As filed with the Securities and Exchange Commission on May 14, 1999.
Registration No. 333-65957
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 2
LLAC VARIABLE ACCOUNT
(Exact Name of Trust)
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
(Name of Depositor)
175 Berkeley Street
Boston, Massachusetts 02117
(Complete Address of Depositor's Principal Executive Offices)
Morton E. Spitzer
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
175 Berkeley Street
Boston, Massachusetts 02117
(Name and Complete Address of Agent for Service)
Copies to:
Joan E. Boros, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson
1025 Thomas Jefferson Street,
N.W. Washington, D.C. 20007-5201
William J. O'Connell, Esq.
Vice-President and Assistant General Counsel
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, Massachusetts 02117
Securities being offered--variable portion of modified single payment variable
universal life insurance contracts.
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Approximate date of proposed public offering: as soon as practicable after the
effective date of this registration statement.
The registrant is registering an indefinite amount of securities, by reason of
Section 24(f) of the Investment Company Act of 1940.
The registrant hereby amends this registration statement on such dates as may
be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in Prospectus of
information required by Items of Form N-8B-2.
<TABLE>
<CAPTION>
Item Number in Form N-8B-2 Caption in Prospectus
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<S> <C> <C> <C>
Organization and General Information
1. (a) Name of trust ..................................... Cover, Definitions
(b) Title of each class of securities issued .......... Cover, Purchase of Contract and Allocation of
Payments
2. Name & address of each depositor .................. Cover, Liberty Life Assurance Company of
Boston
3. Name & address of custodian ....................... Variable Account
4. Name & address of principal underwriter ........... Distribution of Contracts
5. State in which organized .......................... Variable Account
6. Date of organization .............................. Variable Account
9. Material litigation ............................... Legal Proceedings
General Description of the Trust and Securities of The Trust
General Information Concerning Securities and Rights of Holders
10. (a),(b) Type of Securities ............................... Cover, Purchase of Contract and Allocation of
Payments
(c) Rights of security holders re: withdrawal or
redemption ........................................ Cover, Amount Payable on Surrender of the
Contract, Contract Loans, Cancellation
(d) Rights of security holders re: conversion,
transfer or partial withdrawal .................... Cover, Cancellation, Amount Payable on
Surrender of the Contract, Partial
Withdrawals, Allocation of Payments,
Transfer of Account Value
(e) Rights of security holders re: lapses, default,
& reinstatement ................................... Termination
(f) Provisions re: voting rights ...................... Voting Rights
(g) Notice to security holders ........................ Statements to Contract Owners
(h) Consent of security holders ....................... Additions, Deletions, and Substitutions of
Securities, Allocation of Payments
(i) Other principal features .......................... Deductions and Charges, Contract Benefits
and Rights, Cash Value
Information Concerning Securities Underlying Trust's Securities
11. Unit of specified securities in which security
holders have an interest .......................... Cover, Portfolios
12. (a)-(d) Name of company, name & address of its
custodian ......................................... Cover, Portfolios
Information Concerning Loads, Fees, Charges & Expenses
13. (a) With respect to each load, fee, charge &
expense ........................................... Deductions and Charges
(b) Deductions for sales charges ...................... Withdrawal Charge
</TABLE>
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<TABLE>
<CAPTION>
Item Number in Form N-8B-2 Caption in Prospectus
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<S> <C> <C> <C>
(c) Sales load as percentage of amount invested .......... Withdrawal Charge
(d)-(g) Other loads, fees & expenses ....................... Deductions and Charges
Information Concerning Operation of Trust
14. Procedure for applications for & issuance of
trust's securities ................................... Application for a Contract, Allocation of
Payments, Distribution of Contracts
15. Procedure for receipt of payments from
purchases of trust's securities ...................... Application for a Contract, Allocation of
Payments, Payments, Transfer of Account
Value
16. Acquisition and disposition of underlying
securities ........................................... Cover, Portfolios
17. (a) Procedure for withdrawal ............................. Cover, Amount Payable on Surrender of the
Contract, Partial Withdrawals, Cancellation
(b) Redemption or repurchase ............................. Cover, Amount Payable on Surrender of the
Contract, Partial Withdrawals, Cancellation
(c) Cancellation or resale ............................... Not Applicable
