes and net realized capital
gains 176,448 345,961 441,420
Federal income taxes 66,328 118,372 130,420
Net gain from operations before net
realized capital gains 110,120 227,589 311,000
Net realized capital gains, net of
federal income taxes (1997 - $14,672;
1996 D $1,628; 1995 D $1,580) and amounts
transferred to interest maintenance
reserve (1997 D $27,249; 1996 D $3,024;
1995 D $2,934) - - -
Net income $110,120 $227,589 $311,000
See accompanying notes.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Statements of Changes in Capital and Surplus - Statutory-Basis
Separate
Additional Account
Common Paid-In Contingency Unassigned
Stock Capital Reserve Surplus Total
Balance at
January 1,
1995 $2,000,000 $5,000,000 $185,557 $ 769,276 $7,954,833
Net income - - - 311,000 311,000
Decrease in
asset
valuation
reserve - - - 3,917 3,917
Decrease in
nonadmitted
assets - - - 356 356
Decrease in
surplus of
separate
account - - - (69,062) (69,062)
Transfer of
contingency
reserve back
to unassigned
surplus - - (57,755) 57,755 -
Other - - - (7,522) (7,522)
Balance at
December 31,
1995 2,000,000 5,000,000 127,802 1,065,720 8,193,522
Net income - - - 227,589 227,589
Increase in
asset valuation
reserve - - - (751) (751)
Decrease in
nonadmitted
assets - - - 190 190
Transfer of
contingency
reserve back to
unassigned
surplus - - (35,532) 35,532 -
Balance at
December 31,
1996 2,000,000 5,000,000 92,270 1,328,280 8,420,550
Net income - - - 110,120 110,120
Decrease in
asset valuation
reserve - - - 58,296 58,296
Decrease in
nonadmitted
assets - - - 34 34
Transfer of
contingency
reserve back
to unassigned
surplus - - (92,270) 92,270 -
Dividend paid
to parent - (2,500,000) - - (2,500,000)
Balance at
December 31,
1997 $2,000,000 $2,500,000 $ - $1,589,000 $6,089,000
See accompanying notes.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Statements of Cash Flows - Statutory-Basis
Year ended December 31
1997 1996 1995
Operating activities
Premiums and other
considerations $ 37,529 $ 52,808 $ 69,504
Investment income, less expenses 648,361 598,768 599,720
Miscellaneous income (792) 186 126,915
Accident and health claims (25,560) - (43,526)
Annuity surrenders (1,312,171) (1,804,050) (3,285,960)
Annuity and other benefits paid (27,546) (86,818) (58,768)
Insurance expenses (340,984) (344,366) (326,057)
Federal income taxes paid (126,110) (119,441) (65,501)
Net transfers from separate account 1,363,279 1,910,019 3,230,846
Net cash provided by operating
activities 216,006 207,106 247,173
Investing activities
Proceeds from bonds sold,
matured or repaid 5,743,126 2,978,253 1,692,370
Cost of bonds acquired (293,966) (3,388,068) (1,826,241)
Dividend paid to parent (2,500,000) - -
Other 1,451 49,070 1
Net cash provided by (used in)
investing activities 2,950,611 (360,745) (133,870)
Increase (decrease) in cash and
cash equivalents 3,166,617 (153,639) 113,303
Cash and cash equivalents at
beginning of year 284,858 438,497 325,194
Cash and cash equivalents at end
of year $3,451,475 $ 284,858 $ 438,497
See accompanying notes.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements
December 31, 1997
1. Organization and Significant Accounting Policies
Organization
Through December 31, 1997, Keyport Benefit Life Insurance Company (formerly
American Benefit Life Insurance Company) was wholly owned by American
Republic Insurance Company (American Republic), a mutual life insurance
company. The Company was sold on January 2, 1998 to Keyport Life Insurance
Company including the assumption of all responsibilities related to the
Separate Account. The name of the Company was changed in conjunction with
the sale from American Benefit Life Insurance Company to Keyport Benefit
Life Insurance Company. The Company offers flexible premium annuities and
long-term care products. The Company is licensed in the State of New York.
