File No. 811-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-8B-2
REGISTRATION STATEMENT OF UNIT INVESTMENT TRUSTS
WHICH ARE CURRENTLY ISSUING SECURITIES
Pursuant to Section 8(b) of the Investment Company Act of 1940
LLAC VARIABLE ACCOUNT
(Name of Unit Investment Trust)
Not the issuer of periodic payment plan certificates.
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X Issuer of periodic payment plan certificates.
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I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Furnish name of the trust and the Internal Revenue Service Employer
Identification Number.
LLAC Variable Account (the "Variable Account"). There is no Internal
Revenue Service Employer Identification Number for the Variable Account.
(b) Furnish title of each class or series of securities issued by the trust.
Variable portion of Modified Single Payment Variable Universal Life
Insurance Contracts (the "Contracts").
2. Furnish name and principal business address and zip code and the Internal
Revenue Service Employer Identification Number of each depositor of the
trust.
Liberty Life Assurance Company of Boston
(the "Company" or "Liberty Life")
175 Berkeley Street
Boston, Massachusetts 02117
IRS Employer Identification Number: 04-6076039
3. Furnish name and principal business address and zip code and the Internal
Revenue Service Employer Identification Number of each custodian or trustee
of the trust indicating for which class or series of securities each
custodian or trustee is acting.
There is no custodian or trustee.
4. Furnish name and principal business address and zip code and the Internal
Revenue Service Employer Identification Number of each principal underwriter
currently distributing securities of the trust.
No Contracts are currently being distributed. When distribution commences,
the principal underwriter will be:
Liberty Life Distributors LLC ("LLD")
100 Liberty Way
Dover, New Hampshire 03820
IRS Employer Identification Number: 02-0502398
5. Furnish name of state or other sovereign power, the laws of which govern
with respect to the organization of the trust.
Commonwealth of Massachusetts
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6. (a) Furnish the dates of execution and termination of any indenture or
agreement currently in effect under the terms of which the trust was
organized and issued or proposes to issue securities.
The Variable Account was established pursuant to Massachusetts law by
resolution of the Board of Directors of Liberty Life adopted on July 10,
1998. The Variable Account will continue in existence until its complete
liquidation and the distribution of its assets to the persons entitled
to receive them. The resolution authorizes the issuance of the
Contracts.
(b) Furnish the dates of execution and termination of any indenture or
agreement currently in effect pursuant to which the proceeds of payments
on securities issued or to be issued by the trust are held by the
custodian or trustee.
Not applicable, for the reasons set forth under Item 3, which is
incorporated herein by reference.
7. Furnish in chronological order the following information with respect to
each change of name of the trust since January 1, 1930. If the name has
never been changed, so state.
The Variable Account has never been known by any other name.
8. State the date on which the fiscal year of the trust ends.
The fiscal year of the Variable Account ends on December 31.
Material Litigation
9. Furnish a description of any pending legal proceedings, material with
respect to the security holders of the trust by reason of the nature of the
claim or the amount thereof, to which the trust, the depositor, or the
principal underwriter is a party or of which the assets of the trust are the
subject, including the substance of the claims involved in such proceeding
and the title of the proceeding. Furnish a similar statement with respect to
any pending administrative proceeding commenced by a governmental authority
or any such proceeding or legal proceeding known to be contemplated by a
governmental authority. Include any proceeding which, although immaterial
itself, is representative of, or one of, a group which in the aggregate is
material.
There are no pending legal proceedings affecting the Variable Account.
Liberty Life is engaged in routine law suits which, in its management's
judgment, are not of material importance to its total assets or material
with respect to the Variable Account.
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II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
General Information Concerning the Securities of the Trust and the Rights of
Holders
10. Furnish a brief statement with respect to the following matters for each
class or series of securities issued by the trust:
(a) Whether the securities are of the registered or bearer type;
The Contracts which are to be issued are of the registered type insofar
as all Contracts are owned by the person(s) named in a Contract as the
Owner (the "Owner"), and the records concerning the Owner are maintained
by or on behalf of the Company.
(b) Whether the securities are of the cumulative or distributive type;
The Contracts are of the cumulative type, providing for no direct
distribution of income, dividends or capital gains. Such amounts are not
separately identifiable but are reflected in the Account Values and
death benefit under a Contract at any time.
(c) The rights of security holders with respect to withdrawal or redemption;
See "Amount Payable on Surrender of the Contract", "Contract Loans", and
"Cancellation" in the Prospectus in Exhibit D, incorporated herein by
reference.
(d) The rights of security holders with respect to conversion, transfer,
partial redemption and similar matters;
See "Cancellation", "Amount Payable on Surrender of the Contract",
"Partial Withdrawals", "Allocation of Payments", "Systematic Withdrawal
Program", and "Transfer of Account Value" in the Prospectus in Exhibit
D, incorporated herein by reference.
(e) If the trust is the issuer of periodic payment plan certificates, the
substance of the provisions of any indenture or agreement with respect
to lapses or defaults by security holders in making principal payments,
and with respect to reinstatement;
See "Termination and Grace Period" in the Prospectus in Exhibit D,
incorporated herein by reference.
(f) The substance of the provisions of any indenture or agreement with
respect to voting rights, together with the names of any persons other
than security holders given the right to exercise voting rights
pertaining to the trust's securities or the underlying securities and
the relationship of such persons to the trust;
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See "Voting Rights" in the Prospectus in Exhibit D, incorporated herein
by reference.
(g) Whether security holders must be given notice of any change in:
(1) the composition of the assets of the trust;
See "Statements to Contract Owners" in the Prospectus in Exhibit D,
incorporated herein by reference. Except to the extent described in
the Prospectus, no changes in the terms and conditions of the
Contracts can be made without notice to and/or consent of Contract
Owners. As described in the response to other items of this form,
however, the Contracts permit the Company to exercise discretion in
changing certain fees and charges, restricting certain Contract
Owner rights and taking certain other actions.
(2) the terms and conditions of the securities issued by the trust;
See 10(g)(1) above, which is incorporated herein by reference.
(3) the provisions of any indenture or agreement of the trust;
No notice to or consent from Owners is required in connection with
any change in the provisions of the resolution of the Company's
Board of Directors pursuant to which the Variable Account was
established and the Contracts will be issued.
(4) the identity of the depositor, trustee or custodian;
There is no requirement for notice to, or consent of Owners with
respect to any change in the identity of the Variable Account's
depositor.
(h) Whether the consent of security holders is required in order for action
to be taken concerning any change in:
(1) the composition of the assets of the trust;
See "Additions, Deletions and Substitutions of Securities" and
"Allocation of Payments" in the Prospectus in Exhibit D,
incorporated herein by reference. Also see (g)(1) above, which is
incorporated herein by reference.
(2) the terms and conditions of the securities issued by the trust;
See (g)(3) above, which is incorporated herein by reference.
(3) the provisions of any indenture or agreement of the trust;
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See (g)(1) above, which is incorporated herein by reference.
(4) the identity of the depositor, trustee or custodian;
See (g)(4) above, which is incorporated herein by reference.
(i) Any other principal feature of the securities issued by the trust or any
other principal right, privilege or obligation not covered by
subdivisions (a) to (g) or by any other item in this form.
See "Deductions and Charges", "Contract Benefits and Rights", and
"Account Value" in the Prospectus in Exhibit D, incorporated herein by
reference.
Information Concerning the Securities Underlying the Trust's Securities
11. Describe briefly the kind or type of securities comprising the unit of
specified securities in which security holders have an interest. If the
trust owns or will own any securities of its regular brokers or dealers as
defined in Rule 10b-1 under the Act, or their parents, identify those
brokers or dealers and state the value of the registrant's aggregate
holdings of the securities of each subject issuer as of the close of the
registrant's most recent fiscal year.
The Contract Owner will not be the owner of the securities held in the
Variable Account, although the value of those securities will be used to
calculate Contract benefits. The securities are owned by the Company but
held in the Variable Account pursuant to Massachusetts insurance laws
governing the operation of separate accounts. The securities held in the
Variable Account will be shares of the Portfolios described below, which are
the following registered, open-end management investment companies or series
thereof: AIM Variable Insurance Funds, Inc. ("AIM Funds"); Liberty Variable
Investment Trust ("Liberty Trust"); Dreyfus Stock Index Fund, Dreyfus
Variable Investment Fund, Capital Appreciation Portfolio, and Dreyfus
Socially Responsible Growth Fund, Inc. (collectively the "Dreyfus
Portfolios"); MFS Variable Insurance Trust ("MFS Trust"); Oppenheimer
Variable Account Funds ("Oppenheimer Funds"); and Stein Roe Variable
Investment Trust ("Stein Roe Trust").
AIM Advisors, Inc. is the investment adviser to each Portfolio of the AIM
Funds. Liberty Advisory Services Corp. (formerly known as Keyport Advisory
Services Corp.), an affiliate of Liberty Life, is the manager for Liberty
Trust and its Portfolios. Colonial Management Associates, Inc., an affiliate
of Liberty Life, serves as sub-adviser for the Liberty Trust Portfolios
(except for the Liberty All-Star Equity Fund). Liberty Asset Management
Company, an affiliate of Liberty Life, serves as sub-adviser for Liberty
All-Star Equity and the current portfolio managers are J.P. Morgan
Investment Management Inc., Oppenheimer Capital, Wilke/Thompson Capital
Management Inc., Westwood Management Corp., and Boston Partners Asset
Management, L.P. The Dreyfus Corporation ("Dreyfus") serves as investment
adviser for each of the Dreyfus Portfolios. Mellon Equity Associates, an
affiliate of Dreyfus, serves as index fund manager to the Dreyfus Stock
Index Fund. Sarofim serves
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as sub-investment adviser to the Dreyfus Capital Appreciation Fund. NCM
Capital Management Group, Inc. serves as sub-investment adviser to the
Dreyfus Socially Responsible Growth Fund, Inc. Massachusetts Financial
Services Company is the investment adviser to each Portfolio of the MFS
Trust. Oppenheimer Funds, Inc. is the investment adviser to each Portfolio
of the Oppenheimer Funds. Stein Roe & Farnham Incorporated is the investment
adviser for each Portfolio of Stein Roe Trust. For additional information
about the Portfolios, and their advisers and subadvisers, see "Variable
Account Investments: Portfolios" in the prospectus in Exhibit D,
incorporated herein by reference.
The investment objectives of the Portfolios in which the Variable Account
invests are as follows:
Portfolios of AIM Funds
and Variable Account Sub-Accounts
AIM V.I. Capital Appreciation. Capital appreciation through investments in
common stocks, with emphasis on medium-sized and smaller emerging growth
companies.
AIM V.I. International Equity. Long-term growth of capital by investing in
international equity securities, the issuers of which are considered by the
adviser to have strong earnings momentum.
Portfolios of Liberty Trust and
Variable Account Sub-Accounts
Colonial Small Cap Value Fund (Colonial Small Cap Value Sub-Account).
Long-term growth by investing primarily in smaller capitalization equity
securities.
Colonial High Yield Securities Fund (Colonial High Yield Securities
Sub-Account). High current income and total return by investing primarily in
lower rated corporate debt securities. The Portfolio may invest up to 100%
of its assets in lower rated bonds (commonly referred to as "junk bonds")
which are regarded as speculative as to payment of principal and interest.
Therefore, the corresponding Sub-Account may not be suitable for all
Contract Owners. Contract Owners should carefully assess the risks
associated with the Portfolio before investing.
Colonial Strategic Income Fund (Colonial Strategic Income Sub-Account). A
high level of current income, as is consistent with prudent risk and
maximizing total return, by diversifying investments primarily in U.S. and
foreign government and lower rated corporate debt securities. The Portfolio
may invest a substantial portion of its assets in lower rated bonds
(commonly referred to as "junk bonds"). Therefore, the corresponding
Sub-Account may not be suitable for all Contract Owners. Contact Owners
should carefully assess the risks associated with the Portfolio before
investing.
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Colonial U.S. Stock Fund (Colonial U.S. Stock Sub-Account). Long-term
capital growth by investing primarily in large capitalization equity
securities.
Liberty All-Star Equity Fund (Liberty All-Star Equity Sub-Account). Total
investment return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities.
Dreyfus Portfolios and
Variable Account Sub-Accounts
Dreyfus Stock Index Fund (Dreyfus Stock Index Sub-Account). Investment
results that correspond to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index.(1)
Dreyfus Variable Investment Fund, Capital Appreciation Portfolio (Dreyfus
Capital Appreciation Sub-Account). Long-term capital growth consistent with
the preservation of capital, with current income as a secondary objective,
by investing primarily in the common stocks of domestic and foreign issuers.
Dreyfus Socially Responsible Growth Fund, Inc. (Dreyfus Socially Responsible
Growth Sub-Account). Capital growth, with current income as a secondary
goal, by investing principally in common stocks, or securities convertible
into common stocks, of companies which, in the opinion of the Portfolio's
management, not only meet traditional investment standards, but also show
evidence that they conduct their business in a manner that contributes to
the enhancement of the quality of life in America.
Portfolios of MFS Trust
and Variable Account Sub-Accounts
MFS Emerging Growth Series (MFS Emerging Growth Sub-Account). Long-term
growth of capital by investing primarily in common stocks of companies that
the adviser believes are early in their life cycle but have the potential to
become major enterprises.
MFS Research Series (MFS Research Sub-Account). Long-term growth of capital
and future income by investing a substantial portion of the Portfolio's
assets in equity securities of companies believed to possess better than
average prospects for long-term growth. The Portfolio may invest up to 20%
of its assets in foreign securities that are not traded on a U.S. exchange.
MFS Utilities Series (MFS Utilities Sub-Account). Capital growth and current
income, by investing, under normal circumstances, at least 65% (but up to
100% at the discretion of the
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(1)"Standard & Poor's 500", "S&P 500(R)", and "S&P 500 (R)" are
trademarks of the McGraw-Hill Companies Inc. and have been licensed for use by
the Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P
or The McGraw-Hill Companies, Inc.
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adviser) of its assets in equity and debt securities of both domestic and
foreign companies in the utilities industry.
MFS Growth with Income Series (MFS Growth with Income Sub-Account).
Reasonable current income and long-term growth of capital and income by
investing, under normal market conditions, at least 65% of its assets in
equity securities of companies that are believed to have long-term prospects
for growth and income. This Portfolio may also invest up to 75% (and
generally expects to invest not more than 15%) of its net assets in foreign
securities that are not traded on a U.S. exchange.
Portfolios of Oppenheimer Funds
and Variable Account Sub-Accounts
Oppenheimer Bond Fund (Oppenheimer Bond Sub-Account). High level of current
income by investing primarily in debt securities.
Oppenheimer Growth & Income Fund (Oppenheimer Growth & Income Sub-Account).
High total return (which includes growth in the value of its shares as well
as current income) from equity and debt securities. From time to time this
Fund may focus on small to medium capitalization common stocks, bonds, and
convertible securities.
Portfolios of Stein Roe Trust and
Variable Account Sub-Accounts
Stein Roe Balanced Fund (Stein Roe Balanced Sub-Account). High total
investment return through investment in a changing mix of securities.
Stein Roe Growth Stock Fund (Stein Roe Growth Stock Sub-Account). Long-term
growth of capital through investment primarily in common stocks.
Stein Roe Money Market Fund (Stein Roe Money Market Sub-Account). High
current income from short-term money market instruments while emphasizing
preservation of capital and maintaining excellent liquidity.
12. If the trust is the issuer of periodic payment plan certificates and if any
underlying securities were issued by another investment company, furnish the
following information for each such company:
(a) Name of company;
AIM Variable Insurance Funds, Inc.
Liberty Variable Investment Trust
Dreyfus Life and Annuity Index Fund, Inc., dba, Dreyfus Stock
Index Fund
Dreyfus Variable Investment Fund
Dreyfus Socially Responsible Growth Fund, Inc.
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MFS Variable Insurance Trust
Oppenheimer Variable Account Funds
Stein Roe Variable Investment Trust
(b) Name and principal business address of depositor;
Not applicable.
(c) Name and principal business address of trustee or custodian;
Custodian for AIM Trust, MFS Trust, and Stein Roe Trust:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Custodian for Liberty Trust:
Chase Manhattan Bank
3 Chase Metro Tech Center
8th Floor
Brooklyn, New York 11245
Custodian for Dreyfus Stock Index Fund
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Custodian for Dreyfus Variable Investment Fund, Capital Appreciation
Portfolio and Dreyfus Socially Responsible Growth Fund, Inc.
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Custodian for Oppenheimer Funds:
The Bank of New York
One Wall Street
New York, New York 10015
(d) Name and principal business address of principal underwriter;
Distributor for AIM Trust:
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AIM Distributors
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Principal Underwriters for Liberty Trust:
Keyport Financial Services Corporation
125 High Street
Boston, Massachusetts 02110
Liberty Financial Investments, Inc.
One Financial Center
Boston, Massachusetts 02111
Distributor for Dreyfus Portfolios:
Premier Mutual Fund Services, Inc.
60 State Street
Boston, Massachusetts 02109
Distributor for MFS Variable Insurance Trust:
MFS Fund Distributors, Inc.
500 Boyleston Street
Boston, Massachusetts 02110
Principal Underwriter for Oppenheimer Funds:
Not applicable.
Principal Underwriter for Stein Roe Trust:
Keyport Financial Services Corporation
125 High Street
Boston, Massachusetts 02110
(e) The period during which the securities of such company have been
the underlying securities.
No underlying securities have to date been acquired by the Variable
Account.
Information concerning Loads, Fees, Charges and Expenses
13. (a) Furnish the following information with respect to each load, fee,
expense or charge to which (1) principal payments; (2) underlying
securities; (3) distributions; (4) cumulated or reinvested distributions
or income; and (5) redeemed or liquidated assets of the trust's
securities are subject:
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(A) the nature of such load, fee, expense, or charge;
(B) the amount thereof;
(C) the name of the person to whom such amounts are paid and his
relationship to the trust;
(D) the nature of the services performed by such person in consideration
for such load, fee, expense, or charge.
For sub-paragraphs (A) to (D) of this sub-item, see "Deductions and
Charges", including "Deductions and Charges -- Withdrawal Charge", in
the Prospectus in Exhibit D, incorporated herein by reference.
(b) For each installment payment type of periodic payment plan certificate
of the trust, furnish the following information with respect to sales
load and other deductions from principal payments.
Not applicable, because the Variable Account intends initially to issue
single payment Contracts.
(c) State the amount of total deductions as a percentage of the net amount
invested for each type of security issued by the trust. State each
different sales charge available as a percentage of the public offering
price and as a percentage of the net amount invested. List any special
purchase plans or methods established by rule or exemptive order that
reflect scheduled variations in, or elimination of, the sales load, and
identify each class of individuals or transactions to which such plans
apply.
See (a) and (b) above, which are incorporated herein by reference.
(d) Explain fully the reasons for any difference in the price at which
securities are offered generally to the public, and the price at which
securities are offered for any class of transactions to any class or
group of individuals, including officers, directors, or employees of the
depositor, trustee, custodian, or principal underwriter.
See "Deductions and Charges -- Monthly Deduction" and "Deduction and
Charges -- Withdrawal Charge", and "Deduction and Charges, Special
Provisions for Group or Sponsored Arrangements" in the Prospectus in
Exhibit D, incorporated herein by reference.
(e) Furnish a brief description of any loads, fees, expenses or charges not
covered in Item 13(a) which may be paid by security holders in
connection with the trust or its securities.
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None
(f) State whether the depositor, principal underwriter, custodian or
trustee, or any affiliated person of the foregoing may receive profits
or other benefits not included in answer to Item 13(a) or 13(d) through
the sale or purchase of the trust's securities or interests in such
securities, or underlying securities or interests in underlying
securities, and describe fully the nature and extent of such profits or
benefits.
See "Portfolio Expenses" in the Prospectus in Exhibit D, incorporated
herein by reference.
(g) State the percentage that the aggregate annual charges and deductions
for maintenance and other expenses of the trust bear to the dividend and
interest income from the trust property during the period covered by the
financial statements filed herewith:
Not applicable since the Variable Account has not yet commenced
operations.
Information Concerning the Operations of the Trust
14. Describe the procedure with respect to applications (if any) and the
issuance and authentication of the trust's securities, and state the
substance of the provisions of any indenture or agreement pertaining
thereto.
See "Application for a Contract", "Allocation of Payments", and
"Distribution of Contracts" in the Prospectus in Exhibit D, incorporated
herein by reference.
15. Describe the procedure with respect to the receipt of payments from
purchasers of the trust's securities and the handling of the proceeds
thereof, and state the substance of the provisions of any indenture or
agreement pertaining thereto.
See "Application for a Contract", "Allocation of Payments", "Payments", and
"Transfer of Account Value" in the Prospectus in Exhibit D, incorporated
herein by reference.
16. Describe the procedure with respect to the acquisition of underlying
securities and the disposition thereof, and state the substance of the
provisions of any indenture or agreement pertaining thereto.
See "Portfolios" in the Prospectus in Exhibit D incorporated herein by
reference.
17. (a) Describe the procedure with respect to withdrawal or redemption by
security holders.
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The procedures with respect to withdrawal or redemption by security
holders are described in response to Items 10(c) and 10(d), which are
incorporated herein by reference.
(b) Furnish the names of any persons who may redeem or repurchase, or are
required to redeem or repurchase, the trust's securities or underlying
securities from security holders, and the substance of the provisions of
any indenture or agreement pertaining thereto.
See Items 10(c), 10(d) and 10(e) and 17(a), which are incorporated
herein by reference.
(c) Indicate whether repurchased or redeemed securities will be canceled or
may be resold.
Not applicable. Variable Account assets are used to support benefits and
amounts payable under a Contract and there is no limit on the amount of
Variable Account interests that may be sold.
18. (a) Describe the procedure with respect to the receipt, custody and
disposition of the income and other distributable funds of the trust and
state the substance of the provisions of any indenture or agreement
pertaining thereto.
See "Portfolios" and "Allocation of Payments" in the Prospectus in
Exhibit D, incorporated herein by reference.