18. (a) Income of the Trust .................................. Portfolios, Allocation of Payments
19. Procedure for keeping records & furnishing
information to security holders ...................... Portfolios, Statements to Contract Owners
21. (a) & (b) Loans to security holders ......................... Contract Loans
23. Bonding arrangements for depositor ................... Safekeeping of the Variable Account's Assets
24. Other material provisions ............................ General Contract Provisions
Organization, Personnel & Affiliated Persons of Depositor
Organization & Operations of Depositor
25. Form, state & date of organization of
depositor ............................................ Liberty Life Assurance Company of Boston
27. General character of business of depositor ........... Liberty Life Assurance Company of Boston
28. (a) Officials and affiliates of the depositor ............ Liberty Life Assurance Company of Boston,
Officers and Directors of Liberty Life
(b) Business experience of officers and directors
of the depositor ..................................... Officers and Directors of Liberty Life
Companies Owning Securities of Depositor
29. Each company owning 5% of voting securities
of depositor ......................................... Liberty Life Assurance Company of Boston
Controlling Persons
30. Control of depositor ................................. Liberty Life Assurance Company of Boston
Distribution & Redemptions of Securities
Distribution of Securities
35. Distribution ......................................... Liberty Life Assurance Company of Boston,
Distribution of Contracts
38. (a) General description of method of distribution
of securities ........................................ Distribution of Contracts
(b) Selling agreement between trust or depositor
& underwriter ........................................ Distribution of Contracts
(c) Substance of current agreements ...................... Distribution of Contracts
</TABLE>
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<TABLE>
<CAPTION>
Item Number in Form N-8B-2 Caption in Prospectus
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<S> <C> <C> <C>
Principal Underwriter
39. (a) & (b) Principal Underwriter ........................... Distribution of Contracts
41. Character of Underwriter's business ............. Distribution of Contracts
Offering Price or Acquisition Value of Securities of Trust
44. Information concerning offering price or
acquisition valuation of securities of trust.
(All underlying securities are shares in
registered investment companies.) ............... Portfolios, Account Value
Redemption Valuation of Securities of Trust
46. Information concerning redemption valuation
of securities of trust. (All underlying
securities are shares in a registered
investment company.) ............................ Portfolios, Account Value
Purchase & Sale of Interests in Underlying Securities
47. Maintenance of Position ......................... Cover, Variable Account, Portfolios,
Allocation of Payments
Information Concerning Trustee or Custodian
48. Custodian of trust .............................. Variable Account
50. Lien on trust assets ............................ Variable Account
Information Concerning Insurance of Holders of Securities
51. (a) Name & address of insurer ....................Cover, Liberty Life Assurance Company of
Boston
(b) Types of Contracts ...........................Cover, Purchase of Contract and Allocation of
Payments, Federal Tax Considerations
(c) Risks insured & excluded .....................Death Benefit, Optional Insurance Benefits,
Misstatement as to Age and Sex, Suicide
(d) Coverage .....................................Cover, Purchase of Contract and Allocation of
Payments
(e) Beneficiaries ................................Death Benefit, Beneficiary
(f) Terms of cancellations & reinstatement .......Termination
(g) Method of determining amount of premium Purchase of Contract and Allocation of
paid by holder ...............................Payments
Policy of Registrant
52. (a) & (c) Selection of Portfolio securities ..................Additions, Deletions, and Substitutions of
Securities
Regulated Investment Company
53. (a) Taxable status of trust ............................Taxation of Liberty Life and the Variable
Account
Financial and Statistical Information
59. Financial Statements ...............................Financial Statements
</TABLE>
*Items not listed are not applicable to this Registration Statement.
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PROSPECTUS
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
1-800-400-1377
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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.
- --------------------------------------------------------------------------------
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 39. 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.
The Contracts currently offer eighteen 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. Government Securities Fund; and 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.
The Date of this Prospectus is May [21], 1999.
<PAGE>
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.
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 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.