Basis of Presentation
The accompanying financial statements of Keyport Benefit Life Insurance
Company (formerly American Benefit Life Insurance Company) have been
prepared in conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of New York, which practices differ
from generally accepted accounting principles ("GAAP").
Prescribed statutory accounting practices include state laws, regulations
and general administrative rules, as well as a variety of publications of
the National Association of Insurance Commissioners (NAIC). Permitted
statutory accounting practices encompass all accounting practices that are
not prescribed. Such practices may differ from state to state, may differ
from company to company within a state and may change in the future.
The NAIC is in the process of codifying statutory accounting practices
(Codification). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements. Codification, which was approved by the NAIC in March 1998,
will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Iowa must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Division. At this time, it is
unclear whether the State of Iowa will adopt Codification.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
The more significant differences between statutory accounting practices and
GAAP are as follows: (a) investments in bonds are reported at amortized
cost or market value based on their NAIC rating. For GAAP purposes, such
investments in debt securities are designated at purchase as held-to-
maturity, trading or available-for-sale. Held-to-maturity investments in
debt securities are reported at amortized cost. The remaining investments
in debt securities are reported at fair value with the unrealized holding
gains and losses reported in operations for those designated as trading and
as a separate component of equity for those designated as available-for-
sale; (b) the costs of acquiring and renewing business are charged to
current operations as incurred rather than deferred and amortized over the
premium-paying period or in proportion to the present value of expected
gross profit margins; (c) policy reserves on certain annuity contracts use
discounting methodologies utilizing statutory interest rates rather than
full account values; (d) deferred federal income taxes are not provided for
the difference between the financial reporting and income tax bases of
assets and liabilities for statutory purposes, whereas, they are required
for GAAP; (e) under a formula determined by the NAIC, the Company defers in
the Interest Maintenance Reserve (IMR) the portion of realized gains and
losses on sales of bonds attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity. Realized capital gains and losses are reported in operations net
of federal income taxes and transfers to the IMR rather than reported in
the statements of operations on a pretax basis in the period that the asset
giving rise to the gain or loss is sold; (f) declines in the estimated
realizable value of investments are provided for through the establishment
of a formula determined statutory asset valuation reserve (carried as a
liability) with changes charged directly to surplus, rather than through
recognition in the statements of operations for declines in value, when
such declines are judged to be other than temporary; (g) certain assets
designated as "non-admitted assets" have been charged directly to surplus
rather than being reported as assets; and (h) revenues for annuity deposits
consist of premiums received rather than policy charges for the cost of
insurance, policy initiation and administration, surrender charges and
other fees that have been assessed against policy account values.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are
presumed to be material.
Use of Estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported
in the financial statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes known,
which could impact the amounts reported and disclosed herein.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Investments
Investments in bonds and short-term investments are stated at cost adjusted
for amortization of premiums or accrual of discounts. The discounts or
premiums on bonds are amortized using the scientific (interest) method,
which results in a constant yield over the investmentsO expected lives.
Other admitted assets are valued as required or permitted by the Insurance
Department of the State of New York.
Realized capital gains and losses on investments are determined on the
basis of specific identification and are recorded in the statements of
operations net of related federal income taxes and amounts transferred to
the interest maintenance reserve. The Asset Valuation Reserve (AVR) is
established by the Company to provide for anticipated losses in the event
of default by issuers of certain invested assets. These amounts are
determined using a formula prescribed by the NAIC and are reported as a
liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC,
the Company defers, in the IMR, the portion of realized gains and losses on
sales of fixed income investments, principally bonds, attributable to
changes in the general level of interest rates and amortizes those
deferrals over the remaining period to maturity of the security.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of one year or less when
purchased to be cash equivalents.
Policy Reserves
The annuity policy reserves are established and maintained using assumed
interest rates and valuation methods that will provide, in the aggregate,
reserves that are greater than the minimum valuation required by law or
guaranteed policy cash values.