(b) Describe the procedure, if any, with respect to the reinvestment of
distributions to security holders and state the substance of the
provisions of any indenture or agreement pertaining thereto.
Not applicable.
(c) If any reserves or special funds are created out of income or principal,
state with respect to each such reserve or fund the purpose and ultimate
disposition thereof, and describe the manner of handling of same.
The assets of the Variable Account which are allocable to the Contracts
constitute a reserve for the payment of benefits under the Contracts.
The general assets of the Company are also available to satisfy the
Company's contractual obligations under the Contracts.
(d) Submit a schedule showing the periodic and special distributions which
have been made to security holders during the three years covered by the
financial statements filed herewith. State for each such distribution
the aggregate amount and amount per share. If distributions from sources
other than current income have been made, identify each such other
source and indicate whether such distribution represents
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the return of principal payments to security holders. If payments other
than cash were made describe the nature thereof, the account charged and
the basis of determining the amount of such charge.
Not applicable.
19. Describe the procedure with respect to the keeping of records and accounts
of the trust, the making of reports and the furnishing of information to
security holders, and the substance of the provisions of any indenture or
agreement pertaining thereto.
The Company has responsibility for all administration of the Contracts. The
Company, among other things, will maintain the records and books of the
Variable Account. It also will maintain records of the name, address,
taxpayer identification number, and other pertinent information for each
Owner and the number and type of Contract issued to each such Owner and
records with respect to the Account Value, Surrender Value, Accumulation
Unit Value and the Death Benefit of each Contract. Under the Distribution
Agreement among the Company on its own behalf and on behalf of the Variable
Account and LLD, LLD will maintain certain records relating to the sale of
the Contracts.
See "Portfolios" and "Statements to Contract Owners" in the Prospectus in
Exhibit D, incorporated herein by reference.
20. State the substance of the provisions of any indenture or agreement
concerning the trust with respect to the following:
(a) Amendments to such indenture or agreement;
Item 10(g) is incorporated herein by reference.
(b) The extension or termination of such indenture or agreement;
Items 6(a) and 6(b) are incorporated herein by reference.
(c) The removal or resignation of the trustee or custodian, or the failure
of the trustee or custodian to perform its duties, obligations and
functions;
Not applicable, for the reasons set forth in Item 3, which is
incorporated herein by reference.
(d) The appointment of a successor trustee and the procedure if a successor
trustee is not appointed;
Not applicable.
(e) The removal or resignation of the depositor, or the failure of the
depositor to perform its duties, obligations and functions;
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There are no provisions relative to the removal or resignation of the
depositor or the failure of the depositor to perform its duties,
obligations and functions. The Company is bound under the Contracts and
Massachusetts insurance law to carry out its obligations and those of
the Variable Account under the Contracts.
(f) The appointment of a successor depositor and the procedure if a
successor depositor is not appointed.
There are no provisions relating to the appointment of a successor
depositor or the procedure if a successor depositor is not appointed.
The Company is bound under the Contracts and Massachusetts insurance law
to carry out its obligations (including those with respect to the
Variable Account) under the Contracts.
21. (a) State the substance of the provisions of any indenture or agreement
with respect to loans to security holders.
See "Contract Loans" in the Prospectus in Exhibit D, incorporated herein
by reference.
(b) Furnish a brief description of any procedure or arrangement by which
loans are made available to security holders by the depositor, principal
underwriter, trustee or custodian, or any affiliated person of the
foregoing. The following items should be covered:
(1) the name of each person who makes such agreements or arrangements
with security holders;
(2) the rate of interest payable on such loans;
(3) the period for which loans may be made;
(4) costs or charges for default in repayment at maturity;
(5) other material provisions of the agreement or arrangements.
Item 21(a) is incorporated herein by reference.
(c) If such loans are made, furnish the aggregate amount of loans
outstanding at the end of the last fiscal year, the amount of interest
collected during the last fiscal year allocated to the depositor,
principal underwriter, trustee or custodian or affiliated person of the
foregoing and the aggregate amount of loans in default at the end of the
last fiscal year covered by financial statements filed herewith.
Not applicable, since no Contracts have yet been sold.
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22. State the substance of the provisions of any indenture or agreement with
respect to limitations on the liabilities of the depositor, trustee or
custodian, or any other party to such indenture or agreement.
There are no such provisions.
23. Describe any bonding arrangement for officers, directors, partners or
employees of the depositor or principal underwriter of the trust, including
the amount of coverage and the type of bond.
See "Liberty Life Assurance Company of Boston" in the Prospectus in Exhibit
D, incorporated herein by reference.
24. State the substance of any other material provisions of any indenture or
agreement concerning the trust or its securities and a description of any
other material functions or duties of the depositor, trustee or custodian
not stated in Item 10 or Items 14 to 23 inclusive.
See "General Contract Provisions" in the Prospectus in Exhibit D,
incorporated herein by reference.
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION AND OPERATIONS OF DEPOSITOR
25. State the form of organization of the depositor of the trust, the name of
the state or other sovereign power under the laws of which the depositor was
organized and the date of organization,
See "Liberty Life Assurance Company of Boston" in the Prospectus in Exhibit
D, incorporated herein by reference.
26. (a) Furnish the following information with respect to all fees received
by the depositor of the trust in connection with the exercise of any
functions or duties concerning securities of the trust during the period
covered by the financial statements filed herewith: (Chart omitted)
The Company has not received any such fees as yet.
(b) Furnish the following information with respect to any fee or any
participation in fees received by the depositor from any underlying
investment company or any affiliated person or investment adviser of
such company:
(1) the nature of such fee or participation;
(2) the name of the person making payment;
16
<PAGE>
(3) the nature of the services rendered in consideration for such fee or
participation;
(4) the aggregate amount received during the last fiscal year covered by
the financial statements filed herewith.
The Company has not received any such fees.
27. Describe the general character of the business engaged in by the depositor
including a statement as to any business other than that of depositor of the
trust. If the depositor acts or has acted in any capacity with respect to
any investment company or companies other than the trust, state the name or
names of such company or companies, their relationship, if any, to the
trust, and the nature of the depositor's activities therewith. If the
depositor has ceased to act in such named capacity, state the date of and
circumstances surrounding such cessation.
See "Liberty Life Assurance Company of Boston" in the Prospectus in Exhibit
D, incorporated herein by reference.
Officials and Affiliated Persons of Depositor
28. (a) Furnish as at latest practicable date the following information with
respect to the depositor of the trust, with respect to each officer,
director, or partner of the depositor, and with respect to each natural
person directly or indirectly owning, controlling or holding with power
to vote five percent or more of the outstanding voting securities of the
depositor.
Items 29 and 30 are incorporated herein by reference.
(b) Furnish a brief statement of the business experience during the last
five years of each officer, director or partner of the depositor.
See "Officers and Directors of Liberty Life" in the Prospectus in Exhibit D,
incorporated herein by reference.
Companies Owning Securities of Depositor
29. Furnish as at latest practicable date the following information with respect
to each company which directly or indirectly owns, controls or holds with
power to vote five percent or more of the outstanding voting securities of
the depositor.
Liberty Life is an indirect, wholled subsidiary of Liberty Mutual Insurance
Company (90%) and Liberty Mutual Fire Insurance Company (10%). Liberty
Mutual Insurance Company is a multi-line insurance and financial services
institution.
17
<PAGE>
Controlling Persons
30. Furnish as at latest practicable date the following information with respect
to any person, other than those covered by Items 28, 29 and 42 who directly
or indirectly controls the depositor.
Not applicable
Compensation of Officers and Directors of Depositor.
Compensation of Officers of Depositor.
31. Furnish the following information with respect to the remuneration for
services paid by the depositor during the last fiscal year covered by
financial statements filed herewith:
(a) Directly to each of the officers or partners of the depositor directly
receiving the three highest amounts of remuneration:
No officer, director or employee has been paid any separate remuneration
by the Company for services with respect to the Variable Account.
(b) Directly to all officers or partners of the depositor as a group
exclusive of persons whose remuneration is included under Item 31(a),
stating separately the aggregate amount paid by the depositor itself and
the aggregate amount paid by all the subsidiaries.
Item 31(a) is incorporated herein by reference.
(c) Indirectly or through subsidiaries to each of the officers or partners
of the depositor.
Item 31(a) is incorporated herein by reference.
Compensation of Directors
32. Furnish the following information with respect to the remuneration for
services, exclusive of remuneration reported under Item 31, paid by the
depositor during the last fiscal year covered by financial statements filed
herewith:
(a) The aggregate direct remuneration to directors;
Item 31(a) is incorporated herein by reference.
(b) Indirectly or through subsidiaries to directors.
Item 31(a) is incorporated herein by reference.
18
<PAGE>
Compensation to Employees
33. (a) Furnish the following information with respect to the aggregate
amount of remuneration for services of all employees of the depositor
(exclusive of persons whose remuneration is reported in Items 31 and 32)
who received remuneration in excess of $10,000 during the last fiscal
year covered by financial statements filed herewith from the depositor
and any of its subsidiaries.
Item 31(a) is incorporated herein by reference.
(b) Furnish the following information with respect to the remuneration for
services paid directly during the last fiscal year covered by financial
statements filed herewith to the following classes of persons (exclusive
of those persons covered by Item 33(a)): (1) sales managers, branch
managers, district managers and other persons supervising the sale of
registrant's securities; (2) salesmen, sales agents, canvassers and
other persons making solicitations but not in a supervisory capacity;
(3) administrative and clerical employees; and (4) others (specify). If
a person is employed in more than one capacity, classify according to
predominant type of work.
Item 31(a) is incorporated herein by reference.
Compensation to Other Persons
34. Furnish the following information with respect to the aggregate amount of
compensation for services paid any person (exclusive of persons whose
remuneration is reported in Items 31, 32 and 33), whose aggregate
compensation in connection with services rendered with respect to the trust
in all capacities exceeded $10,000 during the last fiscal year covered by
financial statements filed herewith from the depositor and any of its
subsidiaries:
Not applicable, because the Variable Account has not yet commenced
operations.
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
Distribution of Securities
35. Furnish the names of the states in which sales of the trust's securities:
(a) are currently being made, (b) are presently proposed to be made, and (c)
have been discontinued, indicating by appropriate letter the status with
respect to each state.
No sales of the Contracts have been made or are currently being made. It is
presently proposed to sell the Contracts in all the states and the District
of Columbia, to the extent that, and at such time as, the Company obtains
necessary regulatory clearance in such states to do so.
19
<PAGE>
36. If sales of the trust's securities have at any time since January 1, 1936
been suspended for more than a month describe briefly the reasons for such
suspension.
Not applicable.
37. (a) Furnish the following information with respect to each instance
where, subsequent to January 1, 1937, any federal or state governmental
officer, agency, or regulatory body denied authority to distribute
securities of the trust, excluding a denial which was merely a
procedural step prior to any determination by such officer, etc. and
which denial was subsequently rescinded:
(1) name of officer, agency or body;
(2) date of denial;
(3) brief statement of reasons given for denial.
As to (1) through (3), none.
(b) Furnish the following information with regard to each instance where,
subsequent to January 1, 1937, the authority to distribute securities of
the trust has been revoked by any federal or state governmental officer,
agency or regulatory body:
(1) name of officer, agency or body;
(2) date of revocation;
(3) brief statement of reasons given for revocation.
As to (1) through (3), none.
38. (a) Furnish a general description of the method of distribution of
securities of the trust.
See "Distribution of Contracts" in the Prospectus in Exhibit D,
incorporated herein by reference.
(b) State the substance of any current selling agreement between each
principal underwriter and the trust or the depositor, including a
statement as to the inception and termination dates of the agreement,
any renewal and termination provisions, and any assignment provisions.
The Company will execute a Distribution Agreement with LLD whereby LLD
will distribute the Contracts on a best efforts basis. The agreement
will be effective on the date stipulated and will remain effective until
terminated by either party upon not less than [60] days advance written
notice and may not be assigned, except by operation of law.
20
<PAGE>
See Exhibits 1-A(3)(a) and "Distribution of Contracts" in the Prospectus
in Exhibit D, incorporated herein by reference.
(c) State the substance of any current agreements or arrangements of each
principal underwriter with dealers, agents, salesmen, etc. with respect
to commissions and overriding commissions, territories, franchises,
qualifications and revocations. If the trust is the issuer of periodic
payment plan certificates, furnish schedules of commissions and the
bases thereof. In lieu of a statement concerning schedules of
commissions, such schedules of commissions may be filed as Exhibit
A(3)(c).
See Exhibit 1-A(3)(b) and (c) and "Distribution of Contracts" in the
Prospectus in Exhibit D, incorporated herein by reference.
Information Concerning Principal Underwriter.
39. (a) State the form of organization of each principal underwriter of
securities of the trust, the name of the state or other sovereign power
under the laws of which each underwriter was organized and the date of
organization.
LLD is a limited liability company organized under the laws of the
Commonwealth of Massachusetts on June 19, 1998.
(b) State whether any principal underwriter currently distributing
securities of the trust is a member of the National Association of
Securities Dealers, Inc.
Not applicable as the Variable Account currently is not distributing
securities. LLD has a pending application for membership in the NASD.
40. (a) Furnish the following information with respect to all fees received
by each principal underwriter of the trust from the sale of securities
of the trust and any other functions in connection therewith exercised
by such underwriter in such capacity or otherwise during the period
covered by the financial statements filed herewith:
Not applicable, since no Contracts have yet been sold.
(b) Furnish the following information with respect to any fee or any
participation in fees received by each principal underwriter from any
underlying investment company or any affiliated person or investment
adviser of such company:
(1) the nature of such fee or participation;
(2) the name of the person making payment;
(3) the nature of the services rendered in consideration for such fee or
participation;
21
<PAGE>
(4) the aggregate amount received during the last fiscal year covered by
the financial statements filed herewith.
The response to Item 40(a) is incorporated herein by reference. No
such fee or any participation in fees are provided for. The response
to Item 13(a) is incorporated herein by reference.
41. (a) Describe the general character of the business engaged in by each
principal underwriter, including a statement as to any business other
than the distribution of securities of the trust. If a principal
underwriter acts or has acted in any capacity with respect to any
investment company or companies, other than the trust, state the name or
names of such company or companies, their relationship, if any, to the
trust and the nature of such activities. If a principal underwriter has
ceased to act in such named capacity, state the date of and
circumstances surrounding such cessation.
LLD is a newly organized broker-dealer that intends to act as a
distributor of variable life insurance and variable annuity products.
LLD is a wholly-owned subsidiary of Liberty Life.
(b) Furnish as at latest practicable date the address of each branch office
of each principal underwriter currently selling securities of the trust
and furnish the name and residence address of the person in charge of
such office.
Not applicable, since no Contracts are currently being sold.
(c) Furnish the number of individual salesmen of each principal underwriter
through whom any of the securities of the trust were distributed for the
last fiscal year of the trust covered by the financial statements filed
herewith and furnish the aggregate amount of compensation received by
such salesmen in such year.
Not applicable, since no sales of Contracts have yet been made.
42. Furnish as at latest practicable date the following information with respect
to each principal underwriter currently distributing securities of the trust
and with respect to each of the officers, directors or partners of such
underwriter.
Not applicable, since no Contracts are currently being distributed.
43. Furnish, for the last fiscal year covered by the financial statements filed
herewith, the amount of brokerage commissions received by any principal
underwriter who is a member of a national securities exchange and who is
currently distributing the securities of the trust or effecting transactions
for the trust in the portfolio securities of the trust.
Not applicable, since no Contracts have yet been sold.
22
<PAGE>
Offering Price or Acquisition Valuation of Securities of the Trust
44. (a) Furnish the following information with respect to the method of
valuation used by the trust for purposes of determining the offering
price to the public of securities issued by the trust or the valuation
of shares or interests in the underlying securities acquired by the
holder of a periodic payment plan certificate:
(1) the source of quotations used to determine the value of portfolio
securities;
Portfolio shares are valued at net asset value, as supplied to the
Company by the Portfolios or their agents.
(2) whether opening, closing, bid, asked or any other price is used;
Not applicable.
(3) whether price is as of the day of sale or as of any other time;
Item 16 is incorporated herein by reference.
(4) a brief description of the methods used by registrant for
determining other assets and liabilities including accrual for
expenses and taxes (including taxes on unrealized appreciation);
The Variable Account's assets and liabilities (such as charges
against the Variable Account) are valued in accordance with
generally accepted accounting principles on an accrual basis. With
regard to charges for accrual of an income tax reserve, Item 13(a)
is incorporated herein by reference.
(5) other items which registrant adds to the net asset value in
computing offering price of its securities;
Not applicable, for the reasons set forth in Item 44(b), which is
incorporated herein by reference.
(6) whether adjustments are made for fractions:
(i) before adding distributor's compensation (load); and
(ii) after adding distributor's compensation (load):
Not applicable, because the Variable Account does not compute
per-unit values in the manner presupposed by this Item and Item
44(b), and there are no sales loads with respect to sales of the
Contracts. Appropriate adjustments will be made for fractions in all
computations.
23
<PAGE>
(b) Furnish a specimen schedule showing the components of the offering price
of the trust's securities as at the latest practicable date.
Since the Variable Account has not issued any Contracts, this item
cannot be answered in the way it contemplates. In return for Payments
made, the Contract Owners and beneficiaries have insurance coverage in
the amount of the Death Benefit under the Contract, a right to the
Surrender Value of the Contract and an interest in the Cash Value of the
Contract. The manner of calculating these benefits, rights and interests
is described in Items 10(c), (d), (e) and (i), which are incorporated
herein by reference. The fees and charges to which the Contracts are
subject are described in Item 13, which is incorporated herein by
reference, and the manner of determining the amount of Payments under a
Contract is described in Item 44(c), which is incorporated herein by
reference.
(c) If there is any variation in the offering price of the trust's
securities to any person or classes of persons other than underwriters,
state the nature and amount of such variation and indicate the person or
classes of persons to whom such offering is made.
In setting its premium rates, the Company considers actuarial estimates
of death and cash value benefits, terminations, expenses, investment
experience and amounts to be contributed to the Company's surplus. For
additional information as to how premium rates are set, see Items 13(c)
and 13(a), which are incorporated herein by reference.
45. Furnish the following information with respect to any suspension of the
redemption rights of the securities issued by the trust during the three
fiscal years covered by the financial statements filed herewith:
(a) by whose action redemption rights were suspended;
(b) the number of days' notice given to security holders prior to suspension
of redemption rights;
(c) reason for suspension;
(d) period during which suspension was in effect.
There has been no such suspension.
Redemption Valuation of Securities of the Trust.
46. (a) Furnish the following information with respect to the method of
determining the redemption or withdrawal valuation of securities issued
by the trust:
(1) the source of quotations used to determine the value of portfolio
securities;
24
<PAGE>
Item 44(a)(1) is incorporated herein by reference.
(2) whether opening, closing, bid, asked or any other price is used;
Not applicable.
(3) whether price is as of the day of sale or as of any other time;
Item 44(a)(3) is incorporated herein by reference.
(4) a brief description of the methods used by registrant for
determining other assets and liabilities including accrual for
expenses and taxes (including taxes on unrealized appreciation);
Item 44(a)(4) is incorporated herein by reference.
(5) other items which registrant deducts from the net asset value in
computing redemption value of its securities;
Item 44(a)(5) is incorporated herein by reference.
(6) whether adjustments are made for fractions.
Item 44(a)(6) is incorporated herein by reference.
(b) Furnish a specimen schedule showing the components of the redemption
price to the holders of the trust's securities as at the latest
practicable date.
To the extent that this paragraph is applicable, see the answers to
Items 44(a) and 46(a), which are incorporated herein by reference.
Purchase and Sale of Interests in Underlying Securities
from and to Security Holders
47. Furnish a statement as to the procedure with respect to the maintenance of a
position in the underlying securities or interests in the underlying
securities, the extent and nature thereof and the person who maintains such
a position. Include a description of the procedure with respect to the
purchase of underlying securities or interests in the underlying securities
from security holders who exercise redemption or withdrawal rights and the
sale of such underlying securities and interests in the underlying
securities to other security holders. State whether the method of valuation
of such underlying securities or interests in the underlying securities
differs from that set forth in Items 44 and 46. If any item of expenditure
included in the determination of the valuation is not or may not actually be
incurred or expended, explain the nature of such item and who may benefit
from the transaction.
25
<PAGE>
Item 16 is incorporated herein by reference. There is no procedure for the
purchase of underlying securities or interests therein from Owners who
exercise surrender rights.
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Furnish the following information as to each trustee or custodian of the
trust:
(a) Name and principal business address;
(b) Form of organization;
(c) State or other sovereign power under the laws of which the trustee or
custodian was organized;
(d) Name of governmental supervising or examining authority.
Not applicable. The Variable Account has neither trustee nor custodian.
49. State the basis for the payment of fees or expenses of the trustee or
custodian for services rendered with respect to the trust and its
securities, and the aggregate amount thereof for the last fiscal year.
Indicate the person paying such fees or expenses. If any fees or expenses
are prepaid, state the unearned amount.
Not applicable.
50. State whether the trustee or custodian or any other person has or may create
a lien on the assets of the trust, and if so, give full particulars,
outlining the substance of the provisions of any indenture or agreement with
respect thereto.
No such lien may be created.
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Furnish the following information with respect to the insurance of holders
of securities:
(a) The name and address of the insurance company;
Various insurance benefits are provided under the Contracts by the
Company, the address of which is incorporated herein by reference to
Item 2.
(b) The types of policies and whether individual or group policies;
The Contracts are modified single payment variable universal life
insurance contracts and are issued on an individual basis.
(c) The types of risks insured and excluded;
26
<PAGE>
The mortality and expense risk assumed is that the Company's estimates
of longevity and of the expenses incurred over the lengthy period the
Contract may be in effect -- which estimates are the basis for the level
of other charges the Company makes under the Contract -- will not be
correct.
Under certain options for the payment of benefits under the Contracts,
the Company assumes the risk that it will be unable to invest the assets
supporting the Contracts at a return sufficient to pay the guaranteed
minimum interest rate under such options and the expenses of
administering the Contracts and, in some cases, a risk that
beneficiaries under such options will live longer than anticipated.