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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
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DEFINITIONS ....................................................... 1
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT ......................... 3
FEES AND EXPENSES ................................................. 11
PURCHASE OF CONTRACT AND ALLOCATION OF PAYMENTS ................... 14
Application for a Contract ...................................... 14
Simplified Underwriting ......................................... 15
Full Underwriting ............................................... 15
Payments ........................................................ 15
Allocation of Payments .......................................... 16
Account Value ................................................... 16
Accumulation Unit Value ......................................... 17
Transfer of Account Value ....................................... 17
Transfers Authorized by Telephone ............................... 18
Dollar Cost Averaging ........................................... 18
Asset Rebalancing ............................................... 19
Asset Allocation Models ......................................... 19
THE INVESTMENT AND FIXED ACCOUNT OPTIONS .......................... 20
Variable Account Investments .................................... 20
Portfolios ..................................................... 20
Voting Rights .................................................. 24
Additions, Deletions, and Substitutions of Securities .......... 24
The Fixed Account ............................................... 25
CONTRACT BENEFITS AND RIGHTS ...................................... 26
Death Benefit ................................................... 26
Accelerated Death Benefit ....................................... 26
Optional Insurance Benefits ..................................... 27
Contract Loans .................................................. 27
Amount Payable on Surrender of the Contract ..................... 28
Partial Withdrawals ............................................. 29
Systematic Withdrawals or Loans ................................. 30
Proceeds Options ................................................ 30
Termination and Grace Period .................................... 31
Maturity Benefit ................................................ 32
Extended Maturity Agreement ..................................... 32
Reinstatement ................................................... 32
Cancellation .................................................... 32
Postponement of Payments ........................................ 33
DEDUCTIONS AND CHARGES ............................................ 33
Separate Account Expense Charge ................................. 33
Monthly Deduction ............................................... 34
Cost of Insurance Charge ........................................ 34
Contract Fee .................................................... 35
Fixed Account Expense Charge .................................... 35
</TABLE>
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<TABLE>
<CAPTION>
Page
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Portfolio Expenses .................................................... 35
Withdrawal Charge ..................................................... 35
Medical Waiver of Withdrawal Charge ................................... 36
Withdrawal Fee ........................................................ 36
Transfer Fee .......................................................... 37
Special Provisions for Group or Sponsored Arrangements ................ 37
GENERAL CONTRACT PROVISIONS ............................................. 37
Statements to Contract Owners ......................................... 37
Limit on Right to Contest ............................................. 38
Suicide ............................................................... 38
Misstatement as to Age and Sex ........................................ 38
Beneficiary ........................................................... 38
Assignment ............................................................ 39
Creditors' Claims ..................................................... 39
Dividends ............................................................. 39
Notice and Elections .................................................. 39
Modification .......................................................... 39
Survivorship Contracts ................................................ 39
FEDERAL TAX CONSIDERATIONS .............................................. 39
Taxation of Liberty Life and the Variable Account ..................... 40
Tax Status of the Contract ............................................ 40
Diversification Requirements .......................................... 41
Owner Control ......................................................... 41
Tax Treatment of Life Insurance Death Benefit Proceeds ................ 42
Accelerated Death Benefit ............................................. 42
Tax Deferral During Accumulation Period ............................... 42
Contracts Which Are MECs .............................................. 43
Characterization of a Contract as a MEC .............................. 43
Tax Treatment of Withdrawals, Loans, Assignments and Pledges
under MECs ......................................................... 43
Penalty Tax .......................................................... 43
Aggregation of Contracts ............................................. 43
Contracts Which Are Not MECs .......................................... 43
Tax Treatment of Withdrawals Generally ............................... 43
Certain Distributions Required by the Tax Law in the First 15
Contract Years ..................................................... 43
Tax Treatment of Loans ................................................ 44
Survivorship Contract ................................................. 44
Treatment of Maturity Benefits and Extension of Maturity Date ......... 44
Actions to Ensure Compliance with the Tax Law ......................... 44
Federal Income Tax Withholding ........................................ 45
Tax Advice ............................................................ 45
DESCRIPTION OF LIBERTY LIFE AND THE VARIABLE ACCOUNT .................... 46
Liberty Life Assurance Company of Boston .............................. 46
</TABLE>
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<TABLE>
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Page
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Officers and Directors of Liberty Life ................ 46
Financial Information Concerning Liberty Life ......... 48
Variable Account ...................................... 48
Safekeeping of the Variable Account's Assets .......... 49
State Regulation of Liberty Life ...................... 49
YEAR 2000 MATTERS ....................................... 49
DISTRIBUTION OF CONTRACTS ............................... 50
LEGAL PROCEEDINGS ....................................... 50
LEGAL MATTERS ........................................... 51
REGISTRATION STATEMENT .................................. 51
EXPERTS ................................................. 51
FINANCIAL STATEMENTS .................................... 51
</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--If your Contract is issued in the field under simplified
underwriting or you pay your initial payment upon receipt of your
Contract, the date on which your Contract is personally delivered to
you; otherwise five days after we mail your Contract for delivery 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 29.