The accident and health policy reserves represent unearned premiums on
accident and health policies and an estimate of unpaid claims. Policy and
contract claims are determined using individual claim evaluations and
statistical analyses. Policy and contract claims represent estimates of the
ultimate net costs of all losses, reported and unreported, which remain
unpaid at December 31 of each year. These estimates are necessarily subject
to the impact of future changes in claim severity, frequency and other
factors. In spite of the variability inherent in such situations,
management believes that the unpaid claim amounts are adequate. The
estimates are continuously reviewed and as adjustments to these amounts
become necessary, such adjustments are reflected in current operations.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Recognition of Premium Revenue and Costs
Premiums are recognized as revenue over the premium-paying period and all
costs related to the acquisition of new business are charged to operations
as incurred.
Separate Account
Separate account assets and liabilities represent funds held for the
exclusive benefit of variable annuity contractholders. Fees are received
for administrative expenses and for assuming certain mortality,
distribution and expense risks. The statement of operations includes the
premiums, benefits and other items (including transfers to and from the
separate account) arising from the operations of the separate account.
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair
value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparisons to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of $3,451,475 and
$284,858 at December 31, 1997 and 1996, respectively, for these
instruments approximate their fair values.
Bonds: Fair values for bonds are based on quoted market prices, where
available. For bonds not actively traded, fair values are estimated
using values obtained from independent pricing services. The carrying
amounts and fair values of the CompanyOs bonds were $2,995,943 and
$3,060,000 at December 31, 1997 and $8,416,743 and $8,517,444 at
December 31, 1996, respectively.
Separate account assets: The carrying amount of $2,777,522 and
$3,690,792 at December 31, 1997 and 1996, respectively, represents the
fair value of these assets.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Investment contracts: Fair values for the CompanyOs liabilities under
investment-type insurance contracts are based on the cash surrender
values of the underlying contracts. The carrying amounts and fair values
of the CompanyOs liabilities for investment-type insurance contracts,
including separate account liabilities, was $2,847,403 and $2,771,755 at
December 31, 1997 and $3,768,560 and $3,752,000 at December 31, 1996,
respectively.
3. Investment Operations
At December 31, 1997 and 1996, the amortized cost and estimated fair values
of the CompanyOs portfolio of debt securities is as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1997
Bonds:
United States
Government and
agencies $2,995,943 $ 64,057 $ - $3,060,000
Short-term investments:
Industrial and
miscellaneous 2,498,556 - - 2,498,556
$5,494,499 $ 64,057 $ - $5,558,556
December 31, 1996
Bonds:
United States
Government and
agencies $3,293,758 $ 68,533 $ (9,291) $3,353,000
State, municipal
and other government 99,270 2,730 - 102,000
Public utilities 1,679,494 14,927 (7,640) 1,686,781
Industrial and
miscellaneous 3,344,221 45,872 (14,430) 3,375,663
8,416,743 132,062 (31,361) 8,517,444
Short-term investments:
Industrial and
miscellaneous 210,000 - - 210,000
210,000 - - 210,000
$8,626,743 $132,062 $(31,361) $8,727,444
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
3. Investment Operations (continued)
The amortized cost and estimated fair value of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Fair
Cost Value
Due in one year or less $3,498,500 $3,498,556
Due after one year through
five years 1,995,999 2,060,000
$5,494,499 $5,558,556
For the years ended December 31, 1997, 1996 and 1995, net realized
investment gains as shown in the statement of operations includes gross
gains on the sale of debt securities of $41,921, $4,652 and $4,514,
respectively.
Major categories of net investment income are summarized as follows:
Year ended December 31
1997 1996 1995
Bonds $502,118 $583,777 $561,809
Short-term investments 76,180 14,582 15,440
Miscellaneous 29 - -
578,327 598,359 577,249
Less investment expenses 15,505 8,341 7,176
Net investment income $562,822 $590,018 $570,073
At December 31, 1997, affidavits of deposits covering bonds of $500,000
were on deposit with state agencies to meet regulatory requirements.