(d) The coverage of the policies;
See "Purchase of Contract and Allocation of Payments" in the Prospectus
in Exhibit D, incorporated herein by reference.
(e) The beneficiaries of such policies and the uses to which the proceeds of
policies must be put;
The recipient of the benefits of the insurance undertakings described in
Item 51(c) is either the designated primary beneficiary, any contingent
beneficiaries, or the estate of the insured(s) as stated in the
application for the Contract or as subsequently modified by the Owner.
There is no limitation on the use of the proceeds.
(f) The terms and manner of cancellation and of reinstatement;
The insurance undertakings described in Item 51(c) are integral parts
of the Contract and may not be terminated while the Contract remains in
effect, except to the extent set forth in Items 10(e) and 21(a), which
are incorporated herein by reference.
(g) The method of determining the amount of Payments to be paid by holders
of securities;
See "Purchase of Contract and Allocation of Payments" in the Prospectus
in Exhibit D, incorporated herein by reference.
(h) The amount of aggregate Payments paid to the insurance company during
the last fiscal year;
Not applicable, since no Contracts have yet been sold.
(i) Whether any person other than the insurance company receives any part of
such Payments, the name of each such person and the amount involved, and
the nature of the services rendered therefor;
27
<PAGE>
Item 13(e) is incorporated herein by reference.
(j) The substance of any other material provisions of any indenture or
agreement of the trust relating to insurance.
None except as disclosed in this registration statement.
VII. POLICY OF REGISTRANT
52. (a) Furnish the substance of the provisions of any indenture or
agreement with respect to the conditions upon which and the method of
selection by which particular portfolio securities must or may be
eliminated from the assets of the trust or must or may be replaced by
other portfolio securities. If an investment adviser or other person is
to be employed in connection with such selection, elimination or
substitution, state the name of such person, the nature of any
affiliation to the depositor, trustee or custodian, and any principal
underwriter, and the amount of the remuneration to be received for such
services. If any particular person is not designated in the indenture or
agreement, describe briefly the method of selection of such person.
Items 10(g) and 10(h) are incorporated herein by reference with regard
to the Company's right to substitute any other investment for shares of
any Portfolio of the Funds.
(b) Furnish the following information with respect to each transaction
involving the elimination of any underlying security during the period
covered by the financial statements filed herewith:
(1) title of security;
(2) date of elimination;
(3) reasons for elimination;
(4) the use of the proceeds from the sale of the eliminated security;
(5) title of security substituted, if any;
(6) whether depositor, principal underwriter, trustee or custodian or
any affiliated person of the foregoing were involved in the
transaction;
(7) compensation or remuneration received by each such person directly
or indirectly as a result of the transaction.
Not applicable, since no Contracts have yet been sold.
28
<PAGE>
(c) Describe the policy of the trust with respect to the substitution and
elimination of the underlying securities of the trust with respect to:
(1) the grounds for elimination and substitution;
(2) the type of securities which may be substituted for any underlying
security;
(3) whether the acquisition of such substituted security or securities
would constitute the concentration of investment in a particular
industry or group of industries or would conform to a policy of
concentration of investment in a particular industry or group of
industries;
(4) whether such substituted securities may be the securities of any
other investment company; and
(5) the substance of the provisions of any indenture or agreement which
authorize or restrict the policy of the registrant in this regard.
Items 10(g) and 10(h) are incorporated herein by reference.
(d) Furnish a description of any policy (exclusive of policies covered by
paragraphs (a) and (b) herein) of the trust which is deemed a matter of
fundamental policy and which is elected to be treated as such.
None.
Regulated Investment Company
53. (a) State the taxable status of the trust.
See "Taxation of Liberty Life and the Variable Account" in the
Prospectus in Exhibit D, incorporated herein by reference.
(b) State whether the trust qualified for the last taxable year as a
regulated investment company as defined in Section 851 of the Internal
Revenue Code of 1954, and state its present intention with respect to
such qualification during the current taxable year.
The Variable Account has not and does not intend to so qualify.
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. If the trust is not the issuer of periodic payment plan certificates,
furnish the following information with respect to each class or series of
its securities:
Not applicable.
29
<PAGE>
55. If the trust is the issuer of periodic payment plan certificates, a
transcript of a hypothetical account shall be filed in approximately the
following form on the basis of the certificate calling for the smallest
amount of payments. The schedule shall cover a certificate of the type
currently being sold assuming that such certificate had been sold at a date
approximately ten years prior to the date of registration or at the
approximate date of organization of the trust.
Not applicable. The Contracts are life insurance contracts and do not
operate as the usual periodic payment plan certificate. Moreover, no
Contracts have yet been sold and the Variable Account has no operating
history.
56. If the trust is the issuer of periodic payment plan certificates, furnish by
years for the period covered by the financial statements filed herewith in
respect of certificates sold during such period, the following information
for each fully paid type of each installment payment type of periodic
payment plan certificate being issued by the trust.
Not applicable, since no Contracts have yet been sold.
57. If the trust is the issuer of periodic payment plan certificates, furnish by
years for the period covered by the financial statements filed herewith the
following information for each installment payment type of periodic payment
plan certificate currently being issued by the trust.
Not applicable, since no Contracts have yet been sold.
58. If the trust is the issuer of periodic payment plan certificates, furnish
the following information for each installment payment type of periodic
payment plan certificate outstanding as at the latest practicable date.
Not applicable, since no Contracts have yet been sold.
59. Financial Statements:
Financial Statements of the Trust:
No financial statements are filed for the Variable Account because it has
not yet commenced operations, has no assets nor liabilities, and has
received no income or incurred any expense.
Financial Statements of the Depositor:
"Financial Statements" in the Prospectus included in Exhibit D are
incorporated herein by reference.
30
<PAGE>
IX. EXHIBITS
Except as otherwise noted all exhibits are incorporated by reference to the
Registration Statement filed on Form S-6, of LLAC Variable Account, filed
contemporaneously herewith.
<TABLE>
<CAPTION>
Exhibit Number Title
- -------------- -----
<S> <C>
1-A(1) Resolution of Liberty Life establishing LLAC Variable Account*
1-A(2) Not Applicable
1-A(3)(a) Form of Distribution Agreement*
1-A(3)(b) Form of Broker-Dealer and General Agent Sales Agreement*
1-A(3)(c) Schedules of Sales Commissions*
1-A(4) Not Applicable
1-A(5)(a) Specimen Single Life Contract*
1-A(5)(b) Specimen Survivorship Agreement*
1-A(6)(a) Articles of Incorporation of Liberty Life**
1-A(6)(b) By-laws of Liberty Life**
1-A(7) Not Applicable
1-A(8)(a) Form of Participation Agreement By and Among AIM Variable Insurance
Funds, Inc., ____________ Life Insurance Company, and ____________*
1-A(8)(b) Form of Participation Agreement By and Among ___________ Life Insurance
Company, Liberty Variable Investment Trust, and Liberty Financial Investments, Inc.*
1-A(8)(c) Form of Participation Agreement By and Among ___________ Life Insurance
Company, Dreyfus Variable Investment Fund, The Dreyfus Socially Responsible
Growth Fund, Inc., and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus
Stock Index Fund)*
1-A(8)(d) Form of Participation Agreement By and Among ________________, MFS
Variable Insurance Trust, _________________, and Massachusetts Financial
Services Company*
1-A(8)(e) Form of Participation Agreement By and Among Oppenheimer Variable Account
Funds, OppenheimerFunds, Inc., and ________________ Life Insurance Company*
1-A(8)(f) Form of Participation Agreement By and Among Keyport Financial Services
Corp., ________________________________________, and Stein Roe Variable
Investment Trust*
1-A(9) Not Applicable
1-A(10)(a) Specimen Application*
1-A(10)(b) Specimen Application*
1-A(10)(c) Specimen Variable Life Insurance Supplemental Application*
B Not Applicable
C Not Applicable
D Prospectus included in Form S-6 Registration Statement of LLAC
Variable Account (File No. 333-xxxxx ), filed contemporaneously
herewith***
</TABLE>
- -------------------
*Incorporated by reference to Form S-6 Registration Statement of LLAC Variable
Account (File No. 333-xxxxx), filed contemporaneously herewith.
**Incorporated by reference to Registration Statement of Variable Account J of
Liberty Life Assurance Company of Boston (File No. 333-29811; 811-08269),
filed on or about June 18, 1997.
***Attached hereto.
31
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SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
depositor of the registrant has caused this registration statement to be duly
signed on behalf of the registrant in the City of Boston and the Commonwealth of
Massachusetts on the 21st day of October, 1998.
LLAC VARIABLE ACCOUNT (Registrant)
By: LIBERTY LIFE ASSURANCE COMPANY
OF BOSTON (Sponsor)
BY: /s/ Elliot J. Williams
------------------------------------
Elliot J. Williams
Treasurer
Attest: /s/ Hope M. Erwin
--------------------------------
Hope M. Erwin
32
<PAGE>
EXHIBIT INDEX
EXHIBIT TITLE
D Prospectus included in Form S-6 Registration Statement
of LLAC Variable Account
(File No. 333-__________)
33
EXHIBIT D
PROSPECTUS
[SUBJECT TO COMPLETION]
MODIFIED SINGLE PAYMENT
VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
(SINGLE LIFE AND SURVIVORSHIP)
issued by
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
in connection with its
LLAC VARIABLE ACCOUNT
175 Berkeley Street, P.O. Box 140
Boston, Massachusetts 02117-0140
Service Center
100 Liberty Way
Dover, New Hampshire 03820
[1-800-xxx-xxxx]
This prospectus describes Modified Single Payment Variable Universal Life
Insurance Contracts (the "Contracts") offered by Liberty Life Assurance Company
of Boston ("we" or "Liberty Life") for prospective insured persons ages 0-85.
This prospectus describes Contracts which provide insurance coverage on the life
of one Insured ("Single Life Contracts") and Contracts which provide insurance
on the lives of two Insureds ("Survivorship Contracts"). You may pay a
significant initial Payment and, subject to certain restrictions, additional
Payments. Your initial Payment must equal at least $10,000.
The Contracts are modified endowment contracts for Federal income tax purpose,
except in certain cases as described in "Federal Tax Considerations" beginning
on page [44]. A loan, distribution or other amount received from a modified
endowment contract during the life of the Insured will be taxed to the extent of
any accumulated income in the Contract. Any taxable withdrawal will also be
subject to an additional ten percent penalty tax, with certain exceptions.
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offer to buy be accepted before the registration statement becomes effective.
This prospectus is not an offer to sell nor is it soliciting an offer to buy
these securities nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of such state.
The Securities and Exchange Commission Has Not Approved or Disapproved of these
Securities or Passed upon the Accuracy or Adequacy of this Prospectus. Any
Representation to the Contrary is a Criminal Offense.
The Date of this Prospectus is October 21, 1998.
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The Contracts currently offer nineteen investment options, each of which is a
Sub-Account of LLAC Variable Account of Liberty Life (the "Variable Account").
Each Sub-Account invests exclusively in shares of one of the following
Portfolios:
AIM Variable Insurance Funds, Inc.: AIM V.I. Capital Appreciation Fund;
AIM V.I. International Equity Fund.
Dreyfus: Dreyfus Stock Index Fund; Dreyfus Variable Investment Fund,
Capital Appreciation Portfolio; and Dreyfus Socially Responsible Growth
Fund, Inc.
Liberty Variable Investment Trust: Colonial Small Cap Value Fund, Variable
Series; Colonial High Yield Securities Fund, Variable Series; Colonial
Strategic Income Fund, Variable Series; Colonial U.S. Stock Fund, Variable
Series; and Liberty All-Star Equity Fund, Variable Series.
MFS Variable Insurance Trust: MFS Emerging Growth Series; MFS Research
Series; MFS Utilities Series; and MFS Growth with Income Series.
Oppenheimer Variable Account Funds: Oppenheimer Bond Fund; and Oppenheimer
Growth and Income Fund.
Stein Roe Variable Investment Trust: Stein Roe Balanced Fund, Variable
Series; Stein Roe Growth Stock Fund, Variable Series; and Stein Roe Money
Market Fund, Variable Series.
Not all of the Sub-Accounts may be available under your Contract. You should
contact your representative for further information as to the availability of
the Sub-Accounts. We may make other investment options available in the future.
You also may allocate all or part of your Payment to our Fixed Account.
The Contract does not have a guaranteed minimum Account Value. Your Contract's
Account Value will rise and fall, depending on the investment performance of the
Portfolios underlying the Sub-Accounts to which you allocate your Payment. You
bear the entire investment risk on amounts allocated to the Sub-Accounts. The
investment policies and risks of each Portfolio are described in the
accompanying prospectuses for the Portfolios. The Account Value will also
reflect Payments, amounts withdrawn, and cost of insurance or any other charges.
The Contract provides for an Initial Death Benefit as shown on the Contract
Information page of your Contract. The Death Benefit payable under your Contract
may be greater than the Initial Death Benefit. In certain circumstances, the
Death Benefit may increase or decrease based on the investment experience of the
Portfolios underlying the Sub-Accounts to which you have allocated your Payment.
As long as the Contract remains in force and you make no withdrawals the Death
Benefit will never be less than the Initial Death Benefit.
Under the Single Life Contracts, when the Insured dies, we will pay a Death
Benefit to a Beneficiary specified by you. Under the Survivorship Contracts, the
Death Benefit is payable upon the second
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death, as long as the Contract is in force. We will reduce the amount of the
Death Benefit payment by any unpaid Indebtedness and any unpaid Contract
charges.
You generally may cancel the Contract by returning it to us within twenty days
after you receive it. In some states, however, this right to return period may
be longer or shorter as provided by state law. We will refund your Payment or
Account Value, as provided by state law.
In certain states the Contracts may be offered as group contracts with
individual ownership represented by Certificates. The discussion of Contracts in
this Prospectus applies equally to Certificates under group contracts, unless
the context specifies otherwise.
It may not be advantageous for you to purchase variable life insurance to
replace your existing insurance coverage or if you already own a variable life
insurance contract.
The Contracts and the investments in the Portfolios are not deposits, or
obligations of, or guaranteed or endorsed by any bank. The Contracts are subject
to investment risks, including the possible loss of the principal amount
invested. The Contracts are not insured by the FDIC, the Federal Reserve Board,
or any other agency.
This Prospectus is valid only if accompanied by the current Prospectuses for the
Portfolios listed above. If any of those Prospectuses are missing or outdated,
please contact us and we will send you the Prospectus you need.
Please read this Prospectus carefully and retain it for your future reference.
The Contracts may not be available in all states.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS.................................................................7
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT...................................9
FEES AND EXPENSES..........................................................15
PURCHASE OF CONTRACT AND ALLOCATION OF PAYMENTS............................18
Application for a Contract..............................................18
Payments................................................................19
Allocation of Payments..................................................19
Account Value...........................................................19
Accumulation Unit Value.................................................21
Transfer of Account Value...............................................21
Transfers Authorized by Telephone.......................................22
Dollar Cost Averaging...................................................22
Asset Rebalancing.......................................................22
THE INVESTMENT AND FIXED ACCOUNT OPTIONS...................................23
Variable Account Investments............................................23
Portfolios...........................................................23
Voting Rights........................................................27
Additions, Deletions, and Substitutions of Securities................28
The Fixed Account.......................................................29
CONTRACT BENEFITS AND RIGHTS...............................................29
Death Benefit...........................................................29
Accelerated Death Benefit...............................................30
Optional Insurance Benefits.............................................31
Contract Loans..........................................................31
Amount Payable on Surrender of the Contract.............................32
Partial Withdrawals.....................................................33
Systematic Withdrawal Program...........................................34
Proceeds Options........................................................34
Termination and Grace Period............................................35
Reinstatement ..........................................................36
Cancellation ...........................................................36
Postponement of Payments ...............................................37
DEDUCTIONS AND CHARGES.....................................................37
Separate Account Expense Charge ........................................37
Monthly Deduction.......................................................38
Portfolio Expenses......................................................39
Withdrawal Charge.......................................................39
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Withdrawal Fee..........................................................41
Transfer Fee............................................................41
Special Provisions for Group or Sponsored Arrangements .................41
GENERAL CONTRACT PROVISIONS................................................41
Statements to Contract Owners...........................................41
Limit on Right to Contest...............................................42
Suicide.................................................................42
Misstatement as to Age and Sex..........................................42
Beneficiary.............................................................42
Assignment..............................................................43
Creditors' Claims.......................................................43
Dividends...............................................................43
Notice and Elections....................................................43
Modification............................................................43
Survivorship Contracts..................................................43
FEDERAL TAX CONSIDERATIONS.................................................44
Taxation of Liberty Life and the Variable Account.......................44
Tax Status of the Contract .............................................44
Diversification Requirements.........................................45
Owner Control........................................................46
Tax Treatment of Life Insurance Death Benefit Proceeds..................46
Tax Deferral During Accumulation Period.................................47
Contracts Which Are MECs.............................................47
Contracts Which Are Not MECs.........................................48
Survivorship Contracts..................................................48
Treatment of Maturity Benefits and Extension of Maturity Date...........49
Actions to Ensure Compliance with the Tax Law...........................49
Federal Income Tax Withholding..........................................49
Tax Advice..............................................................49
DESCRIPTION OF LIBERTY LIFE AND THE VARIABLE ACCOUNT.......................50
Liberty Life Assurance Company of Boston................................50
Officers and Directors of Liberty Life..................................50
Financial Information Concerning Liberty Life...........................52
Variable Account........................................................52
Safekeeping of the Variable Account's Assets............................53
State Regulation of Liberty Life........................................53
YEAR 2000 MATTERS..........................................................53
DISTRIBUTION OF CONTRACTS..................................................54
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LEGAL PROCEEDINGS..........................................................54
LEGAL MATTERS..............................................................54
REGISTRATION STATEMENT.....................................................54
EXPERTS....................................................................55
FINANCIAL STATEMENTS.......................................................55
APPENDIX..................................................................A-1
</TABLE>
This Prospectus Does Not Constitute an Offering in any Jurisdiction in which
Such Offering May Not Be Lawfully Made. Liberty Life Does Not Authorize any
Information or Representations Regarding the Offering Described in this
Prospectus other than as Based in this Prospectus.
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DEFINITIONS
Please refer to this list for the meaning of the following terms:
Account Value - The sum of the values of your interests in the Sub-Accounts, the
Fixed Account and the Loan Account.
Accumulation Unit - An accounting unit of measurement which we use to calculate
the value of a Sub-Account.
Age - An Insured's age at his or her last birthday.
Beneficiary(ies) - The person(s) named by you to receive the Death Benefit under
the Contract.
Cash Value - The Account Value less any applicable Withdrawal Charges.
Contract Anniversary - The same day and month as the Contract Date for each
subsequent year the Contract remains in force.
Contract Date - The effective date of insurance coverage under your Contract. It
is used to determine Contract Anniversaries, Contract Years and the Monthly
Date.
Contract Owner ("You") - The person(s) having the privileges of ownership
defined in the Contract. The Contract Owner(s) may or may not be the same
person(s) as the Insured(s). If your Contract is issued pursuant to a retirement
plan, your ownership privileges may be modified by the plan.
Contract Year - Each twelve-month period beginning on the Contract Date and each
Contract Anniversary.
Death Benefit - The amount payable to the Beneficiary under the Contract upon
the death of the Insured(s), before payment of any unpaid Indebtedness or
Contract charges.
Delivery Date - The date on which your Contract is personally delivered to you
by one of our agents or, if your Contract is not delivered to you in person,
five days after we mail your Contract to you.
Fixed Account - The portion of the Account Value allocated to our general
account.
Grace Period - A 61-day period during which the Contract will remain in force so
as to permit you to pay a sufficient amount to keep the Contract from lapsing.
Indebtedness - The sum of all unpaid Contract Loans and accrued loan interest.
Initial Death Benefit - The initial amount of insurance under your Contract,
adjusted for any changes in accordance with the terms of your Contract.
Insured - A person whose life is insured under the Contract.
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Loan Account - An account established for amounts transferred from the
Sub-Accounts or the Fixed Account as security for outstanding Indebtedness.
Maturity Date - For Single Life Contracts, the Contract Anniversary on or after
the Insured's 100th birthday. For Survivorship Contracts, the Contract
Anniversary on or after the younger Insured's 100th birthday.
Monthly Date - The same day in each month as the Contract Date. The day of the
month on which the Monthly Deduction is taken from your Account Value.
Monthly Deduction - The amount deducted from the Account Value on each Monthly
Date for the cost of insurance charge, the Contract Fee (when due), the Expense
Charge on the Fixed Account and the cost of any benefit rider.
Net Investment Factor - The factor we use to determine the change in value of an
Accumulation Unit in any Valuation Period. We determine the Net Investment
Factor separately for each Sub-Account.
Payment - An amount paid to us as payment for the Contract by you or on your
behalf.
Portfolio(s) - The underlying mutual funds in which the Sub-Accounts invest.
Each Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
SEC - The United States Securities and Exchange Commission.
Sub-Account - A division of the Variable Account, which invests wholly in shares
of one of the Portfolios.
Sub-Account Value - The value of the assets held in a Sub-Account.
Surrender Value - The Cash Value less the Contract Fee less any unpaid
Indebtedness.
Tax Code - The Internal Revenue Code of 1986, as amended.
Valuation Day - Each day the New York Stock Exchange is open for business and we
are open.
Valuation Period - The period of time over which we determine the change in the
value of the Sub-Accounts. Each Valuation Period begins at the close of normal
trading on the New York Stock Exchange ("NYSE"), currently 4:00 p.m. Eastern
time, on each Valuation Day and ends at the close of the NYSE on the next
Valuation Day, or the next day we are open, if later.
Variable Account - LLAC Variable Account, which is a segregated investment
account of Liberty Life.
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QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT
These are answers to questions that you may have about some of the most
important features of your Contract. The Contract is described more fully in the
remainder of this Prospectus. Please read this Prospectus carefully. Unless
otherwise indicated, the description of the Contract contained in this
Prospectus assumes that the Contract is in force, that there is no Indebtedness,
and that current federal tax laws apply.