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
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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.
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 that 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
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.
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<PAGE>
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. 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 1-800-400-1377. We currently are not charging a transfer fee on all
transfers. Under the Contract, however, we may charge a fee of $25 per
transfer on each transfer, including Dollar Cost Averaging and Asset
Rebalancing transfers. We may change the number of free transfers at
any time, subject to the limits described in "Transfer Fee" on page 37,
but the transfer fee will never exceed $25 per transfer. 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 page 18.
You may also use our automatic Dollar Cost Averaging program or our
Asset Rebalancing program. Under the Dollar Cost Averaging program,
each month 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 18.
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
periodically transfer your Account Value back to the specified
percentages at the frequency that you specify. For more detail, see
"Asset Rebalancing", on
page 19.
5
<PAGE>
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. Government Securities 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
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.
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
27-28, and "Contracts Which Are MECs", on pages 42-43.
6
<PAGE>
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.
We currently waive the transfer fee on all transfers. Under the
Contract, however, we may charge a fee of $25 per transfer on each
transfer, including Portfolio Rebalancing and Dollar Cost Averaging
transfers. We may change the numbers of free transfers at any time,
subject to the limits described in "Transfer Fee" on page 36, but the
transfer fee will never exceed $25.
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 35-36. 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 11-12 and described
in more detail in "Deductions and Charges", beginning on page 33.
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 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.
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<PAGE>
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 28-29.
We may deduct a Withdrawal Charge and/or 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.
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
8
<PAGE>
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 35-36.
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
591/2. For more information on the tax treatment of the Contract, see
"Federal Tax Considerations", beginning on page 39, 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 enter into an Extended
Maturity Agreement.
9
<PAGE>
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.
10
<PAGE>
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 33.)
Contract Charges and Deductions
Charges Deducted from Account Value
Monthly Cost of Insurance Charge:
<TABLE>
<CAPTION>
Current Guaranteed
------- ----------
<S> <C>
The lower of: (i) the product of the current Ranges from $.01 per $1,000 of net amount
asset-based cost of insurance charge times at risk to $82.50 per $1,000 of net amount at
the Account Value on the Monthly Date; (1) risk (2)
and (ii) the product of the applicable
guaranteed cost of insurance rate times the
net amount at risk (2). The current asset-
based rate for Single Life Contracts for the
Standard (NT)(3) rate class is 0.45% annually
of Account Value. The current asset-based
rate for Survivorship Contracts where both
Insureds are in the Standard (NT) rate class
is 0.15% annually of Account Value.
Contract Fee: $30.00 per year, deducted annually (4)
Monthly Fixed Account 0.48% annually of the average monthly
Expense Charge: 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
Deferred Sales Charge
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>
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<PAGE>
(1) 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 33-34.
(2) 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.
(3) 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. For further explanation, see
"Deductions and Charges--Monthly Deduction--Cost of Insurance Charge," on
pages 33-34.
(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 all transfers as described
above. See "Transfer Fee" on pages 36-37.
(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 36. See
"Deductions and Charges--Withdrawal Charge," pages 35-36.
(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", page 33.