4. Federal Income Taxes
The Company filed a consolidated federal income tax return with American
Republic through December 31, 1997. It is American RepublicOs policy to
compute taxes allocated to the Company as if the Company filed a separate
tax return.
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
4. Federal Income Taxes (continued)
The effective tax rate is different than the prevailing federal income tax
rates of 35% in 1997, 1996 and 1995, principally due to the following:
Year ended December 31
1997 1996 1995
Federal income tax at statutory
rate $61,757 $121,086 $154,497
Tax increase (decrease) from:
Separate account loss - - (24,171)
Market discount on bonds D net (9,427) (5,752) (5,884)
Deferred acquisition costs D
tax basis (3,603) (2,951) (4,044)
Realized gains 14,672 1,628 1,580
Other 2,929 4,361 8,442
Federal income taxes $66,328 $118,372 $130,420
5. Annuity Reserves
The CompanyOs annuity policy reserves (including separate account
liabilities) relate to liabilities established on a variety of the
CompanyOs products that are not subject to significant mortality and
morbidity risk; however, there may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, and the related
percentage of the total, are summarized as follows:
December 31
1997 1996
Amount Percentage Amount Percentage
Subject to discretionary
withdrawal at book value
less surrender charge $2,758,820 97% $3,673,369 98%
Not subject to
discretionary withdrawal 88,583 3 95,191 2
Total annuity reserves and
deposit fund liabilities $2,847,403 100% $3,768,560 100%
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
6. Liability for Unpaid Claims
Activity in the liability for unpaid accident and health claims is
summarized as follows:
Year ended December 31
1997 1996 1995
Balance at January 1 $45,600 $45,600 $100,000
Incurred related to:
Current year - - -
Prior years 38,984 - (10,874)
Total incurred 38,984 - (10,874)
Paid related to:
Current year - - -
Prior years 25,560 - 43,526
Total paid 25,560 - 43,526
Balance at December 31 $59,024 $45,600 $ 45,600
7. Separate Account
A reconciliation of the amounts transferred to and from the separate
account is as follows:
Year ended December 31
1997 1996 1995
Transfers as reported in the
summary of operations of the
separate account statement:
Transfers to separate account $ - $ 22,638 $ 81,085
Transfers from separate
account (1,354,731) (1,918,111) (3,410,160)
Net transfers from separate
account (1,354,731) (1,895,473) (3,329,075)
Reconciling adjustments:
General account annuity
management fee income - - 97,387
Separate account
miscellaneous income (1,477) (440) 842
(1,477) (440) 98,229
Transfers as reported in the
summary of operations of the
life, accident and health annual
statement $(1,356,208) $(1,895,913) $(3,230,846)
Keyport Benefit Life Insurance Company
(formerly American Benefit Life Insurance Company)
Notes to Statutory-Basis Financial Statements (continued)
8. Related Party Transactions
Under a service agreement with American Republic, the Company reimburses
American Republic for the cost of services which it provides to the
Company. The cost of these services was $69,415, $52,586 and $49,933 for
1997, 1996 and 1995, respectively.
9. Lease Commitment
The Company has entered into an operating lease agreement for rental of
space for the home office. Rent expense was $16,316 for 1997, $10,080 for
1996 and $10,050 in 1995.
10. Year 2000 (Unaudited)
Based on a study of its computer software and hardware, the Company has
determined its exposure to the Year 2000 change of the century date issue.
The Company has developed a plan to modify its information technology to be
ready for the Year 2000. Efforts began in 1996 to modify its systems. This
project is expected to be substantially completed early in 1999. While
additional testing will be conducted on its systems through the Year 2000,
the Company does not expect this project to have a significant effect on
the Company's operations. To mitigate the effect of outside influences and
other dependencies relative to the Year 2000, the Company is contacting
significant customers, suppliers and other third parties. To the extent
these third parties would be unable to transact business in the Year 2000
and thereafter, the Company's operations could be adversely affected.