1. What is a modified single payment variable universal life insurance contract?
The Contract has a Death Benefit, Account Value, and other features similar to
life insurance contracts providing fixed benefits. The Contract permits the
Contract Owner to pay a single significant initial Payment and, subject to
restrictions, additional Payments. It is a "variable" Contract because the
Account Value and, in some circumstances, the Death Benefit vary according to
the investment performance of the Sub-Accounts to which you have allocated your
Payment. The Account Value is not guaranteed. This Contract provides you with
the opportunity to take advantage of any increase in your Account Value, but you
also bear the risk of any decrease.
2. Who may purchase a Contract?
We will issue Contracts on the lives of prospective Insureds age 0-85 who meet
our underwriting standards. You may purchase a Contract to provide insurance
coverage on the life of one Insured ("Single Life Contract") or a Contract to
provide insurance coverage in the lives of two Insureds ("Survivorship
Contract").
3. What is the Death Benefit?
Under a Single Life Contract, while the Contract is in force, we will pay a
Death Benefit to the Beneficiary upon the death of the Insured. Under a
Survivorship Contract, we will pay the Death Benefit to the Beneficiary upon the
death of the second Insured. The Death Benefit is equal to the greater of your
Contract's Initial Death Benefit and the Account Value multiplied by a specified
percentage. Decreases in the Account Value of an in force Contract will never
cause the Death Benefit to be less than the Initial Death Benefit. Before we pay
the Death Benefit to the Beneficiary, however, we will subtract an amount
sufficient to repay any outstanding Indebtedness and to pay any due and unpaid
charges. In addition, if you withdraw part of your Account Value, we will reduce
the Initial Death Benefit as described in this Prospectus on page [34].
4. How will the Account Value of my Contract be determined?
Your Payments are invested in one or more of the Sub-Accounts or allocated to
the Fixed Account, as you instruct us. Your Account Value is the sum of the
values of your interests in the Sub-Accounts, plus the values in the Fixed
Account and the Loan Account. Your Account Value will depend on the investment
performance of the Sub-Accounts and the amount of interest we credit to the
Fixed Account and the Loan Account, as well as the Payments paid, partial
withdrawals, and charges assessed. We do not guarantee a minimum Account Value
on the portion of your Payments allocated to the Variable Account.
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5. What are the Payments for this Contract?
Your initial Payment must equal at least $10,000. If you choose, you may make
additional Payments of at least $1,000 each, subject to the restrictions
described in this Prospectus. We may require you to provide evidence of
insurability if an increase in the Death Benefit would result from an additional
Payment. We will refuse to accept any additional Payment that would cause the
Contract to lose its status as a life insurance contract under the Tax Code.
6. When is the Contract effective?
Simplified underwriting. If your application is approved through simplified
underwriting, your Contract will be effective and your life insurance coverage
under the Contract will begin on the date of your application.
Full underwriting. If your application requires full underwriting and we approve
your application, your Contract will be effective as of the date that we receive
your initial Payment. If you submit your initial Payment with your application,
the effective date of your Contract will be the date of your application, which
will be designated your Contract's Contract Date. Otherwise, when we deliver
your Contract we will require you to pay sufficient Payment to place your
insurance in force. At that time, we also will provide you with a document
showing your Contract's effective date, which will be designated as the Contract
Date. While your application is in underwriting, if you have paid your initial
Payment we may provide you with temporary life insurance coverage in accordance
with the terms of our conditional receipt.
If we approve your application, you will earn interest on your Payment from the
Contract Date. We will also begin to deduct the Contract charges as of the
Contract Date. We will temporarily allocate your initial Payment to our Fixed
Account until we allocate it to the Sub-Accounts in accordance with the
procedures described in the Answer to Question 7.
If we reject your application, we will not issue you a Contract. We will return
any Payment you have made, adding interest as and at the rate required in your
state. We will not subtract any contract charges from the amount we refund to
you.
7. How are my Payments allocated?
When you apply for the Contract, you specify in your application how to allocate
your Payment among the Sub-Accounts and the Fixed Account. You must use whole
number percentages and the total allocations must equal 100%. We allocate any
subsequent Payment in those percentages until you give us new written
instructions. You may allocate your Payment to up to ten Sub-Accounts and the
Fixed Account at any one time. You must allocate at least five percent of your
Payment to each option that you choose. In the future, we may change these
limits.
Initially, we will temporarily allocate your initial Payment to the Fixed
Account as of the Contract Date. We generally will then reallocate that amount
(including any interest) among the Sub-Accounts and the Fixed Account in
accordance with your instructions, on the twenty-fifth day after the Delivery
Date. This period may be longer or shorter, depending on the length of the right
to return period in your state, as it will always equal five days plus the
number of days in the right to return period in your state. As a general rule,
any subsequent Payment will be allocated to the Sub-Accounts and the Fixed
Accounts as of the date your Payment is received in our Service Center.
You may transfer Account Value among the Sub-Accounts and the Fixed Account
while the Contract is in force, by writing to us or calling us at
1-800-xxx-xxxx. Although we currently are not charging a transfer fee, the
Contract gives us the right to impose a transfer fee of $25 per transfer. You
may not make any transfer that would cause your Account Value to be allocated to
more than ten Sub-Accounts at any one time. While you may also transfer amounts
from the Fixed Account, certain restrictions apply. For more detail, see
"Transfer of Account Value" and "Transfers Authorized by Telephone", on pages
[21-22].
You may also use our automatic Dollar Cost Averaging program or our Asset
Rebalancing program. Under the Dollar Cost Averaging program, amounts are
automatically transferred to the Sub-Accounts at regular intervals from the
account of your choice. For more detail, see "Dollar Cost Averaging", on page
[22].
Under the Asset Rebalancing program, you periodically can readjust the
percentage of your Account Value allocated to each Sub-Account to maintain a
pre-set level. Investment results will shift the balance of your Account Value
allocations. If you elect Asset Rebalancing, we automatically transfer your
Account Value back to the specified percentages at the frequency that you
specify. For more detail, see "Asset Rebalancing", on pages [22-23].
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8. What are my investment choices under the Contract?
You can allocate and reallocate your Account Value among the Sub-Accounts, each
of which in turn invests in a single Portfolio. Under the Contract, the Variable
Account currently invests in the following Portfolios:
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
Dreyfus
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund, Capitol Appreciation Portfolio
Dreyfus Socially Responsible Growth Fund, Inc.
Liberty Variable Investment Trust
Colonial Small Cap Value Fund, Variable Series
Colonial High Yield Securities Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Colonial U.S. Stock Fund, Variable Series
Liberty All-Star Equity Fund, Variable Series
MFS Variable Insurance Trust
MFS Emerging Growth Series
MFS Research Series
MFS Utilities Series
MFS Growth with Income Series
Oppenheimer Variable Account Funds
Oppenheimer Bond Fund
Oppenheimer Growth & Income Fund
Stein Roe Variable Investment Trust
Stein Roe Balanced Fund, Variable Series
Stein Roe Growth Stock Fund, Variable Series
Stein Roe Money Market Fund, Variable Series
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
In addition, the Fixed Account is available.
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9. May I take out a Contract Loan?
Yes, you may borrow money from us using your Contract as security for the loan.
You may borrow up to 90% of the Cash Value of your Contract. In most instances
Contract Loans are treated as distributions for Federal tax purposes. Therefore,
you may incur tax liabilities if you borrow a Contract Loan. For more detail,
see "Contract Loans", on pages [31-32], and "Contracts Which Are MECs", on pages
[47-48].
10. What are the charges deducted from my Account Value?
On each Valuation Day we deduct the Separate Account Expense Charge from the
Sub-Accounts to compensate Liberty Life for its expenses incurred and certain
risks assumed under the Contracts. The Separate Account Expense Charge is
calculated at an annual rate equivalent to 1.65% of average daily net assets.
We also deduct a monthly deduction from your Account Value for the cost of
insurance charge, the Contract Fee (when due), the Fixed Account Expense Charge,
and the cost of any benefit rider. The cost of insurance charge covers our
anticipated mortality costs. The Contract Fee covers certain administrative
expenses in connection with the Contracts. The Fixed Account Expense Charge is
intended to cover state premium taxes and administration expenses. The Fixed
Account Expense Charge equals 0.04% of the Account Value in the Fixed Account on
each Monthly Date, which is equivalent to an annual rate of 0.48% of the average
monthly Account Value in the Fixed Account.
We subtract the Fixed Account Expense Charge from your Fixed Account balance. We
allocate the remainder of the monthly deduction pro rata among your Account
Value in the Sub-Accounts and the Fixed Account.
Although we currently are not charging a transfer fee, the Contract gives us the
right to impose a transfer fee of $25 per transfer.
We impose a Withdrawal Charge to cover a portion of our premium tax expenses and
a portion of the sales expenses we incur in distributing the Contracts. These
sales expenses include agents' commissions, advertising, and the printing of
Prospectuses. The Withdrawal Charge is described in the answer to Question 11
below and in "Withdrawal Charge", on pages [39-41]. We also impose a withdrawal
fee of up to $25 on each partial withdrawal after the first in each Contract
Year. The withdrawal fee is used to cover our administrative expenses in
processing your partial withdrawal request.
The charges assessed under the Contract are summarized in the table entitled
"Contract Charges and Deductions" on pages [15-18] and described in more detail
in "Deductions and Charges", beginning on page [37].
In addition to our charges under the Contract, each Portfolio deducts amounts
from its assets to pay its investment advisory fee and other expenses. The
Prospectuses for the Portfolios describe their respective charges and expenses
in more detail. We may receive compensation from the investment
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advisers or administrators of the Portfolios. Such compensation will be
consistent with the services we provide or the cost savings resulting from the
arrangement and therefore may differ between Portfolios.
11. Do I have access to the value of my Contract?
While the Contract is in force, you may surrender your Contract for the
Surrender Value, which is the Cash Value less any Indebtedness, the Contract
Fee, and unpaid charges. Upon surrender, life insurance coverage under the
Contract will end. You may also withdraw part of your Account Value through a
partial withdrawal. You may not withdraw less than $250 at one time. Currently,
if the Account Value after any partial withdrawal would be less than $10,000, we
may treat your request as a request to surrender your Contract. We may waive or
change this limit. We do not permit any partial withdrawals during the first
Contract Year. For more detail, see "Amount Payable on Surrender of the
Contract" and "Partial Withdrawals", on pages [32-34].
We may deduct a Withdrawal Charge and a withdrawal fee on a surrender or a
partial withdrawal.
Withdrawal Charge. If you surrender your Contract, the Withdrawal Charge will
equal a percentage of your initial Payment net of all previous withdrawal
amounts on which you paid a Withdrawal Charge. If you make a partial withdrawal
from your Contract, the Withdrawal Charge will equal a percentage of the amount
withdrawn until your total partial withdrawals on which you paid a Withdrawal
Charge equals your initial Payment. After that limit is reached, partial
withdrawals are not subject to the Withdrawal Charge. The Withdrawal Charge is
intended to cover our actual premium tax expenses and sales expenses.
The rate used to determine the Withdrawal Charge depends on the year the
withdrawal is made. The Withdrawal Charge declines to zero percent after the
seventh Contract Year. The Withdrawal Charge is assessed at the following rates:
<TABLE>
<CAPTION>
Contract Withdrawal Contract Withdrawal
Year Charge Year Charge
<S> <C> <C> <C>
1 9.75% 5 7.25%
2 9.50% 6 5.00%
3 9.25% 7 4.75%
4 7.50% 8+ 0%
</TABLE>
We will waive the Withdrawal Charge on the portion of a withdrawal equal to the
greater of:
Ten percent of the Account Value, less any prior free partial withdrawals
and preferred loans since the most recent Contract Anniversary; or
earnings not previously withdrawn.
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We also will waive the Withdrawal Charge for qualified medical stays.
Withdrawal fee. We may charge a withdrawal fee on any partial withdrawal after
the first in any Contract Year. The withdrawal fee will equal the lesser of $25
or two percent of the amount withdrawn. The withdrawal fee does not apply to
full surrenders. The withdrawal fee is intended to compensate us for our
administrative costs in processing your partial withdrawal request.
For more detail, see "Withdrawal Charge", on pages [39-41].
12. What are the tax consequences of buying this Contract?
Your Contract is structured to meet the definition of a life insurance contract
under the Tax Code. We may need to limit the amount of Payments you pay under
the Contract to ensure that your Contract continues to meet that definition.
In most circumstances, your Contract will be considered a "modified endowment
contract", which is a form of life insurance contract under the Tax Code.
Special rules govern the tax treatment of modified endowment contracts. Under
current tax law, death benefit payments under modified endowment contracts, like
death benefit payments under other life insurance contracts, generally are
excluded from the gross income of the beneficiary. Withdrawals and Contract
Loans, however, are treated differently. Amounts withdrawn and Contract Loans
are treated first as income, to the extent of any gain, and then as a return of
Payment. The income portion of the distribution is includable in your taxable
income. Also, an additional ten percent penalty tax is generally imposed on the
taxable portion of amounts received before age 59 1/2. For more information on
the tax treatment of the Contract, see "Federal Tax Considerations", beginning
on page [44], and consult your tax adviser.
13. Can I return this Contract after it has been delivered?
In many states, you may cancel your Contract by returning it to us within twenty
days after you receive it. In some states, however, this right to return period
may be longer or shorter, as provided by state law. If you return your Contract,
the Contract terminates and, in most states, we will pay you an amount equal to
your Payment. Since state laws differ as to the consequences of returning a
Contract, you should refer to your Contract for specific information about your
circumstances.
14. When does coverage under the Contract end?
Your Contract has a Guaranteed Death Benefit. Under this provision, if you do
not have any outstanding Indebtedness, your Contract will never lapse. Your
Contract will remain in force until payment of the Death Benefit or the Maturity
Date, unless you voluntarily surrender your Contract at an earlier date. If you
have outstanding Indebtedness, the Contract will enter a 61-day Grace Period if
on a Monthly Date the Surrender Value is insufficient to pay the Monthly
Deduction. The Contract will terminate at the end of the Grace Period, unless
you pay an amount sufficient to keep the Contract in force. The Contract also
will terminate on the Maturity Date, unless you select the Extended Maturity
Option.
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15. Can I get an illustration to help me understand how Contract values change
with investment experience?
At your request we will furnish you with a free, personalized illustration of
Account Values, Surrender Values and Death Benefits. The illustration will be
personalized to reflect the proposed Insureds' age, sex, underwriting
classification, proposed initial Payment, and any available riders requested.
The illustrated Account Values, Surrender Values and Death Benefits will be
based on certain hypothetical assumed rates of return for the Variable Account.
Your actual investment experience probably will differ, and as a result the
actual values under the Contract at any time may be higher or lower than those
illustrated. The personalized illustrations will follow the methodology and
format of the hypothetical illustrations that we filed with the SEC in the
registration statement.
FEES AND EXPENSES
The following tables are designed to help you understand the fees and expenses
that you bear, directly or indirectly, as a Contract Owner. The first table
describes the Contract charges and deductions you directly bear under the
Contract. The second table describes the fees and expenses of the Portfolios
that you bear indirectly when you purchase a Contract. (See "Deductions and
Charges", beginning on page [37]).
Contract Charges and Deductions
Charges Deducted from Account Value
Monthly Cost of Insurance Charge:
<TABLE>
<S> <C>
Current Guaranteed
The lower of the amount Ranges from $.06 per $1,000
determined using (i) the of net amount at risk to $82.50
current asset-based cost of per $1,000 of net amount at
insurance rate or (ii) the risk (3)
applicable guaranteed cost
of insurance. The current
asset-based rate for Single
Life Contracts for the
Standard (NT)(1) rate class
is 0.45% annually of Account
Value for the first ten
Contract Years and 0.65%
annually thereafter. The
current asset-based rate for
Survivorship Contracts where
both Insureds are in the
Standard (NT) rate class is
[x.xx]% annually for the
first ten Contract Years and
[x.xx]% annually
thereafter.(2)
Contract Fee: $30.00 per year, deducted annually (4)
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<PAGE>
Monthly Fixed Account
Expense Charge: 0.48% annually of the average monthly Account Value in the
Fixed Account (0.04% per month) (5)
Transaction Charges
Transfer Fee: $25 per transfer (6)
Partial Withdrawal Fee: The lesser of $25 or 2% of the amount withdrawn
Maximum Withdrawal Charge: 9.75% of the initial Payment (7)
Charges Deducted from the Sub-Accounts
Annual Variable Account Charges:
Expense Charge: 1.65% of daily net assets in the Variable Account (8)
Federal Income Tax Charge: Currently none. (9)
</TABLE>
(1) The Standard (NT) rate class is our best rate class for Insureds who
have not used tobacco of any kind within the past twenty-four months.
(2) The asset-based cost of insurance rate differs depending on Contract type,
rating class, and history of tobacco use of the Insured(s). The asset-
based rates that we set will reflect our expectations as to mortality
experience under the Contracts and other relevant factors, such that the
aggregate actual cost of insurance charges paid under the Contracts will
compensate us for our aggregate mortality risks under the Contracts. In
our discretion, we may change the asset-based rate used in the current
cost of insurance formula. Even if we change the asset-based rate,
however, you will never be charged more than the amount determined using
the guaranteed cost of insurance tables in your Contract.
(3) The guaranteed cost of insurance charges are based on attained age, sex,
rating class, and history of tobacco use of the Insured. The net
amount at risk is the difference between the Death Benefit divided by
1.0028709 and the Account Value. See "Deductions and Charges - Monthly
Deduction - Cost of Insurance Charge," on pages [38-39].
(4) The Contract Fee is deducted annually on the Contract Anniversary. If you
surrender your Contract during a Contract Year, we will deduct the
Contract Fee from your surrender proceeds. We currently waive the Contract
Fee on Contracts with an Account Value of at least $50,000.
(5) Deducted monthly in an amount equal to 1/12 of the annual rate shown,
multiplied by the Account Value in the Fixed Account on the relevant
Monthly Date.
(6) We currently waive the Transfer Fee on all transfers. We reserve the right
in the future to charge the Transfer Fee on each transfer.
(7) This charge applies only upon withdrawals of the initial Payment. It does
not apply to withdrawals of any additional Payments paid under a Contract.
The Withdrawal Charge declines to zero percent after the seventh Contract
Year. It is imposed to cover a portion of our premium tax expenses and a
portion of the sales expense incurred by us in distributing the Contracts.
In any Contract Year, we will not charge any Withdrawal Charge on that
portion of your withdrawals equal to the greater of: (a) ten percent of
the Account Value, less any prior free partial withdrawals and preferred
loans since the most recent Contract Anniversary; or (b) earnings not
previously withdrawn. "Earnings", for this purpose, is defined on page
[40]. See "Deductions and Charges - Withdrawal Charge," page [39-41].
(8) Deducted each Valuation Period in an amount equal to 1/365 of the annual
rate shown, multiplied by the Account Value in the Variable Account on the
relevant Valuation Day, multiplied by the number of days in the relevant
Valuation Period.
(9) We currently do not assess a charge for federal income taxes that may be
attributable to the operations of the Variable Account. We reserve the
right to do so in the future. See "Deductions and Charges - Separate
Account Expense Charge", pages [37-38].
16
<PAGE>
Portfolio Expenses(1)
(As a percentage of average net assets)
(after fee waivers and expense reimbursements, as indicated in the notes)
<TABLE>
<CAPTION>
TOTAL FUND TOTAL FUND
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
AIM V.I. Capital Appreciation 0.63% 0.05% 0.68%(2)
AIM V.I. International Equity 0.75% 0.18% 0.93%(2)
Dreyfus Stock Index 0.245% 0.035% 0.28%(3)
Dreyfus Capital Appreciation 0.55% 0.25% 0.80%(3)
Dreyfus Socially Responsible Growth 0.75% 0.07% 0.82%(3)
Colonial Small Cap Value 0.80% [0.20%] [1.00%](x.xx%)(4)
Colonial High Yield Securities 0.60% [0.20%] [0.80%](x.xx%)(4)
Colonial Strategic Income 0.65% 0.15% 0.80%(0.82%) (4)
Colonial U.S. Stock 0.80% 0.14% 0.94%
Liberty All-Star Equity 0.80% 0.20% 1.00%(1.45%) (4)
MFS Emerging Growth 0.75% 0.12% 0.87%
MFS Research 0.75% 0.13% 0.88%
MFS Utilities 0.75% 0.25% 1.00%(1.20%)(5)
MFS Growth with Income 0.75% 0.25% 1.00%(1.10%)(5)
Oppenheimer Bond 0.73% 0.05% 0.78%
Oppenheimer Growth & Income 0.75% 0.08% 0.83%
Stein Roe Balanced 0.45% 0.21% 0.66%
Stein Roe Growth Stock 0.50% 0.21% 0.71%
Stein Roe Money Market 0.35% 0.25% 0.60%
</TABLE>
(1) All Trust and Portfolio expenses are based on 1997 expenses, except
Colonial Small Cap Value and Colonial High Yield Securities. Since those
two Portfolios are newly formed in 1998, their Total Fund Other Expenses
are estimates. The expenses of the Colonial Small Cap Value Fund, Colonial
High Yield Securities Fund, Colonial Strategic Income Fund, Liberty
All-Star Equity Fund, MFS Utilities Series, and MFS Growth with Income
Series reflect the agreement of each Portfolio's adviser to reimburse
expenses above the limits shown in notes (3) and (5).
(2) AIM Advisors, Inc. ("AIM") may from time to time waive or reduce its fees.
Effective May 1, 1998, the AIM Portfolios reimburse AIM in an amount up to
0.25% of the average net asset value of each AIM Portfolio for expenses
incurred in providing or assuring that participating insurance companies
provide certain administrative services. Currently, the fee only applies
to the average net asset value of each Portfolio in excess of the net
asset value of each Portfolio as calculated on April 30, 1998.