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<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 ............... 0.62% 0.05% 0.67%(2)
AIM V.I. Government Securities Fund ......... 0.50% 0.26% 0.76%(2)
AIM V.I. International Equity ............... 0.75% 0.16% 0.91%(2)
Dreyfus Stock Index ......................... 0.245% 0.015% 0.26%(3)
Dreyfus Capital Appreciation ................ 0.56% 0.25% 0.81%(3)
Dreyfus Socially Responsible Growth ......... 0.75% 0.05% 0.80%(3)
Colonial Small Cap Value .................... 0.80% 0.20% 1.00%(4.32%)(4)
Colonial High Yield Securities .............. 0.60% 0.20% 0.80%(1.84%)(4)
Colonial Strategic Income ................... 0.65% 0.13% 0.78%(4)
Colonial U.S. Stock ......................... 0.80% 0.10% 0.90%
Liberty All-Star Equity ..................... 0.80% 0.20% 1.00%(1.04%)(4)
MFS Emerging Growth ......................... 0.75% 0.10% 0.85%
MFS Research ................................ 0.75% 0.11% 0.86%
MFS Utilities ............................... 0.75% 0.25% 1.00%(1.01%)(5)
MFS Growth with Income ...................... 0.75% 0.13% 0.88%(5)
Stein Roe Balanced .......................... 0.45% 0.20% 0.65%
Stein Roe Growth Stock ...................... 0.50% 0.20% 0.70%
Stein Roe Money Market ...................... 0.35% 0.27% 0.62%
</TABLE>
(1) All Trust and Portfolio expenses are based on 1998 expenses, except
Colonial Small Cap Value and Colonial High Yield Securities. Since those
two Portfolios commenced operations in 1998, their Total Fund Other
Expenses are annualized estimates based on their actual expenses. The
expenses of the Colonial Small Cap Value Fund, Colonial High Yield
Securities Fund, Liberty All-Star Equity Fund, and MFS Utilities 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. However, AIM does not currently
seek any reimbursement with respect to certain services and does not seek
reimbursement of the cost of certain other services in excess of the
amounts charged by participating insurance companies. The Total Fund Other
Expenses for the AIM Portfolios include reimbursement paid for this
purpose.
(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
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<PAGE>
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. During the
fiscal year ending December 31, 1998, 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,
4.32%; for the Colonial High Yield Securities Fund, 1.84%, and for the
Liberty All-Star Equity Fund, 1.04%.
(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 0.26% and
1.01%, 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
or 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.
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<PAGE>
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 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 and the Fixed Account in
accordance with the procedures described in "Allocation of Payments" on page 16
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.
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; and
(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 as a condition
for accepting any Payment that would result in an increase in the Death
Benefit. Any such increase will take effect on the first Monthly Date after we
approve the increase. In the future, we may waive this requirement.
15
<PAGE>
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 subsequently may add or delete
Sub-Accounts and/or the Fixed Account from your allocation instructions without
regard to this limit. 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 the next Monthly Date after 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
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
16
<PAGE>
(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.
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-dividend 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 on all transfers, including
Dollar Cost Averaging and Asset Rebalancing transfers. Under the Contract,
however, we may charge a maximum transfer fee of $25 on each transfer. We may
impose a limit on the number of free transfers, or change that number, at any
time. If we limit the number of free transfers to 12 or less per Contract Year,
we
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will notify you of any reduction in the number of free transfers at least 90
days in advance of the effective date of the change, and the change will not be
effective until your next Contract Anniversary.
We currently do not limit the number of Sub-Accounts to which you may
allocate your Account Value, other than in your initial allocation. We may
impose a 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; (b) twenty percent of the current Fixed Account balance; or (c) the
entire balance if it is not more than $250. The Contract permits us to defer
transfers from the Fixed Account for up to six months from the date you ask us.
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. We currently are waiving the contractual transfer fee on all
transfers, including Dollar Cost Averaging transfers. If we limit the number of
free transfers, however, transfers under the Dollar Cost Averaging program will
count toward that limit. See "Transfer Fee" on pages 36-37.
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.
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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 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. You may not participate in both the Dollar Cost Averaging and Asset
Rebalancing Programs at the same time.
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 periodically will 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. We currently are waiving the contractual transfer
fee on all transfers, including Asset Rebalancing transfers. If we limit the
number of free transfers, however, transfers under an Asset Rebalancing program
will count toward that limit. See "Transfer Fee" at pages 36-37.
You may request Asset Rebalancing when you apply for your Contract or by
submitting a completed written request to us at our Service Center. 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 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. You may not participate in both the
Dollar Cost Averaging and Asset Rebalancing Programs at the same time.
Asset Allocation Models. Standard & Poor's Inc. ("S&P") has developed
several asset allocation models for use with the Contract. The purpose of these
models is to provide generalized guidance on how to allocate Account Value
among the Sub-Accounts in a manner that is consistent with various investment
objectives and risk tolerances. You may use a questionnaire and scoring system
developed by S&P in order to help you to determine which model might be
appropriate for you. Although we have arranged for the preparation of these
asset allocation models and related materials, it is up to you to decide
whether to use a model and, if so, which model to use. Moreover, the models are
not individualized investment advice. Accordingly, we recommend that you
consult your financial adviser before adopting a model.