(3) The Dreyfus Corporation ("Dreyfus") has undertaken to reduce its
management fee and/or reimburse the other expenses of the Dreyfus Stock
Index Fund if necessary to prevent the Portfolio's aggregate expenses from
exceeding 0.40% of the Portfolio's average net assets for the fiscal year.
Dreyfus may end this undertaking on at least 180 days prior notice. In
addition, Dreyfus and/or the subadvisers to the Dreyfus Portfolios may
from time to time waive receipt of their fees and/or voluntarily assume
certain expenses of these Portfolios. In the fiscal year ending December
31, 1997, neither Dreyfus nor the subadvisers waived any fee or reimbursed
expenses.
(4) Liberty Advisory Services Corp. has agreed until April 30, 1999, to
reimburse all expenses, including management fees, in excess of the
following percentage of the average annual net assets of each of the
Trust's eligible Portfolios, so long as such reimbursement would not
result in the Portfolio's inability to qualify as a regulated investment
company under the Internal Revenue Code: 1.00% for Colonial Small Cap
Value Fund, Liberty All-Star Equity, and Colonial U.S. Stock; and .80% for
Colonial Strategic Income and Colonial High Yield Securities. Each
percentage shown in parentheses is an estimate of what the total expenses
would be in the absence of expense reimbursement: for the Colonial Small
Cap Value Fund, [x.xx]%; for the Colonial High Yield Securities Fund,
[x.xx]%. for the Colonial Strategic Income Fund, .82%; and for the Liberty
All-Star Equity Fund, 1.45%.
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<PAGE>
(5) Massachusetts Financial Services Company has agreed to bear expenses for
these Portfolios, subject to reimbursement from these Portfolios, such
that their "Other Expenses" shall not exceed 0.25% of their average daily
net assets during the current fiscal year. Otherwise, the "Other Expenses"
and "Total Annual Expenses" of the MFS Utilities Portfolio would be 0.45%
and 1.20%, respectively, and the "Other Expenses" and "Total Annual
Expenses" of the MFS Growth with Income Portfolio would be 0.35% and
1.10%, respectively.
PURCHASE OF CONTRACT AND ALLOCATION OF PAYMENTS
Application for a Contract. You may apply to purchase a Contract by submitting a
written application to us through one of our authorized agents. We will not
issue Contracts to insure people who are older than age 85. Before we issue a
Contract, we will require you to submit evidence of insurability satisfactory to
us. Acceptance of your application is subject to our underwriting rules. We
reserve the right to reject your application for any lawful reason. If we do not
issue a Contract to you, we will return your Payment to you. We reserve the
right to change the terms or conditions of your Contract to comply with
differences in applicable state law. Variations from the information appearing
in this Prospectus due to individual state requirements are described in
supplements which are attached to this Prospectus as in endorsements to the
Contract, as appropriate.
In general, we will deliver your Contract when (1) we have received your initial
Payment and (2) we have determined that your application meets our underwriting
requirements. The Contract Date will be the effective date of insurance coverage
under your Contract. We use the Contract Date to determine Contract
Anniversaries, Contract Years, and Monthly Dates.
We will not accept your initial Payment with your application if the requested
Initial Death Benefit of your Contract exceeds our then-current limit. In other
cases, you may choose to pay the initial Payment with your application. If you
did not submit your initial Payment with your application, when we deliver your
Contract we will require you to pay sufficient Payment to place your insurance
in force.
Simplified underwriting. Under our current underwriting rules, which we may
change when and as we decide, proposed Insureds are eligible for simplified
underwriting without a medical examination, if the application responses and
initial payment meet our simplified underwriting standards. Simplified
underwriting is not available if the initial Payment exceeds the limits set in
our simplified underwriting standards.
Simplified underwriting also is not available if the Insured would be more than
80 years old on the Contract Date. For Survivorship Contracts, both Insureds
must meet our simplified underwriting requirements. Simplified underwriting
limits may vary by state.
If your application is approved through simplified underwriting, your Contract
will be effective and your life insurance coverage under the Contract will begin
on the date of your application. Your Contract Date will be the date your
application and initial payment are taken.
Full underwriting. If your application requires full underwriting and we approve
your application, your Contract will be effective as of the date that we receive
your initial Payment. If you submit your initial Payment with your application,
the effective date of your Contract will be the date of your application, which
will be designated your Contract's Contract Date. Otherwise, when we deliver
your Contract we will require you to pay sufficient Payment to place your
insurance in force. At that time, we also will provide you with a document
showing your Contract's effective date, which will be designated as the Conract
Date. While your application is in underwriting, if you have paid your initial
Payment we may provide you with temporary life insurance coverage in accordance
with the terms of our conditional receipt.
If we approve your application, you will earn interest on your Payment from the
Contract Date. We will also begin to deduct the Contract charges as of the
Contract Date. We will temporarily allocate your initial Payment to our Fixed
Account until we allocate it to the Sub-Accounts and the Fixed Account in
accordance with the procedures described in "Allocation of Payments" on page
[20] below.
If we reject your application, we will not issue you a Contract. We will return
any Payment you have made, adding interest as and at the rate required in your
State. We will not subtract any contract charges from the amount we refund to
you.
Payments. You must pay an initial Payment to purchase a Contract. The initial
Payment purchases a Death Benefit initially equal to your Contract's Initial
Death Benefit. The minimum initial Payment is $10,000. We may waive or change
this minimum. If you choose, you may pay additional Payments, subject to the
conditions described below.
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<PAGE>
You may pay additional Payments at any time and in any amount necessary to avoid
termination of your Contract. You may also pay additional Payments subject to
the following conditions:
(1) each additional Payment must be at least $1,000;
(2) the Payment will not disqualify your Contract as a life insurance
contract under the Tax Code.
We intend to require satisfactory evidence of insurability before we accept any
Payment which results in an increase in the Death Benefit. In the future, we may
waive this requirement.
Allocation of Payments. Initially, we will temporarily allocate your initial
Payment to the Fixed Account as of the Contract Date. We generally will then
reallocate that amount (including any interest) among the Sub-Accounts and the
Fixed Account in accordance with your instructions, on the twenty-fifth day
after the Delivery Date. This period may be longer or shorter, depending on the
length of the right of return period in your state, as it will always equal five
days plus the number of days in the right to return period in your state.
You must specify your allocation percentages in your Contract application.
Percentages must be in whole numbers and the total allocation must equal 100%.
We will allocate your subsequent Payments in those percentages, until you give
us new allocation instructions.
You initially may allocate your Account Value to up to ten Sub-Accounts and the
Fixed Account. Moreover, you may not allocate less than five percent of your
Account Value to any one option. You may add or delete Sub-Accounts and/or the
Fixed Account from your allocation instructions, but we will not execute
instructions that would cause your Account Value to be allocated to more than
ten Sub-Accounts at any one time. Your allocation to the Fixed Account, if any,
does not count against this limit. In the future we may change these limits.
We generally will allocate your additional Payments to the Sub-Accounts and the
Fixed Account as of the date your Payment is received in our Service Center. If
an additional Payment requires underwriting, however, we may delay allocation
until we have completed underwriting. We will follow the allocation instructions
in our file, unless you send us new allocation instructions with your payment.
If you have any outstanding Indebtedness, we will apply your additional payment
to your outstanding loan balance until it is fully repaid, unless you instruct
us otherwise in writing.
We will make all valuations in connection with the Contract, other than the
initial Payment and other Payments requiring underwriting, on the date a Payment
is received or your request for other action is received at our Service Center,
if that date is a Valuation Day. Otherwise we will make that determination on
the next succeeding day which is a Valuation Day.
Account Value. Your Account Value is the sum of the value of your interest in
the Sub-Accounts you have chosen, plus your Fixed Account balance, plus your
Loan Account balance. Your Account Value may increase or decrease daily to
reflect the performance of the Sub-Accounts you have chosen, the addition of
interest credited to the Fixed Account and the Loan Account, the addition of
19
<PAGE>
Payments, and the subtraction of partial withdrawals and charges assessed. There
is no minimum guaranteed Account Value.
On the Contract Date, your Account Value will equal the initial Payment less the
Monthly Deduction for the first Contract Month.
On each Valuation Day, the value of your interest in a particular Sub-Account
will equal:
(1) The total value of your Accumulation Units in the Sub-Account; plus
(2) Any Payment received from you and allocated to the Sub-Account
during the current Valuation Period; plus
(3) Any Account Value transferred to the Sub-Account during the current
Valuation Period; minus
(4) Any Account Value transferred from the Sub-Account during the
current Valuation Period; minus
(5) Any amounts withdrawn by you (plus the applicable Withdrawal Charge
and withdrawal fee) from the Sub-Account during the current
Valuation Period; minus
(6) The portion of any Monthly Deduction allocated to the Sub-Account
during the current Valuation Period for the Contract Month following
the Monthly Date.
On each Valuation Day, your Fixed Account balance will equal:
(1) The Fixed Account balance on the previous Valuation Day; plus
(2) Any Payment allocated to it; plus
(3) Any Account Value transferred to it from the Sub-Accounts or the
Loan Account; plus
(4) Interest credited to it; minus
(5) Any Account Value transferred out of it; minus
(6) Any amounts withdrawn by you (plus the applicable Withdrawal
Charge); minus
(7) The portion of any Monthly Deduction allocated to the Fixed Account.
All values under the Contract equal or exceed those required by law. Detailed
explanations of methods of calculation are on file with the appropriate
regulatory authorities.
20
<PAGE>
Accumulation Unit Value. The Accumulation Unit Value for each Sub-Account will
vary to reflect the investment experience of the corresponding Portfolio and the
deduction of certain expenses. We will determine the Accumulation Unit Value for
each Sub-Account on each Valuation Day. A Sub-Account's Accumulation Unit Value
for a particular Valuation Day will equal the Sub-Account's Accumulation Unit
Value on the preceding Valuation Day multiplied by the Net Investment Factor for
that Sub-Account for the Valuation Period then ended. The Net Investment Factor
for each Sub-Account is: (1) divided by (2) minus (3), where: (1) is the sum of
(a) the net asset value per share of the corresponding Portfolio at the end of
the current Valuation Period and (b) the per share amount of any dividend or
capital gains distribution by that Portfolio, if the ex-divided date occurs in
that Valuation Period; (2) is the net asset value per share of the corresponding
Portfolio at the beginning of the Valuation Period; and (3) is an amount equal
to the Expense Charge imposed during the Valuation Period.
You should refer to the Prospectuses for the Portfolios which accompany this
Prospectus for a description of how the assets of each Portfolio are valued,
since that determination directly affects the investment experience of the
corresponding Sub-Account and, therefore, your Account Value.
Transfer of Account Value. While the Contract is in force before the Maturity
Date, you may transfer Account Value among the Fixed Account and Sub-Accounts in
writing or by telephone. You may not request a transfer of less than $250 from a
single Sub-Account, unless the amount requested is your entire balance in the
Sub-Account. If less than $500 would remain in a Sub- Account after a transfer,
we may require you to transfer the entire balance of the Sub-Account. We reserve
the right to change these minimums.
We currently are waiving the transfer fee. The Contract, however, permits us to
impose a $25 transfer fee per transfer.
You may not have Account Value allocated to more than ten Sub-Accounts at one
time. We will not perform a transfer that would cause your Contract to exceed
that limit. We may change this limit in the future.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. Otherwise, we will make the transfer on the first subsequent
day on which we and the NYSE are open. Transfers pursuant to a Dollar Cost
Averaging or Asset Rebalancing program will be made at the intervals you have
selected in accordance with the procedures and requirements we establish.
You may make transfers from the Fixed Account to the Sub-Accounts only during
the 60 days after each Contract Anniversary. You must submit your request no
later than the end of this 60-day period. In addition, in each Contract Year,
the largest amount that you may transfer out of the Fixed Account is the greater
of: (a) the amount transferred in the prior Contract Year; or (b) twenty percent
of the current Fixed Account balance. The Contract permits us to defer transfers
from the Fixed Account for up to six months from the date you ask us.
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<PAGE>
We will not charge a transfer fee on a transfer of all of the Account Value in
the Sub-Accounts to the Fixed Account.
Transfers Authorized by Telephone. You may make transfers by telephone, unless
you advise us in writing not to accept telephonic transfer instructions. The cut
off time for telephone transfer requests is 4:00 p.m. Eastern time. Timely
requests will be processed on that day at that day's price.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses. We may suspend, modify or terminate the telephone
transfer privilege at any time without notice.
Dollar Cost Averaging. Under our automatic Dollar Cost Averaging program, while
the Contract is in force you may authorize us to transfer a fixed dollar amount
at fixed intervals to the Sub-Accounts of your choice in accordance with the
procedures and requirements that we establish. The transfers will continue until
you instruct us to stop, or until your chosen source of transfer payments is
exhausted.
Your request to participate in this program will be effective when we receive
your completed application at our Service Center at the address given on the
first page of this Prospectus. Call or write us for a copy of the application
and additional information concerning the program. We may change, terminate,
limit or suspend Dollar Cost Averaging at any time.
The theory of dollar cost averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount will purchase more
units when the unit prices are relatively low rather than when the prices are
higher, in a fluctuating market, the average cost per unit may be less than the
average of the unit prices on the purchase dates. However, participation in this
program does not assure you of a greater profit from your purchases under the
program; nor will it prevent or necessarily reduce losses in a declining market.
Moreover, other investment programs, such as the Asset Rebalancing program
described below, may not work in concert with Dollar Cost Averaging. Therefore,
you should monitor your use of these programs, as well as other transfers or
withdrawals, while Dollar Cost Averaging is being used.
Asset Rebalancing. Asset Rebalancing allows you to readjust the percentage of
your Account Value allocated to each Sub-Account to maintain a pre-set level.
Over time, the variations in each Sub-Account's investment results will shift
the balance of your Account Value allocations. Under the Asset Rebalancing
feature, we will automatically transfer your Account Value, including new
Payments (unless you specify otherwise), back to the percentages you specify in
accordance with procedures and requirements that we establish. All of your
Account Value allocated to the Sub-Accounts must be included in an Asset
Rebalancing program. You may not include your Fixed Account balance in an Asset
Rebalancing program.
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You may request Asset Rebalancing when you apply for your Contract or by
submitting a completed written request to us at our Service Center at the
address given on the first page of this Prospectus. Please call or write us for
a copy of the request form and additional information concerning Asset
Rebalancing.
Asset Rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your Account
Value allocated to the better performing segments. Other investment programs,
such as the Dollar Cost Averaging program, may not work in concert with Asset
Rebalancing. Therefore, you should monitor your use of these programs, as well
as other transfers or withdrawals, while Asset Rebalancing is being used. We may
change, terminate, limit, or suspend Asset Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
Variable Account Investments
Portfolios. Each of the Sub-Accounts invests in the shares of one of the
Portfolios. Each Portfolio is a separate investment series of an open-end
management investment company registered under the Investment Company Act of
1940. We briefly describe the Portfolios below. You should read the current
Prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios, their investment objectives and strategies, and the
investment risks associated with the Portfolios. If you do not have a Prospectus
for a Portfolio, contact us and we will send you a copy.
Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio generally have no effect on the investment
performance of any other Portfolio.
The Portfolios which currently are the permissible investments of the Variable
Account under this Contract are separate series of AIM Variable Insurance Funds,
Inc. ("AIM Funds"), Liberty Variable Investment Trust ("Liberty Trust"), MFS
Variable Insurance Trust ("MFS Trust"), Oppenheimer Variable Account Funds
("Oppenheimer Funds"), and Stein Roe Variable Investment Trust ("Stein Roe
Trust"), and separately incorporated mutual funds and a single series of a
mutual fund managed by the Dreyfus Corporation (the "Dreyfus Portfolios"). The
investment objectives of the Portfolios are briefly described below.
Portfolios of AIM Funds
and Variable Account Sub-Accounts
AIM V.I. Capital Appreciation. Capital appreciation through investments in
common stocks, with emphasis on medium-sized and smaller emerging growth
companies.
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AIM V.I. International Equity. Long-term growth of capital by investing in
international equity securities, the issuers of which are considered by the
adviser to have strong earnings momentum.
Dreyfus Portfolios and
Variable Account Sub-Accounts
Dreyfus Stock Index Fund (Dreyfus Stock Index Sub-Account). Investment results
that correspond to the price and yield performance of publicly traded common
stocks in the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index.(1)
Dreyfus Variable Investment Fund, Capital Appreciation Portfolio (Dreyfus
Capital Appreciation Sub-Account). Long-term capital growth consistent with the
preservation of capital, with current income as a secondary objective, by
investing primarily in the common stocks of domestic and foreign issuers.
Dreyfus Socially Responsible Growth Fund, Inc. (Dreyfus Socially Responsible
Growth Sub-Account). Capital growth, with current income as a secondary goal,
by investing principally in common stocks, or securities convertible into common
stocks, of companies which, in the opinion of the Portfolio's management, not
only meet traditional investment standards, but also show evidence that they
conduct their business in a manner that contributes to the enhancement of the
quality of life in America.
Portfolios of Liberty Trust and
Variable Account Sub-Accounts
Colonial Small Cap Value Fund (Colonial Small Cap Value Sub-Account). Long-term
growth by investing primarily in smaller capitalization equity securities.
Colonial High Yield Securities Fund (Colonial High Yield Securities
Sub-Account). High current income and total return by investing primarily in
lower rated corporate debt securities. The Portfolio may invest up to 100% of
its assets in lower rated bonds (commonly referred to as "junk bonds") which are
regarded as speculative as to payment of principal and interest. Therefore, the
corresponding Sub-Account may not be suitable for all Contract Owners. Contract
Owners should carefully assess the risks associated with the Portfolio before
investing.
Colonial Strategic Income Fund (Colonial Strategic Income Sub-Account). A high
level of current income, as is consistent with prudent risk and maximizing total
return, by diversifying investments primarily in U.S. and foreign government and
lower rated corporate debt securities. The Portfolio may invest a substantial
portion of its assets in lower rated bonds (commonly referred to as "junk
bonds"). Therefore, the corresponding Sub-Account may not be suitable for all
Contract Owners. Contact Owners should carefully assess the risks associated
with the Portfolio before investing.
Colonial U.S. Stock Fund (Colonial U.S. Stock Sub-Account). Long-term capital
growth by investing primarily in large capitalization equity securities.
Liberty All-Star Equity Fund (Liberty All-Star Equity Sub-Account). Total
investment return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities.
- --------
(1)"Standard & Poor's 500", "S&P 500(R)", and "S&P 500 (R)" are trademarks
of the McGraw-Hill Companies Inc. and have been licensed for use by the
Portfolio. The Portfolio is not sponsored, endorsed, sold or promoted by S&P or
The McGraw-Hill Companies, Inc.
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Portfolios of MFS Trust
and Variable Account Sub-Accounts
MFS Emerging Growth Series (MFS Emerging Growth Sub-Account). Long-term growth
of capital by investing primarily in common stocks of companies that the adviser
believes are early in their life cycle but have the potential to become major
enterprises.
MFS Research Series (MFS Research Sub-Account). Long-term growth of capital and
future income by investing a substantial portion of the Portfolio's assets in
equity securities of companies believed to possess better than average prospects
for long-term growth. The Portfolio may invest up to twenty percent of its
assets in foreign securities that are not traded on a U.S. exchange.
MFS Utilities Series (MFS Utilities Sub-Account). Capital growth and current
income, by investing, under normal circumstances, at least 65% (but up to 100%
at the discretion of the adviser) of its assets in equity and debt securities of
both domestic and foreign companies in the utilities industry.
MFS Growth with Income Series (MFS Growth with Income Sub-Account). Reasonable
current income and long-term growth of capital and income by investing, under
normal market conditions, at least 65% of its assets in equity securities of
companies that are believed to have long-term prospects for growth and income.
This Portfolio may also invest up to 75% (and generally expects to invest not
more than fifteen percent) of its net assets in foreign securities that are not
traded on a U.S. exchange.
Portfolios of Oppenheimer Funds
and Variable Account Sub-Accounts
Oppenheimer Bond Fund (Oppenheimer Bond Sub-Account). High level of current
income by investing primarily in debt securities.
Oppenheimer Growth & Income Fund (Oppenheimer Growth & Income Sub-Account). High
total return (which includes growth in the value of its shares as well as
current income) from equity and debt securities. From time to time this Fund may
focus on small to medium capitalization common stocks, bonds, and convertible
securities.
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Portfolios of Stein Roe Trust and
Variable Account Sub-Accounts
Stein Roe Balanced Fund (Stein Roe Balanced Sub-Account). High total investment
return through investment in a changing mix of securities.
Stein Roe Growth Stock Fund (Stein Roe Growth Stock Sub-Account). Long-term
growth of capital through investment primarily in common stocks.
Stein Roe Money Market Fund (Stein Roe Money Market Sub-Account). High current
income from short-term money market instruments while emphasizing preservation
of capital and maintaining excellent liquidity.
Not all Sub-Accounts may be available under your Contract. You should contact
your representative for further information on the availability of the
Sub-Accounts.
AIM Advisors, Inc. ("AIM") is the investment adviser to each Portfolio of the
AIM Funds. AIM has operated as an investment adviser since 1976.
Liberty Advisory Services Corp. (formerly known as Keyport Advisory Services
Corp.), an affiliate of Liberty Life, is the manager for Liberty Trust and its
Portfolios. Colonial Management Associates, Inc. ("Colonial"), an affiliate of
Liberty Life, serves as sub-adviser for the Portfolios (except for the Liberty
All-Star Equity Fund). Colonial has provided investment advisory services since
1931. Liberty Asset Management Company, an affiliate of Liberty Life, serves as
sub-adviser for the Liberty All-Star Equity Fund and the current portfolio
managers are J.P. Morgan Investment Management Inc., Oppenheimer Capital,
Wilke/Thompson Capital Management Inc., Westwood Management Corp., and Boston
Partners Asset Management, L.P.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser for each of the
Dreyfus Portfolios. Dreyfus has operated as an investment adviser since 1947.
Mellon Equity Associates, an affiliate of Dreyfus, serves as index fund manager
to the Dreyfus Stock Index Fund. Sarofim serves as sub-investment adviser to the
Dreyfus Capital Appreciation Fund. NCM Capital Management Group, Inc. serves as
sub-investment adviser to the Dreyfus Socially Responsible Growth Fund, Inc.
Massachusetts Financial Services Company ("MFS") is the investment adviser to
each Portfolio of the MFS Trust. MFS and its predecessor organizations have a
history of money management dating back to 1924 and the founding of the first
mutual fund in the United States.
Oppenheimer Funds, Inc. ("OFI") is the investment adviser to each Portfolio of
the Oppenheimer Funds. OFI has operated as an investment adviser since 1959.
Stein Roe & Farnham Incorporated ("Stein Roe") is the investment adviser for
each Portfolio of Stein Roe Trust. In 1986, Stein Roe was organized and
succeeded to the business of Stein Roe & Farnham, a partnership. Stein Roe is an
affiliate of Liberty Life. Stein Roe and its predecessor have provided
investment advisory and administrative services since 1932.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Sub-Accounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Sub-Accounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment
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objectives. You should carefully review the Portfolios' Prospectuses before
allocating amounts to the Sub-Accounts.
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying Prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Sub-Account are separate and are credited to or charged against the particular
Sub-Account without regard to income, gains or losses from any other Sub-Account
or from any other part of our business. We will use the Payments you allocate to
a Sub-Account to purchase shares in the corresponding Portfolio and will redeem
shares in the Portfolios to meet Contract obligations or make adjustments in
reserves. The Portfolios are required to redeem their shares at net asset value
and to make payment within seven days.
Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Contract Owners will not bear the attendant expenses.
Voting Rights. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Sub-Account to which you have allocated
your Account Value. Under current interpretations, however, you are entitled to
give us instructions on how to vote those shares on certain matters. We will
notify you when your instructions are needed and will provide proxy materials or
other information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Contract, the assignee may be entitled to give
voting instructions. Retirement plans may have different rules for voting by
plan participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
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We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
Additions, Deletions, and Substitutions of Securities. If the shares of any of
the Portfolios are no longer available for investment by the Variable Account or
if, in our judgment, further investment in the shares of a Portfolio is no
longer appropriate in view of the purposes of the Contract, we may add or
substitute shares of another Portfolio or mutual fund for Portfolio shares
already purchased or to be purchased in the future by Payments under the
Contract. Any substitution will comply with the requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Variable Account and the Sub-Accounts:
(a) to operate the Variable Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain
and continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any
Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Variable Account;
(e) to assess a charge for taxes attributable to the operation of the
Variable Account or for other taxes, as described in "Deductions and
Charges -- Separate Account Expense Charge" on pages [37-38] below;
and
(f) to change the way in which we assess other charges, as long as the
total other charges do not exceed the maximum guaranteed charges
under the Contracts.
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If we take any of these actions, we will comply with the then applicable legal
requirements.
The Fixed Account. The portion of the Contract relating to the Fixed Account is
not registered under the Securities Act of 1933 and the Fixed Account is not
registered as an investment company under the Investment Company Act of 1940.
Accordingly, neither the Fixed Account nor any interests in the Fixed Account
are subject to the provisions or restrictions of the 1933 Act or the 1940 Act,
and the disclosure regarding the Fixed Account has not been reviewed by the
staff of the Securities and Exchange Commission. The statements about the Fixed
Account in this prospectus may be subject to generally applicable provisions of
the federal securities laws regarding accuracy and completeness.
You may allocate part or all of your Payments to the Fixed Account. Under this
option, we guarantee the principal amount allocated to the Fixed Account and the
rate of interest that will be credited to the Fixed Account, as described below.
From time to time we will set a current interest rate applicable to Payments and
transfers allocated to the Fixed Account during a Contract Year. We guarantee
that the current rate in effect when a Payment or transfer to the Fixed Account
is made will apply to that amount until at least the next Contract Anniversary.
We may declare different rates for amounts that are allocated to the Fixed
Account at different times. We determine interest rates in accordance with
then-current market conditions and other factors.
The effective interest rate credited at any time to your Contract's Fixed
Account is the weighted average of all of the interest rates for your Contract.
The rates of interest that we set will never be less than the minimum guaranteed
interest rate shown in your Contract. We may credit interest at a higher rate,
but we are not obligated to do so.
During the 60 days after each Contract Anniversary, you may transfer all or part
of your Fixed Account Balance to the Sub-Accounts, subject to the requirements
and limits described in "Transfer of Account Value" on pages [21-22].
Amounts allocated to the Fixed Account become part of the general account of
Liberty Life. Liberty Life invests the assets of the general account in
accordance with applicable laws governing the investments of insurance company
general accounts.
We may delay payment of partial or full withdrawals from the Fixed Account for
up to 6 months from the date we receive your written withdrawal request. If we
defer payment for more than 30 days, we will pay interest (if required) on the
deferred amount at such rate as may be required by the applicable state or
jurisdiction.
CONTRACT BENEFITS AND RIGHTS
Death Benefit. While your Contract is in force, we will pay the Death Benefit
proceeds upon the death of the Insured or, if your Contract is a Survivorship
Contract, upon the death of the second Insured to die. We will pay the Death
Benefit proceeds to the named Beneficiary(ies) or, if none survives, to
contingent Beneficiary(ies). We will pay the Death Benefit proceeds in a lump
sum
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or apply them under an optional payment plan. The optional payment plans are
described in "Proceeds Options" on pages [34-35].
The Death Benefit proceeds payable to the Beneficiary equal the Death Benefit,
less any Indebtedness and less any due and unpaid charges. The proceeds may be
increased, if you have added a rider that provides an additional benefit. We
will determine the amount of the Death Benefit proceeds as of the end of the
Valuation Period during which we receive due proof of the Insured's death. We
will usually pay the Death Benefit proceeds within seven days after we have
received due proof of death and all other requirements we deem necessary have
been satisfied.
The Death Benefit will be the greater of: (a) the Initial Death Benefit or (b)
the Account Value multiplied by the applicable corridor percentage. We have set
forth the applicable corridor percentages in the Contract. They vary according
to the age of the Insured. We set the corridor percentages so as to seek to
ensure that the Contracts will qualify for favorable federal income tax
treatment. An increase in Account Value due to favorable investment experience
may therefore increase the Death Benefit above the Initial Death Benefit, and a
decrease in Account Value due to unfavorable investment experience may decrease
the Death Benefit (but not below the Initial Death Benefit).
EXAMPLES:
<TABLE>
<CAPTION>
================================================================================
Example A Example B
- --------------------------------------------------------------------------------
<S> <C> <C>
Initial Death Benefit $100,000 $100,000
Insured's Age 60 60
Account Value on Date of Death $80,000 $50,000
Applicable Corridor Percentage 130% 130%
Death Benefit $104,000 $100,000
================================================================================
</TABLE>
In Example A, the Death Benefit equals $104,000, i.e., the greater of $100,000
(the Initial Death Benefit) and $104,000 (the Account Value at the Date of Death
of $80,000, multiplied by the corridor percentage of 130%). This amount, less
any Indebtedness and unpaid charges, constitutes the Death Benefit proceeds that
we would pay to the Beneficiary.
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the
Initial Death Benefit) or $65,000 (the Account Value of $50,000 multiplied by
the corridor percentage of 130%).
Accelerated Death Benefit. You may request payment of a portion of the Death
Benefit as an Accelerated Death Benefit if either: (1) the Insured has a
Terminal Condition; or (2) the Insured is Chronically Ill, as these terms are
defined in the Contract. You generally may request an Accelerated Death Benefit
equal to up to the lesser of 90% of the Death Benefit (before subtracting any
Indebtedness) or $250,000. We will reduce the amount you request by a discount
for the early payment, a $100 processing fee, and the repayment of a pro rata
portion of your Indebtedness.
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You may choose for the Accelerated Death Benefit to be paid in a lump sum or in
installments, as described in the Contract.
If you request an Accelerated Death Benefit, the balance of the Death Benefit
(net of the amount previously requested) is payable upon the Insured's death.
You may request an Accelerated Death Benefit only once. Under Survivorship
Contracts, the Accelerated Death Benefit may not be requested until after the
death of one of the Insureds.
If your request for an Accelerated Death Benefit is based on the Insured's being
Chronically Ill, in some circumstances a portion of your Accelerated Death
Benefit may not qualify for exemption from federal income tax. Accordingly, you
should consult your tax adviser before requesting an Accelerated Death Benefit.
For more information, see "Accelerated Death Benefit", on page [47].
Optional Insurance Benefits. You may ask to add one or more riders to your
Contract to provide additional optional insurance benefits. We may require
evidence of insurability before we issue a rider to you. We will deduct the cost
of any riders as part of the Monthly Deduction. For more information concerning
what options we may offer, please ask your agent or contact us at 800-xxx- xxxx.
In our discretion we may offer riders or stop offering a rider at any time.
Contract Loans. While the Contract is in force, you may borrow money from us
using the Contract as the only security for your loan. Loans have priority over
the claims of any assignee or any other person. You may borrow up to 90% of the
Cash Value of your Contract as of the end of the Valuation Period in which we
receive your loan request. Any outstanding Indebtedness will count against that
limit. Thus, for example, if the Cash Value of your Contract was $100,000 and
you already had $50,000 in Indebtedness outstanding, you could borrow an
additional $40,000 ($100,000 x 90% - $50,000). The minimum loan amount is $250.
In addition, if you have named an irrevocable Beneficiary, you must also obtain
his or her written consent before we make a Contract Loan to you.
You may realize taxable income when you take a Contract Loan. In most instances,
a Contract is treated as a "modified endowment contract" for federal tax
purposes. As a result, Contract Loans are treated as withdrawals for tax
purposes, and the amount of the loan equal to any increase in your Account Value
may be treated as taxable income to you. In addition, you may also incur an
additional ten percent penalty tax. You should also be aware that interest on
Contract Loans is generally not deductible. On the other hand, although a
Contract Loan is treated as a withdrawal for tax purposes, it is treated
differently for Contract purposes. For example, under the Contract, a Contract
Loan, unlike a partial withdrawal, does not reduce the Initial Death Benefit.
Accordingly, before you take a Contract Loan, you should consult your tax
adviser and carefully consider the potential impact of a Contract Loan on your
rights and benefits under the Contract.
While the Contract remains in force, you may repay a Contract Loan in whole or
in part without any penalty at any time while the Insured is living.
The interest rate on Preferred Loans equals the minimum guaranteed interest rate
shown in your Contract; the interest rate on other Contract Loans will be two
percent per annum higher. We will treat
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as a Preferred Loan the portion of your loan equal in amount to (a) your Account
Value, minus (b) your total Payments, minus (c) your current preferred loan
balance, minus (d) any interest that has accrued on your Indebtedness since the
previous Contract Anniversary, plus (e) all prior partial withdrawals other than
withdrawals of earnings. Interest on Contract Loans accrues daily and is due on
each Contract Anniversary. If you do not pay the interest on a Contract Loan
when due, the unpaid interest will become part of the Contract Loan and will
accrue interest at the same rate.
When we make a Contract Loan to you, we will transfer to the Loan Account a
portion of the Account Value equal to the loan amount. We will take the
transfers pro rata from the Fixed Account and the Sub-Accounts, unless you
instruct us otherwise in writing. We will credit interest to the Loan Account at
the minimum guaranteed rate shown in your Contract. On each Contract
Anniversary, we will also transfer to the Loan Account an amount of Account
Value equal to the amount by which the Indebtedness exceeds the value of the
Loan Account.
If you purchase a Contract in exchange for another life insurance contract under
which a loan is outstanding, in our discretion we may permit you to continue
that loan under your Contract. We will advise you of the applicable interest
rate.
If you have any unpaid Indebtedness and your Surrender Value is insufficient to
pay a Monthly Deduction when due, your Contract will enter the Grace Period and
may terminate, as explained in the section entitled "Termination and Grace
Period," on pages [35-36]. If your Contract lapses while a Contract Loan is
outstanding and your Contract is not a MEC, you may owe taxes or suffer other
adverse tax consequences. Please consult a tax adviser for details.
You may repay all or any part of any Contract Loan while the Contract is still
in effect. If you have a Contract Loan outstanding, we will treat any payment we
receive from you as a loan repayment, unless you instruct us otherwise in
writing. We will deduct an amount equal to your loan repayment from the Loan
Account and allocate your payment among the Sub-Accounts and the Fixed Account
on the same basis as additional Payments are allocated, unless you instruct us
otherwise.
A Contract Loan, whether or not repaid, will have a permanent effect on the
Account Value because the investment results of each Sub-Account and the
interest paid on the Fixed Account will apply only to the amounts remaining in
those accounts. The longer a loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If the Sub-Accounts
and/or Fixed Account earn more than the annual interest rate for amounts held in
the Loan Account, your Account Value will not increase as rapidly as it would if
you had not taken a Contract Loan. If the Sub-Accounts and/or Fixed Account earn
less than that rate, then your Account Value will be greater than it would have
been if you had not taken a Contract Loan. Also, if you do not repay a Contract
Loan, your Indebtedness will be subtracted from the Death Benefit and Surrender
Value otherwise payable.
Amount Payable on Surrender of the Contract. While your Contract is in force,
you may fully surrender your Contract. Upon surrender, we will pay you the
Surrender Value determined as of the day we receive your written request at our
Service Center. Your Contract will terminate on
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the day we receive your written request. We may require that you give us your
Contract document before we pay you the Surrender Value. Before we pay a full
surrender, you must provide us with tax withholding information.
The Surrender Value equals the Account Value, minus any applicable Withdrawal
Charge, minus the Contract Fee, minus any Indebtedness. We will determine the
Surrender Value as of the end of the Valuation Period during which we received
your request for surrender. We generally will pay you the Surrender Value of the
Contract within seven days of our receiving your complete written request or on
the effective surrender date you have requested, whichever is later. The
determination of the Withdrawal Charge is described on pages [39-40].
You may receive the Surrender Value in a lump sum or under any of the proceeds
options described in "Proceeds Options" on pages [34-35].
The tax consequences of surrendering the Contract are discussed in "Federal Tax
Considerations," beginning on page [44].
Partial Withdrawals. Beginning in the second Contract Year, you may receive a
portion of the Surrender Value by making a partial withdrawal from your
Contract. You must request the partial withdrawal in writing. Your request will
be effective on the date we receive it at our Service Center. Before we pay any
partial withdrawal, you must provide us with tax withholding information.
When you request a partial withdrawal, we will pay you the amount requested and
subtract the amount requested plus any applicable Withdrawal Charge and
withdrawal fee from your Account Value. We may waive the Withdrawal Charge on
some or all of your withdrawals. The determination of the Withdrawal Charge is
described on pages [39-41].
You may specify how much of your partial withdrawal you wish taken from each
Sub-Account. The amount requested from a specific Sub-Account may not exceed the
value of that option less any applicable Withdrawal Charge and withdrawal fee.
If you do not specify the option from which you wish to take your partial
withdrawal, we will take it pro rata from the Sub-Accounts and the Fixed
Account.
During the first Contract Year, you may not make any partial withdrawals. After
the first Contract Year, you may take partial withdrawals as often as you
choose. You may not, however, withdraw less than $250 at one time. In addition,
we may refuse to permit any partial withdrawal that would leave less than $500
in a Sub-Account from which the withdrawal was taken unless the entire
Sub-Account balance is withdrawn. If a partial withdrawal plus any applicable
Withdrawal Charge would reduce the Account Value to less than $10,000, we may
treat your request as a request to withdraw the total Account Value and
terminate your Contract. We may waive or change this limit.
A partial withdrawal will reduce the Initial Death Benefit under your Contract
as well as the Account Value. We will reduce the Initial Death Benefit
proportionately to the reduction in the Account Value caused by the partial
withdrawal.
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Withdrawals generally will be subject to income tax and a ten percent penalty
tax. The tax consequences of partial withdrawals are discussed in "Federal Tax
Considerations" beginning on page [44].
Systematic Withdrawal Program. You may enroll in our systematic withdrawal
program by sending a completed enrollment form to our Service Center at the
address shown on the first page of this Prospectus. We will pay systematic
withdrawals to you or a payee that you choose. Each systematic withdrawal
payment must be at least $250. We will take systematic withdrawal payments pro
rata from the Sub-Accounts and the Fixed Account, unless you instruct us
otherwise. We will treat systematic withdrawals in the same way as other partial
withdrawals in applying the Withdrawal Charge and the withdrawal fee. In our
discretion we may stop paying systematic withdrawals if your Account Value falls
below our current minimum. We reserve the right to modify or suspend the
systematic withdrawal program. In our discretion, any change may apply to
existing systematic withdrawal plans. Write us at the address shown on the first
page of this Prospectus or call us at 1-800-xxx-xxxx for more information about
our Systematic Withdrawal Program.
If you take payments under our systematic withdrawal program prior to age
59-1/2, you may be subject to a ten percent penalty tax, in addition to any
other tax liability you may have. Accordingly, you should consult a qualified
tax counselor before entering into a systematic withdrawal plan. For more
information, see "Federal Tax Considerations -- Tax Deferral During Accumulation
Period: Penalty Tax" on pages [47-48].
Proceeds Options. We will pay the Surrender Value or Death Benefit proceeds
under the Contract in a lump sum or under one of the proceeds options that we
then offer. The amount applied to a proceeds option must be at least $2,000 of
Account Value and result in installment payments of not less than $20. Unless we
consent in writing, the proceeds options described below are not available if
the payee is an assignee, administrator, executor, trustee, association,
partnership, or corporation. We will not permit surrenders or partial
withdrawals after payments under a proceeds option involving life contingencies
commence. We will transfer to our general account any amount placed under a
proceeds option and it will not be affected by the investment performance of the
Variable Account.
You may request a proceeds option by writing to us at our Service Center at the
address given on the first page of this Prospectus before the death of the
Insured. If you change the Beneficiary, the existing choice of proceeds option
will become invalid and you may either notify us that you wish to continue the
pre-existing choice of proceeds option or select a new one.
The following proceeds options are available under the Contract:
Option 1 - Interest. We will pay interest monthly on proceeds left with us. We
will credit interest to unpaid balances at a rate which we will declare
annually. We will never declare an effective annual rate of less than 3-1/2%.
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Option 2 - Fixed Amount. We will pay equal monthly installments until the
proceeds are exhausted. We will credit interest to unpaid balances at a rate
which we will declare annually. We will never declare an effective annual rate
of less than 3-1/2%.
Option 3 - Fixed Period. We will pay monthly installments for a period selected
by you of not more than 25 years.
Option 4 - Life Income, with or without a Guarantee Period. We will pay proceeds
in periodic payments to the payee for as long as the payee is alive. If no
Guarantee Period is selected, payments will stop when the payee dies. It is
possible for the payee to receive only one payment, if the payee dies before the
second payment is due. If a Guarantee Period is selected and the payee dies
before the end of the Guarantee Period, we will continue payments to a named
beneficiary until the end of the Guarantee Period. We offer Guarantee Periods of
ten years, fifteen years or twenty years. We base the payments on the 1983
Individual Annuity Mortality Table, adjusted to include ten years of mortality
improvement under Projection Scale G.
When we begin to make payments under Options 3 and 4, we will tell you the
amount of your installment payment. Your installment payment will never be less
than the amounts determined using the tables in the Contract. It may be higher.
In addition, we may agree to other proceeds option plans. Write or call us to
obtain information about them.
Termination and Grace Period. The Contract will terminate and life insurance
coverage will end when one of the following events first occurs:
(a) you surrender your Contract;
(b) the Contract reaches the Maturity Date;
(c) the Grace Period ends; or
(d) the Insured dies.
Your Contract will enter the Grace Period if on a Monthly Date the Surrender
Value is insufficient to pay the Monthly Deduction and you have any unpaid
Indebtedness. You will be given a 61-day Grace Period in which to pay an amount
sufficient enough additional to keep the Contract in force after the end of the
Grace Period.
At least 61 days before the end of the Grace Period, we will send you and any
assignee a notice telling you that you must pay at least the amount shown in the
notice by the end of the Grace Period to prevent your Contract from terminating.
The amount shown in the notice will be determined as provided in the Contract.
You may pay a larger amount if you wish. If you do not pay us the amount shown
in the notice before the end of the Grace Period, your Contract will end at the
end of the Grace Period.
The Contract will continue in effect through the Grace Period. If the Insured
dies during the Grace Period, we will pay a Death Benefit in accordance with
your instructions. However, we
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will reduce the proceeds by an amount equal to the Monthly Deductions due and
unpaid. See "Death Benefit," on page [30].
If you have no outstanding Indebtedness, your Contract will not lapse. Under the
Contract's Guaranteed Death Benefit provision, in that circumstance, if on a
Monthly Date the Surrender Value is not large enough to cover the full Monthly
Deduction, we will apply the remaining Surrender Value to partially pay the
Monthly Deduction and waive any insufficiency. Thereafter, we will waive all
future Monthly Deductions until the Surrender Value is sufficient to pay the
Monthly Deduction.
Maturity Benefit. If the Insured is still living and the Contract is in force on
the Maturity Date, we will pay you a Maturity Benefit. The Maturity Benefit will
equal the Surrender Value on the Maturity Date. The Maturity Date will be the
Contract Anniversary after the Insured's 100th birthday.
Reinstatement. If the Contract lapses during the life of the Insured, you may
apply for reinstatement of the Contract by paying us the reinstatement Payment.
You must request reinstatement within five years from the end of the Grace
Period and before the Maturity Date. The reinstatement Payment is equal to an
amount sufficient to cover three months of monthly deductions following the date
of reinstatement. If you choose, you may pay a larger amount. If Indebtedness
was outstanding at the time of lapse, you must either repay or reinstate the
loan before we will reinstate your Contract. In addition, you must provide
evidence of insurability satisfactory to us. The Account Value on the
reinstatement date will reflect the Account Value at the time of termination of
the Contract plus the Payment paid at the time of reinstatement. All Contract
charges will continue to be based on your original Contract Date. A Survivorship
Contract may be reinstated only if both Insureds are still alive, or if one
Insured is alive and the lapse occurred after the death of the first Insured.
Cancellation. In many states, you may cancel your Contract by returning it to us
within twenty days after you receive it. In some states, however, this right to
return period may be longer or shorter, as provided by state law. If you return
your Contract, the Contract terminates and, in most states, we will pay you an
amount equal to your Payment. We will pay the refund within seven days of
receiving your request. No Withdrawal Charge is imposed upon return of a
Contract within the right to return period. This right to return may vary in
certain states
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in order to comply with the requirements of state insurance laws and
regulations. Accordingly, you should refer to your Contract for specific
information about your circumstances.
Postponement of Payments. We may defer for up to fifteen days the payment of any
amount attributable to a Payment paid by check to allow the check a reasonable
time to clear. We ordinarily will pay any amount attributable to the Account
Value allocated to the Variable Account within seven days, except:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Variable Account's
investments or determination of the value of its net assets is not
reasonable practicable; or
(3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of Account Value in the Fixed Account for up
to six months or a shorter period if required by law. If we defer payment for
more than 30 days we will pay interest (if required) on the deferred amount at
such rate as may be required by the applicable state or jurisdiction.
DEDUCTIONS AND CHARGES
We assess charges and deductions under the Contracts against the Sub-Accounts
and the Account Value. Additional deductions and expenses are paid out of the
Portfolios' assets, as described in the Prospectuses of the Portfolios.
Separate Account Expense Charge. On each Valuation Day, we will take a deduction
from the Sub-Accounts to compensate Liberty Life for its expenses incurred in
connection with this Contract. This Expense Charge will be calculated at an
annual rate equivalent to 1.65% of average daily net assets of each Sub-Account,
as described in the table of Contract Charges and Deductions on pages [15-18].
The amount deducted will be determined on each Valuation Day.
The Separate Account Expense Charge, together with the Fixed Account Expense
Charge, is intended to cover all expenses under the Contract other than
distribution expenses, and the Cost of Insurance Charge and the other expenses
covered by the Monthly Deduction, which are charged for separately and described
below. Accordingly, the Expense Charges are intended to compensate us for
incurring the following expenses and assuming certain risks under the Contracts:
- a portion of state premium taxes and other state and local taxes;
- administrative expenses such as salaries, postage, telephone, office
equipment, and periodic reports;
- mortality and expense risk; and
- certain federal taxes and other expenses associated with the receipt
of Payments.
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The mortality risk assumed in relation to the Contract includes the risk that
the cost of insurance charges specified in the Contract will be insufficient to
meet claims and the risks under the Guaranteed Death Benefit. We also assume a
risk that, on the Monthly Date preceding the death of an Insured, the Death
Benefit will exceed the amount on which the cost of insurance charges were
based. The expense risk assumed is that expenses incurred in issuing and
administering the Contracts will exceed the administrative charges set in the
Contract.
We currently are not maintaining a provision for taxes attributable to the
operations of the Variable Account (as opposed to the federal tax related to the
receipt of Payments under the Contracts). In the future, however, we may make
such a charge. Charges for other taxes, if any, attributable to the Variable
Account or to this class of Contracts may also be made.
Monthly Deduction. Each month on the Monthly Date we will take a Monthly
Deduction from your Account Value. The Monthly Deduction will consist of a Cost
of Insurance Charge, a Contract Fee (when due), the Fixed Account Expense
Charge, and any charges for optional benefit riders. We deduct the Fixed Account
Expense Charge from your Fixed Account balance. We allocate the remainder of the
Monthly Deduction pro rata among your interests in the Sub-Accounts and your
Fixed Account balance.
Cost of Insurance Charge. The Cost of Insurance Charge is intended to pay for
the cost of providing life insurance coverage for the Insured. We guarantee that
this charge will not exceed the maximum Cost of Insurance Charge determined on
the basis of the rates shown in the mortality table guaranteed in the Contract.
The current Cost of Insurance Charge is the lesser of the applicable percentage
of the Account Value on the relevant Monthly Date or the applicable guaranteed
cost of insurance rate multiplied by the net amount at risk for that Contract
Month. Our current asset-based cost of insurance rate for the Single Life,
Standard Rating Class (NT) is 0.45% of Account Value annually for the first ten
Contract Years and 0.65% of Account Value annually thereafter. Rates for other
classes may differ based on the type of Contract and the rating class and
history of tobacco use of the Insured(s).
The net amount at risk is (a) - (b), where:
(a) is the Death Benefit on the first day of the Contract Month divided
by one plus the Guaranteed Monthly Equivalent Interest Rate shown in
your Contract; and
(b) the Account Value on that day before the deduction of the Monthly
Deduction for the Cost of Insurance.
Because your Account Value and the net amount for which we are at risk under
your Contract may vary monthly, your Cost of Insurance Charge is likely to
differ each month.
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The Cost of Insurance Charge covers our anticipated mortality costs for standard
and substandard risks. We determine the current cost of insurance rates, based
on our expectations as to our future mortality experience and other factors. We
guarantee, however, that we will never charge you a cost of insurance charge
higher than the amount determined using the guaranteed cost of insurance rates
shown in the Contract. We base our cost of insurance rates on the sex, issue
age, Contract Year, rating class, and history of tobacco use of the Insured.
However, we issue unisex polices in Montana. Our cost of insurance rates are
based on the 1980 Commissioners Standard Ordinary ("1980 CSO") Mortality Table
based on the Insured's sex, age last birthday, and history of tobacco use. Our
cost of insurance rates for unisex Contracts will never exceed a maximum based
on the 1980 CSO Table B assuming a blend of 80% male and 20% female lives.
Contract Fee. We charge a Contract Fee of $30.00 per year. We deduct the
Contract Fee on each Contract Anniversary. If you surrender your Contract during
a Contract Year, we will deduct the full Contract Fee from your surrender
proceeds. The Contract Fee is intended to compensate us for administrative
expenses such as salaries, postage, telephone, office equipment and periodic
reports. We currently waive the Contract Fee on a Contract, if the Account Value
is at least $50,000.
Fixed Account Expense Charge. On each Monthly Date we charge a Fixed Account
Expense Charge of 0.04% of the Account Value in the Fixed Account, which is
equivalent to an annual rate of 0.48% of the average monthly Account Value in
the Fixed Account. The Fixed Account Expense Charge is intended to cover state
premium taxes and administrative expenses.
Portfolio Expenses. You indirectly bear the charges and expenses of the
Portfolios whose shares are held by the Sub-Accounts to which you allocate your
Account Value. The Variable Account purchases shares of the Portfolios at net
asset value. Each Portfolio's net asset value reflects investment advisory fees
and administrative expenses already deducted from the Portfolio's assets. For a
summary of current estimates of these charges and expenses, see pages [15-17]
above. For more information concerning the investment advisory fees and other
charges against the Portfolios, see the Prospectuses and the statements of
additional information for the Portfolios, which are available upon request.
We may receive compensation from the investment advisers or administrators of
the Portfolios. Such compensation will be consistent with the services we
provide or the cost savings resulting from the arrangement and therefore may
differ between Portfolios.
Withdrawal Charge. If you surrender your Contract or take a partial withdrawal
during the first seven Contract Years, we may subtract a Withdrawal Charge from
the proceeds. The Withdrawal Charge will be calculated at the rate shown below.
If you surrender your Contract, the Withdrawal Charge will equal a percentage of
your initial Payment net of all previous withdrawal amounts on which you paid a
Withdrawal Charge. If you make a partial withdrawal from your Contract, the
Withdrawal Charge will equal a percentage of the amount withdrawn until your
total partial withdrawals on which you paid a Withdrawal Charge
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equals your initial Payment. Partial Withdrawals above that amount are not
subject to the Withdrawal Charge.
The rate used to determine the Withdrawal Charge depends on the year the
withdrawal is made. The Withdrawal Charge declines to zero percent after the
seventh Contract Year. The Withdrawal Charge is assessed at the following rates:
<TABLE>
<CAPTION>
Contract Withdrawal Contract Withdrawal
Year Charge Year Charge
<S> <C> <C> <C>
1 9.75% 5 7.25%
2 9.50% 6 5.00%
3 9.25% 7 4.75%
4 7.50% 8+ 0%
</TABLE>
We will waive the Withdrawal Charge on that portion of your withdrawals equal to
the greater of:
(a) ten percent of the Account Value less any prior free partial
withdrawals and preferred loans taken since the most recent Contract
Anniversary; or
(b) earnings not previously withdrawn. For this purpose, "earnings" will
equal the Account Value, minus the total Payments on your Contract,
minus all outstanding preferred loans, minus any interest that has
accrued on Indebtedness since the previous Contract Anniversary,
plus all prior partial withdrawals other than withdrawals of
earnings.
Additional Payments do not increase the amount of Withdrawal Charge you may be
required to pay. Only your initial Payment is used in our formula for
calculating Withdrawal Charges.
The Withdrawal Charge is imposed to cover our actual premium tax expenses and
sales expenses, which include agents' sales commissions and other sales and
distribution expenses. We expect to recover total premium tax expenses and sales
expenses of the Contracts over the life of the Contracts. However, to the extent
premium taxes and distribution costs are not recovered by the Withdrawal Charge,
we may make up any shortfall from the assets of our general account, which
includes funds derived from the daily deductions charged to the Sub-Accounts and
other fees and charges under the Contracts.
Medical Waiver of Withdrawal Charge. After the first Contract Year, we will
waive the Withdrawal Charge on all withdrawals under your Contract if on at
least 45 days of any continuous 60 day period beginning after the first Contract
Year any Insured or his or her spouse has a Qualifying Medical Stay, as defined
in the Contract. To obtain this waiver, you must apply in writing within 180
days of your initial eligibility. You may not claim this benefit if the medical
treatment is provided by a resident of your household or a member of your
immediate family. Additional restrictions may apply if the Insured's spouse had
a Qualifying Medical Stay within
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45 days before the Contract Date. We may require you to provide us with written
proof of your eligibility. This waiver is described in more detail in the
Contract.
Withdrawal Fee. We charge a withdrawal fee on any partial withdrawal after the
first in any Contract Year. The withdrawal fee will equal the lesser of $25 or
two percent of the amount of the partial withdrawal. The withdrawal fee does not
apply to full surrenders. The withdrawal fee is intended to compensate us for
our administrative costs in effecting a partial withdrawal.
Transfer Fee. We currently are not charging the transfer fee described in the
Contract. The Contract, however, permits us to charge a transfer fee of $25 per
transfer, including transfers under our Dollar Cost Averaging and Asset
Rebalancing Programs. We will notify you if we begin to charge this fee.
We will deduct the transfer fee from the Account Value remaining in the
Sub-Account or the Fixed Account from which the transfer was made. If that
amount is insufficient to pay the transfer fee, we will subtract it from the
transferred amount.
Special Provisions for Group or Sponsored Arrangements. Where permitted by state
insurance laws, Contracts may be purchased under group or sponsored
arrangements. We may reduce or waive the charges and deductions described above
for Contracts issued under these arrangements. Among other things, we may waive
Withdrawal Charges and deductions to employees, officers, directors, agents, and
immediate family members of the foregoing. We will reduce these charges and
deductions in accordance with our rules in effect when we approve the
application for a Contract. To qualify for a reduction, a group or sponsored
arrangement must satisfy our criteria as to, for example, the size of the group,
the expected number of participants and anticipated Payments from the group.
Generally, the sales contacts and effort, administrative costs and mortality
cost per Contract vary based on such factors as the size of the group or
sponsored arrangements, the purposes for which Contracts are purchased and
certain characteristics of the group's members. The amount of reduction and the
criteria for qualification will reflect the reduced sales effort and
administrative costs resulting from, and the different mortality experience
expected as a result of, sales to qualifying groups and sponsored arrangements.
From time to time, we may modify on a uniform basis both the amounts of
reductions and the criteria for qualification. Reductions in these charges will
not be unfairly discriminatory against any person, including the affected
Contact Owners and all other owners of all other contracts funded by the
Variable Account.
GENERAL CONTRACT PROVISIONS
Statements to Contract Owners. We will maintain all records relating to the
Variable Account and the Sub-Accounts. Each year we will send you a report
showing information concerning your Contract transactions in the past year and
the current status of your Contract. The report will include information such as
the Account Value as of the end of the current and the prior year, the current
Death Benefit, Surrender Value, Indebtedness, partial withdrawals, earnings,
Payments paid, and deductions made since the last annual report. We will also
include any information required by state law or regulation. If you ask us, we
will send you an additional report at any
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time. We may charge you up to $25 for this additional report. We will tell you
the current charge before we send you the report.
In addition, we will send you the financial statements of the Portfolios and
other reports as specified in the Investment Company Act of 1940, as amended. We
also will mail you confirmation notices or other appropriate notices of Contract
transactions quarterly or more frequently within the time periods specified by
law. Please give us prompt written notice of any address change. Please read
your statements and confirmations carefully and verify their accuracy and
contact us promptly with any question.
Limit on Right to Contest. In the absence of fraud, we may not contest the
insurance coverage under the Contract after the Contract has been in force for
two years after the Contract Date while the Insured is alive or for two years
after any increase in the Initial Death Benefit. The two year incontestability
period may vary in certain states to comply with the requirements of state
insurance laws and regulations.
In issuing a Contract, we rely on your application. Your statements in that
application, in the absence of fraud, are considered representations and not
warranties. We will not use any statement made in connection with the Contract
application to void the Contract or to deny a claim, unless that statement is a
part of the application or an amendment thereto.
Suicide. If the Insured commits suicide while sane or kills him- or herself
while insane within two years of the Contract Date, we are not required to pay
the full Death Benefit that would otherwise be payable. Instead, we will pay you
an amount equal to the Account Value less any Indebtedness, or the minimum
amount required by the state in which your Contract was issued, and the Contract
will end.
Misstatement as to Age and Sex. If the age or sex of the Insured is incorrectly
stated in the application, we will adjust any proceeds appropriately as
specified in the Contract.
Beneficiary. You name the original Beneficiary(ies) and Contingent
Beneficiary(ies) in the application for the Contract. You may change the
Beneficiary or Contingent Beneficiary at any time while the Insured is alive,
except irrevocable Beneficiaries and irrevocable Contingent Beneficiaries may
not be changed without their consent.
You must request a change of Beneficiary in writing. We will provide a form to
be signed and filed with us. Your request for a change in Beneficiary or
Contingent Beneficiary will take effect as of the date you signed the form after
we acknowledge receipt in writing. Until we acknowledge receipt of your change
instructions, we are entitled to rely on your most recent instructions in our
files. Accordingly, we are not liable for making a payment to the person shown
in our files as the Beneficiary or treating that person in any other respect as
the Beneficiary, even if instructions that we subsequently receive from you seek
to change your Beneficiaries effective as of a date before we made the payment
or took the action in question.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions,
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we will pay the Death Benefit in equal shares to the Beneficiaries. If one of
the Beneficiaries dies before you, we will divide the Death Benefit among the
surviving Beneficiaries. If no Beneficiary is living, the Contingent Beneficiary
will be the Beneficiary. The interest of any revocable Beneficiary is subject to
the interest of any assignee. If no Beneficiary or Contingent Beneficiary is
living, the Beneficiary is the Contract Owner or the Contract Owner's estate.
Assignment. While the Insured is alive, you may assign your Contract as
collateral security. You must notify us in writing if you assign the Contract.
Until we receive notice from you, we are not liable for any action we may take
or payments we may make that may be contrary to the terms of your assignment. We
are not responsible for the validity of an assignment. Your rights and the
rights of the Beneficiary may be affected by an assignment. An assignment may
result in income tax and a ten percent penalty tax. You should consult your tax
adviser before assigning your Contract.
Creditors' Claims. To the extent permitting by law, no benefits payable under
this Contract will be subject to the claims of your or the Beneficiary's
creditors.
Dividends. We will not pay any dividend under the Contract.
Notice and Elections. To be effective, all notices and elections under the
Contract must be in writing, signed by you, and received by us at our Service
Center. Certain exceptions may apply. Unless otherwise provided in the Contract,
all notices, requests and elections will be effective when received at our
Service Center complete with all necessary information.
Modification. We reserve the right to modify the Contract without your express
consent, in the circumstances described in this Prospectus or as necessary to
conform to applicable law or regulation or any ruling issued by a governmental
agency. The provisions of the Contract will be construed so as to comply with
the requirements of Section 7702 of the Tax Code.
Survivorship Contracts. We offer Contracts on a single life and "last survivor"
basis. The Survivorship Contract operates almost identically to the Single Life
Contract. The primary difference is that the Survivorship Contract has two
Insureds and the Death Benefit is paid only upon the death of the last surviving
Insured. Other significant differences are:
(1) the cost of insurance charge differs because we base it on the
anticipated mortality of two Insureds and we do not pay the Death
Benefit until both Insureds have died;
(2) for a Survivorship Contract to qualify for simplified underwriting,
both Insureds must meet our standards;
(3) for a Survivorship Contract to be reinstated, both Insureds must be
alive on the date of reinstatement;
(4) under a Survivorship Contract, provisions regarding
incontestability, suicide, and misstatements of age or sex apply to
each Insured; and
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(5) the Accelerated Death Benefit is only available upon the Terminal
Illness or Chronic Illness of the surviving Insured, as these terms
are defined in the Contract.
FEDERAL TAX CONSIDERATIONS
NOTE: The following discussion is based upon our understanding of current
federal income tax law applicable to life insurance contracts in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the contracts. You bear the complete
risk that the Contracts may not be treated as "life insurance contracts" under
federal income tax laws.
In addition, this discussion does not include a detailed description of the
federal income tax consequences of the purchase of these Contracts or any
discussion of special tax rules that may apply to certain purchase situations.
We also have not tried to consider any other possibly applicable state or other
tax laws, for example, the estate tax consequences of the Contracts. You should
seek tax advice concerning the effect on your personal tax liability of the
transactions permitted under the Contract, as well as any other questions you
may have concerning the tax status of the Contract or the possibility of changes
in the tax law.
Taxation of Liberty Life and the Variable Account. Liberty Life is taxed as a
life insurance company under Part I of Subchapter L of the Tax Code. The
operations of the Variable Account are taxed as part of the operations of
Liberty Life. Investment income and realized capital gains are not taxed to the
extent that they are applied under the Contracts.
Accordingly, we do not anticipate that Liberty Life will incur any federal
income tax liability attributable to the operation of the Variable Account (as
opposed to the federal tax related to the receipt of Payments under the
Contracts). Therefore, we are not making any charge or provision for federal
income taxes. However, if the tax treatment of the Variable Account is changed,
we may charge the Variable Account for its share of the resulting federal income
tax.
In several states, we may incur state and local taxes on the operations of the
Variable Account. We currently are not making any charge or provision for them
against the Variable Account. We do, however, use part of the Withdrawal Charge
to offset these taxes. If these taxes should be increased, we may make a charge
or provision for them against the Sub-Accounts. If we do so, the results of the
Sub-Accounts will be reduced.
Tax Status of the Contract. The Contract is structured to satisfy the definition
of a life insurance contract under the Tax Code. As a result, the Death Benefit
ordinarily will be fully excluded from the gross income of the Beneficiary. The
Death Benefit will be included in your gross estate for federal estate tax
purposes if the proceeds are payable to your estate. The Death Benefit will also
be included in your estate, if the Beneficiary is not your estate but you
retained incidents of ownership in the Contract. Examples of incidents of
ownership include the right to change Beneficiaries, to assign the Contract or
revoke an assignment, and to pledge the Contract or obtain a Contract Loan. If
you own and are the Insured under a Contract and if you transfer all incidents
of ownership in the Contract more than three years before your death, the Death
Benefit will not be included in your gross estate. State and local estate and
inheritance tax consequences may also apply.
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In addition, certain transfers of the Contract or Death Benefit, either during
life or at death, to individuals (or trusts for the benefit of individuals) two
or more generations below that of the transferor may be subject to the federal
generation-skipping transfer tax.
In the absence of final regulations or other pertinent interpretations of the
Tax Code, some uncertainty exists as to whether a substandard risk Contract will
meet the statutory definition of a life insurance contract. If a Contract were
deemed not to be a life insurance contract for tax purposes, it would not
provide most of the tax advantages usually provided by a life insurance
contract. We reserve the right to amend the Contracts to comply with any future
changes in the Tax Code, any regulations or rulings under the Tax Code and any
other requirements imposed by the Internal Revenue Service ("IRS").
In addition, you may use the Contract in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax adviser regarding the tax treatment of the proposed arrangement.
Diversification Requirements. Section 817(h) of the Tax Code requires that the
underlying assets of variable life insurance contracts be diversified. The Tax
Code provides that a variable life insurance contract will not be treated as a
life insurance contract for federal income tax purposes for any period and any
subsequent period for which the investments are not adequately diversified. If
the Contract were disqualified for this reason, you would lose the tax deferral
advantages of the Contract and would be subject to current federal income taxes
on all earnings allocable to the Contract.
The Tax Code provides that variable life insurance contracts such as the
Contract meet the diversification requirements if, as of the close of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company, and no more than 55% of the total assets consist
of cash, cash items, U.S. Government securities and securities of other
regulated investment companies. For purposes of determining whether or not the
diversification standards of Section 817(h) of the Tax Code have been met, each
United States government agency or instrumentality is treated as a separate
issuer.
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The United States Treasury Department (the "Treasury Department") also has
issued regulations that establish diversification requirements for the
investment accounts underlying variable contracts such as the Contracts. These
regulations amplify the diversification requirements set forth in the Tax Code
and provide an alternative to the provision described above. Under these
regulations, an investment account will be deemed adequately diversified if: (1)
no more than 55% of the value of the total assets of the account is represented
by any one investment; (2) no more than 70% of the value of the total assets of
the account is represented by any two investments; (3) no more than 80% of the
value of the total assets of the account is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
account is represented by any four investments.
These diversification standards are applied to each Sub-Account of the Variable
Account by looking to the investments of the Portfolio underlying the
Sub-Account. One of our criteria in selecting the Portfolios is that their
investment managers intend to manage them in compliance with these
diversification requirements.
Owner Control. In certain circumstances, variable life insurance contract owners
will be considered the owners, for tax purposes, of separate account assets
underlying their contracts. In those circumstances, the contract owners could be
subject to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a variable
insurance contract owner will be considered the owner of separate account
assets, if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. When the
diversification regulations were issued, the Treasury Department announced that
in the future, it would provide guidance on the extent to which variable
contract owners could direct their investments among Sub-Accounts without being
treated as owners of the underlying assets of the Variable Account. As of the
date of this Prospectus, no such guidance has been issued. We cannot predict
when or whether the Treasury Department will issue that guidance or what
position the Treasury Department will take. In addition, although regulations
are generally issued with prospective effect, it is possible that regulations
may be issued with retroactive effect.
The ownership rights under the Contract are similar in many respects to those
described in IRS rulings in which the contract owners were not deemed to own the
separate account assets. In some respects, however, they differ. For example,
under the Contract you have many more investment options to choose from than
were available under the contracts involved in the published rulings, and you
may be able to transfer Account Value among the investment options more
frequently than in the published rulings. Because of these differences, it is
possible that you could be treated as the owner, for tax purposes, of the
Portfolio shares underlying your Contract and therefore subject to taxation on
the income and gains on those shares. Moreover, it is possible that the Treasury
Department's position, when announced, may adversely affect the tax treatment of
existing Contracts. We therefore reserve the right to modify the Contract as
necessary to attempt to prevent you from being considered the owner for tax
purposes of the underlying assets.
The remainder of this discussion assumes that the Contract will be treated as a
life insurance contract for federal tax purposes.
Tax Treatment of Life Insurance Death Benefit Proceeds. In general, the amount
of the Death Benefit payable under a Contract is excludable from gross income
under the Tax Code. Certain transfers of the Contract, however, may result in a
portion of the Death Benefit being taxable.
If the Death Benefit is not received in a lump sum and is, instead, applied
under one of the proceeds options, payments generally will be prorated between
amounts attributable to the Death
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Benefit, which will be excludable from the Beneficiary's income, and amounts
attributable to interest (occurring after the insured's death), which will be
includable in the beneficiary's income.
Accelerated Death Benefit. In general, the tax treatment of an Accelerated Death
Benefit is the same as the treatment of Death Benefits, as described above.
However, where an Accelerated Death Benefit is based on the Insured's being
"Chronically Ill", the Tax Code limits the amount of the Accelerated Death
Benefit that will qualify for exclusion from federal income taxation. In some
circumstances, an Accelerated Death Benefit under the Contract may exceed these
limits, and the excess amount therefore may be taxable. Accordingly, if you are
considering requesting an Accelerated Death Benefit, you should first consult a
qualified tax adviser.
Tax Deferral During Accumulation Period. Under existing provisions of the Tax
Code, except as described below, any increase in your Account Value is generally
not taxable to you unless you receive or are deemed to receive amounts from the
Contract before the Insured dies. If you surrender your Contract, the Cash Value
(less any Contract Fee paid upon surrender) will be includable in your income to
the extent the amount received exceeds the "investment in the contract." The
"investment in the contract" generally is the total Payments and other
consideration paid for the Contract, less the aggregate amount received under
the Contract previously to the extent such amounts received were excludable from
gross income. Whether partial withdrawals (or other amounts deemed to be
distributed) from the Contract constitute income depends, in part, upon whether
the Contract is considered a "modified endowment contract" ("MEC") for federal
income tax purposes.
Contracts Which Are MECs
- ------------------------
Characterization of a Contract as a MEC. In general, this Contract will
constitute a MEC unless (1) it was received in exchange for another life
insurance contract which was not a MEC, (2) no Payments or other consideration
(other than the exchanged contract) are paid into the Contract during the first
7 Contract Years, and (3) there is no withdrawal or reduction in the death
benefit during the first 7 Contract Years. In addition, even if the Contract
initially is not a MEC, it may, in certain circumstances, become a MEC if there
is a later increase in benefits or any other "material change" of the Contract
within the meaning of the tax law.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. If your
Contract is a MEC, withdrawals from your Contract will be treated first as
withdrawals of income and then as a recovery of Payments. Thus, you may realize
taxable income upon a withdrawal if the Account Value exceeds the investment in
the Contract. You may also realize taxable income when you take a Contract Loan,
because any loan (including unpaid loan interest) under the Contract will be
treated as a withdrawal for tax purposes. In addition, if you assign or pledge
any portion of the value of your Contract (or agree to assign or pledge any
portion), the assigned or pledged portion of your Account Value will be treated
as a withdrawal for tax purposes. Before assigning, pledging, or requesting a
loan under a Contract which is a MEC, you should consult a qualified tax
adviser.
Penalty Tax. Generally, withdrawals (or the amount of any deemed withdrawals)
from a MEC are subject to a penalty tax equal to ten percent of the portion of
the withdrawal that is includable
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in income, unless the withdrawals are made: (1) after you reach age 59-1/2, (2)
because you have become disabled (as defined in the tax law), or (3) as
substantially equal periodic payments over your life or life expectancy (or the
joint lives or life expectancies of you and your beneficiary, as defined in the
tax law). Certain other exceptions to the ten percent penalty tax may apply.
Payments under our systematic withdrawal program possibly may not qualify for
the exception from penalty tax for "substantially equal periodic payments" which
is described above. Accordingly, this Contract may be inappropriate for Contract
Owners who expect to take substantially equal periodic payments prior to age
59-1/2. You should consult a qualified tax adviser before entering into a
systematic withdrawal plan.
Aggregation of Contracts. All life insurance contracts which are MECs and which
are purchased by the same person from us or any of our affiliates within the
same calendar year will be aggregated and treated as one contract for purposes
of determining the amount of a withdrawal (including a deemed withdrawal) that
is includable in taxable income.
Contracts Which Are Not MECs
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Tax Treatment of Withdrawals Generally. If your Contract is not a MEC, the
amount of any withdrawal from the Contract will be treated first as a
non-taxable recovery of Payments and then as income from the Contract. Thus,
only the portion of a withdrawal that exceeds the investment in the Contract
immediately before the withdrawal will be includable in taxable income.
Certain Distributions Required by the Tax Law in the First 15 Contract Years. As
indicated above, the Tax Code limits the amount of Payments that may be made and
the Account Values that can accumulate relative to the Death Benefit. Where cash
distributions are required under the Tax Code in connection with a reduction in
benefits during the first 15 years after the Contract is issued (or if
withdrawals are made in anticipation of a reduction in benefits, within the
meaning of the Tax Code, during this period), some or all of such amounts may be
includable in taxable income.
Tax Treatment of Loans. If your Contract is not a MEC, a loan received under the
Contract generally will be treated as indebtedness for tax purposes, rather than
a withdrawal of Account Value. As a result, you will not realize taxable income
on any part of the loan as long as the Contract remains in force. If you
surrender your Contract, however, any outstanding loan balance will be treated
as an amount received by you as part of the Surrender Value. Accordingly, you
may be subject to taxation on the loan amount at that time. Moreover, if any
portion of your Contract Loan is a preferred loan, a portion of your Contract
Loan may be includable in your taxable income. Generally, you may not deduct
interest paid on loans under the Contract, even if you use the loan proceeds in
your trade or business.
Survivorship Contract. Although we believe that the Contract, when issued as a
Survivorship Contract, meets the definition of life insurance contract under the
Tax Code, the Tax Code does not directly address how it applies to Survivorship
Contracts. In the absence of final regulations or other guidance under the Tax
Code regarding this form of Contract, there is necessarily some uncertainty
whether a Survivorship Contract will meet the Tax Code's definition of a life
insurance
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contract. If you are considering purchasing a Survivorship Contract, you should
consult a qualified tax adviser.
If the Contract Owner is the last surviving Insured, the Death Benefit proceeds
will generally be includable in the Contract Owner's estate on his or her death
for purposes of the federal estate tax. If the Contract Owner dies and was not
the last surviving Insured, the fair market value of the Contract may be
included in the Contract Owner's estate. In general, the Death Benefit proceeds
are not included in the last surviving Insured's estate if he or she neither
retained incidents of ownership at death nor had given up ownership within three
years before death.
Treatment of Maturity Benefits and Extension of Maturity Date. At the Maturity
Date, we pay the Surrender Value to you. Generally, the excess of the Cash Value
(less any applicable Contract Fee) over your investment in the Contract will be
includable in your taxable income at that time.
Actions to Ensure Compliance with the Tax Law. We believe that the maximum
amount of Payments we intend to permit for the Contracts will comply with the
Tax Code definition of a life insurance contract. We will monitor the amount of
your Payments, and, if your total Payments during a Contract Year exceed those
permitted by the Tax Code, we will refund the excess Payments within 60 days of
the end of the Contract Year and will pay interest and other earnings (which
will be includable in taxable income) as required by law on the amount refunded.
We reserve the right to increase the Death Benefit (which may result in larger
charges under a Contract) or to take any other action deemed necessary to ensure
the compliance of the Contract with the federal tax definition of a life
insurance contract.
Federal Income Tax Withholding. We will withhold and remit to the federal
government a part of the taxable portion of withdrawals made under a Contract,
unless the Owner notifies us in writing at or before the time of the withdrawal
that he or she chooses not to have withholding. As Contract Owner, you will be
responsible for the payment of any taxes and early distribution penalties that
may be due on the amounts received under the Contract, whether or not you choose
withholding. You may also be required to pay penalties under the estimated tax
rules, if your withholding and estimated tax payments are insufficient to
satisfy your total tax liability.
Tax Advice. This summary is not a complete discussion of the tax treatment of
the Contract. You should seek tax advice from an attorney who specializes in tax
issues.
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DESCRIPTION OF LIBERTY LIFE AND THE VARIABLE ACCOUNT
Liberty Life Assurance Company of Boston. Liberty Life Assurance Company of
Boston was incorporated on September 17, 1963 as a stock life insurance company.
Its executive and administrative offices are located at 175 Berkeley Street,
Boston, Massachusetts 02117.
Liberty Life writes individual life insurance on both a participating and a
non-participating basis and group life and disability insurance and individual
and group annuity contracts on a non-participating basis. The variable life
insurance contracts described in this Prospectus are issued on a
non-participating basis. Liberty Life is licensed to do business in all states,
in the District of Columbia, and in Canada. We intend to market the Contracts
everywhere in the United States we conduct life insurance business. Liberty Life
has been rated "A" by A.M. Best and Company, independent analysts of the
insurance industry. The Best's A rating is in the second highest rating
category, which also includes a lower rating of A-. Best's Ratings merely
reflect Best's opinion as to the relative financial strength of Liberty Life and
Liberty Life's ability to meet its contractual obligations to its Contract
holders. The ratings are not intended to reflect the financial strength or
investment experience of the Variable Account. We may from time to time
advertise these ratings in our sales literature.
Liberty Life is a member of the Insurance Marketplace Standards Association
("IMSA"). Accordingly, we may use the IMSA logo and membership in IMSA in
advertisements. Being a member means that Liberty Life has chosen to participate
in IMSA's Life Insurance Ethical Market Conduct Program.
Liberty Life is an indirect wholly-owned subsidiary of Liberty Mutual Insurance
Company and Liberty Mutual Fire Insurance Company. Liberty Mutual Insurance
Company is a multi-line insurance and financial services institution.
Pursuant to a Guarantee Agreement dated [______________], Liberty Mutual, our
ultimate parent, unconditionally guarantees to us on behalf of and for the
benefit of Liberty Life and owners of life insurance contracts and annuity
contracts issued by Liberty Life that it will, on demand, make funds available
to us for the timely payment of contractual obligations under any insurance
policy or annuity contract issued by us, other than obligations funded by one of
our separate accounts. This guarantee covers our obligations under the Fixed
Account portion of the Contracts, and our obligation to pay a Death Benefit in
excess of the total Sub-Account Values. Liberty Mutual may terminate this
guarantee on notice to Liberty Life.
Liberty Life also acts as a sponsor for two other of its separate accounts that
are registered investment companies: Variable Account J and Variable Account K.
The officers and employees of Liberty Life are covered by a fidelity bond in the
amount of $70,000,000.
Officers and Directors of Liberty Life. Our directors and executive officers are
listed below, together with information as to their dates of election and
principal business occupations during the past five years (if other than their
present occupation). Where no dates are given, the person has held that position
for at least the past five years.
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Gary L. Countryman; Chairman of the Board, June 1998 to date; Chief Executive
Officer and Chairman of the Board, March 1987 to June 1998; Director, March
1981; Chairman of the Board, Liberty Mutual Insurance Company, April 1998 to
date; Chairman of the Board and Chief Executive Officer, Liberty Mutual
Insurance Company, April 1992 to April 1998.
Edmund F. Kelly; President and Chief Executive Officer, June 1998 to date;
President and Chief Administrative Officer, June 1995 to June 1998; Director,
July 1992 to date; President and Chief Executive Officer, Liberty Mutual
Insurance Company, April 1998 to date; President and Chief Operating Officer,
Liberty Mutual Insurance Company, April 1992 to April 1998.
Morton E. Spitzer; Executive Vice President, Chief Operating Officer -
Individual, July 1992 to date; Director, August 1995 to date.
Jean M. Scarrow; Executive Vice President, Chief Operating Officer - Group, and
Director, May 1997 to date; Vice President, Liberty Mutual Insurance Company,
June 1985 to May 1997.
A. Alexander Fontanes; Vice President, March 1992 to date; Director, August 1995
to date; Senior Vice President and Chief Investment Officer, Liberty Mutual
Insurance Company.
John B. Conners; Director, August 1995 to date; Executive Vice President and
Manager--Personal Market, Liberty Mutual Insurance Company.
J. Paul Condrin, III; Vice President and Director, April 1997 to date; Senior
Vice President and Chief Financial Officer, Liberty Mutual Insurance Company.
Christopher C. Mansfield; Director, August 1995 to date; Senior Vice President
and General Counsel, Liberty Mutual Insurance Company.
Andrew M. Girdwood, Jr.; Vice President, March 1984 to date.
Richard W. Hadley; Vice President, and Comptroller, June 1993 to date.
Richard B. Lassow; Vice President, September 1994 to date; Chief Actuary -
Individual Life, Connecticut Mutual Life Insurance Company, September 1989 to
June 1994.
Merrill J. Mack; Vice President, March 1986 to date.
John S. O'Donnell; Vice President, April 1991 to date.
Steven M. Sentler; Vice President, September 1994 to date; Second Vice
President, Travelers Insurance Company, December 1978 to November 1993.
John A. Tymochko; Vice President, March 1993 to date.
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Barry S. Gilvar; Secretary, August 1995 to date; Assistant Secretary, March 1993
to August 1995; Vice President and Secretary, Liberty Mutual Insurance Company.
Elliot J. Williams; Treasurer, April 1997 to date; Vice President and
Treasurer, Liberty Mutual Insurance Company.
Gerald H. Dolan; Assistant Treasurer, June 1996 to date; Assistant Controller
and Director Corporate Tax, Liberty Mutual Insurance Company.
Bernard Gillen; Assistant Treasurer, June 1996 to date; Director - Tax
Compliance, Liberty Mutual Insurance Company.
James W. Jakobek; Assistant Treasurer, September 1990 to date; Vice President
and Manager, Liberty Mutual Insurance Company.
Charlene Albanese; Assistant Secretary, December 1997 to date; Manager -
Individual Life Policy Services, Liberty Mutual Insurance Company, August 1998
to date; Assistant Manager Individual Life Policy Services, Liberty Mutual
Insurance Company, July 1997 to August 1998; Manager - Individual Life Policy
Services, Liberty Mutual Insurance Company, April 1991 to July 1997.
Diane S. Bainton; Assistant Secretary, November 1995 to date; Assistant
Secretary, Liberty Mutual Insurance Company.
Katherine Desiderio; Assistant Secretary, November 1995 to date; Hearing
Representative, Liberty Mutual Insurance Company.
James R. Pugh; Assistant Secretary, November 1995 to date; Senior Corporate
Counsel, Liberty Mutual Insurance Company.
Harvey Swedlove; Assistant Secretary, February 1997 to date; Vice President and
General Counsel, Liberty Canada Holdings, Ltd., January 1996 to date;
Consultant, Maris Management, Ltd., June 1994 to December 1995; Vice President
and General Counsel, Camrost Development Corporation, August 1987 to June 1994.
The business address of each of the foregoing officers and directors is 175
Berkeley Street, Boston, Massachusetts 02117.
Financial Information Concerning Liberty Life. You should consider the financial
statements for Liberty Life that are attached to the end of this Prospectus only
as bearing on the Company's ability to meet its obligations under the Contract.
They do not relate to the investment performance of the assets held in the
Variable Account.
Variable Account. LLAC Variable Account was originally established in 1998, as a
segregated asset account of Liberty Life. The Variable Account meets the
definition of a "separate account" under the federal securities laws and is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940. The SEC does not supervise the management of the Variable Account
or Liberty Life.
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We own the assets of the Variable Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Account
Value of the Contracts offered by this Prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Variable Account are credited to or charged against the Variable Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Liberty Life.
The Variable Account is divided into Sub-Accounts. The assets of each
Sub-Account are invested in the shares of one of the Portfolios. We do not
guarantee the investment performance of the Variable Account, its Sub-Accounts
or the Portfolios. Values allocated to the Variable Account will rise and fall
with the values of shares of the Portfolios and are also reduced by Contract
charges. In the future, we may use the Variable Account to fund other variable
universal life insurance contracts. We will account separately for each type of
variable life insurance contract funded by the Variable Account.
Safekeeping of the Variable Account's Assets. We hold the assets of the Variable
Account. We keep those assets physically segregated and held separate and apart
from our general account assets. We maintain records of all purchases and
redemptions of shares of the Portfolios.
State Regulation of Liberty Life. We are subject to the laws of Massachusetts
and regulated by the Massachusetts Division of Insurance. Every year we file an
annual statement with the Division of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Division of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the National
Association of Insurance Commissioners. Our books and records are subject to
review by the Division of Insurance at all times. We are also subject to
regulation under the insurance laws of every jurisdiction in which we operate.
YEAR 2000 MATTERS
We have been addressing Year 2000 matters since late 1995. We established a Year
2000 plan and we are now carefully examining all of our relevant internal
computing systems to identify areas that may need changes. We have started to
make the changes and have targeted December 31, 1998 as the expected completion
date. We also have established Year 2000 compliance standards for all new
internal systems. We intend to provide uninterrupted service to all of our
Contact Owners and customers.
We believe we will meet our timetable for any required changes and the Year 2000
issues will not pose significant operational problems for us.
We do not expect that the cost of addressing the Year 2000 issues will be
material to Liberty Life's financial condition or its results of operation.
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DISTRIBUTION OF CONTRACTS
Liberty Life Distributors LLC ("LLD") serves as distributor of the Contracts.
LLD is located at 100 Liberty Way, Dover New Hampshire 03820. LLD is our
wholly-owned subsidiary. It is registered as a broker-dealer under the
Securities Exchange Act of 1934, and is a member of the National Association of
Securities Dealers, Inc.
The Contracts described in this Prospectus are sold by registered
representatives of broker-dealers or bank employees who are licensed insurance
agents appointed by the Company, either individually or through an incorporated
insurance agency. LLD enters into selling agreements with the unaffiliated
broker-dealers and banks whose personnel participate in the offer and sale of
the Contracts. In some states, Contracts may be sold by representatives or
employees of banks which may be acting as broker-dealers without separate
registration under the Securities Exchange Act of 1934, pursuant to legal and
regulatory exceptions.
The maximum sales compensation payable by the Company is not more than seven
percent of the initial Payment plus 0.15% annually of the unloaned Account
Value. In addition, we may pay or permit other promotional incentives, in cash,
or credit or other compensation.
The distribution agreement with LLD provides for indemnification of LLD by
Liberty Life for liability to owners arising out of services rendered or
contracts issued.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. Liberty
Life is engaged in routine law suits which, in our management's judgment, are
not of material importance to its total assets or material with respect to the
Variable Account.
LEGAL MATTERS
All matters of Massachusetts law pertaining to the Contract, including the
validity of the Contract and our right to issue the Contract under Massachusetts
law, have been passed upon by William J. O'Connell, Esq., Counsel. The law firm
of Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas Jefferson St.,
Suite 400, East Lobby, Washington, D.C. 20007-5201, serve as special counsel to
Liberty Life with regard to the federal securities laws.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, Washington, D.C., under the
Securities Act of 1933 as amended, with respect to the Contracts offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the registration statement and the exhibits filed as part of the registration
statement. You should refer to the registration statement and the exhibits for
further information concerning the Variable Account, Liberty Life, and the
Contracts. The descriptions in this Prospectus of the Contracts and other legal
instruments are summaries. You should refer to those instruments as filed for
their precise terms.
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EXPERTS
The consolidated financial statements for Liberty Life Assurance Company of
Boston as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997 and the related financial statement schedule
included in this Prospectus have been audited by Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts, independent auditors, as stated in
their reports. We have included those financial statements and the supplemental
schedule in reliance upon the reports of Ernst & Young, LLP, given upon their
authority as experts in accounting and auditing. Actuarial matters included in
this Prospectus and the registration statement of which it is a part, including
the hypothetical Contract illustrations, have been examined by Douglas Wood,
FSA, MAAA, Actuary of the Company, and are included in reliance upon his opinion
as to their reasonableness.
FINANCIAL STATEMENTS
No financial statements are included for the Variable Account. It has not yet
commenced operations, has no assets or liabilities, and has received no income
or incurred any expense. The financial statements of Liberty Life that are
included should be considered only as bearing upon Liberty Life's ability to
meet its contractual obligations under the Contracts. Liberty Life's financial
statements do not bear on the investment experience of the assets held in the
Variable Account. The most current financial statements of Liberty Life are
those as of the end of the most recent fiscal year. Liberty Life represents that
there has been no adverse material changes in Liberty Life's financial position
or operations between the end of the most recent fiscal year and the date of
this Prospectus. [financial statements to be added by pre-effective amendment]
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