If you decide to use a model, we will automatically allocate your Payments
in accordance with the percentages specified in one of the S&P models. You may
only use one model at a
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<PAGE>
time. We also will automatically enroll you in our Asset Rebalancing Program
and we will periodically rebalance your total Sub-Account Values in accordance
with your chosen model. If you wish to allocate a portion of your Payments or
Account Value to the Fixed Account, you must instruct us specifically, because
none of the models includes the Fixed Account.
You may choose to use an S&P asset allocation model at any time. You also
may discontinue your use at any time. We will automatically discontinue your
use of a model if you (a) discontinue the Asset Rebalancing Program or (b) give
us instructions changing your allocations of Payments or Account Value among
the Sub-Accounts. Call us at our Service Center or contact your agent for
additional information or forms.
For each model, S&P determines the percentage allocations among the
Sub-Accounts based upon a comparison of the model's investment objectives and
the relevant underlying Portfolios' investment objectives and portfolio
composition. These models are specific to this Contract. Similarly named models
developed for use with our other products may differ.
Periodically, S&P will review the models. As a result of those reviews,
S&P may decide that to better seek to meet a model's goal, it would be
appropriate to change the percentage allocations among the Sub-Accounts. If you
are using that model, we will notify you before we implement the change.
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 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"), 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. Government Securities. High level of current income consistent
with reasonable concern for safety of principal by investing in debt securities
issued, guaranteed or otherwise backed by the United States Government.
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. You 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.
(1) "Standard & Poor's 500", "S&P 500", and "S&P" 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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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.
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 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
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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.
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
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
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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.
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.
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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 page 33 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.
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 (the "1933 Act") 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
17-18.
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.
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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 or apply them under an optional payment plan. The optional payment
plans are described in "Proceeds Options" on pages 30-31.
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 date 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 set
the corridor percentages so as to seek to ensure that the Contracts will
qualify for favorable federal income tax treatment. The corridor percentages
are stated in the Contract. They vary according to the age of the Insured.
Under this formula, 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). As explained on page 29, however, we will reduce the Initial Death
Benefit if you take a partial withdrawal from your Contract.
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
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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.
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 42.
The terms of this benefit may differ in some states. Contact us for more
information.
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
800-400-1377. 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.
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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 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. You may not transfer more than a pro rata
share from the Fixed Account. 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 31-32. 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
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terminate on 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 35-36.
You may receive the Surrender Value in a lump sum or under any of the
proceeds options described in "Proceeds Options" on pages 30-31.
The tax consequences of surrendering the Contract are discussed in
"Federal Tax Considerations," beginning on page 39.
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 35-36.
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. Thereafter, we will calculate contract charges and any Death
Benefit payable under your Contract using the revised Initial Death Benefit. We
will notify you of the new Initial Death Benefit in our next quarterly or
annual report to you.
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 39.
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Systematic Withdrawals or Loans. You may enroll in our systematic
withdrawal program by sending a completed enrollment form to our Service Center.
We will pay systematic withdrawals or loans 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. You may not withdraw or borrow more
than a pro rata share from the Fixed Account under this program. 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. Systematic Loans are subject to the same limitations and requirements
as other Contract Loans, as described in Contract Loans on pages 27-28. We
reserve the right to modify or suspend the systematic withdrawal or loan
program. In our discretion, any change may apply to existing systematic plans.
Write us or call us at 1-800-400-1377 for more information about our Systematic
Withdrawal or Loan Program.
If you take payments under our systematic withdrawal program prior to age
591/2, 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 page 42.
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
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 31/2%.
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 31/2%.
Option 3 -- Fixed Period. We will pay monthly installments for a period
selected by you of not more than 25 years.
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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.
Liberty Security Account. We will credit interest to proceeds left with us
in the Liberty Security Account. We will credit interest to your Liberty
Security Account balance at a rate we declare. We periodically may change that
rate, but it will never be less than 3.0% annually. The beneficiary will be
able to write checks against such account at any time and in any amount up to
the total in the account. The checks must be for a minimum amount of $250.
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 will reduce the proceeds by an amount equal
to the Monthly Deductions due and unpaid. See "Death Benefit," on page 26.
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 Sur-
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render 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.
Extended Maturity Agreement. You may continue your Contract after the
Maturity Date if the Insured is still living on that date and you write to us
before the Maturity Date to enter into an extended maturity agreement. Under
that agreement, among other things:
(1) the Death Benefit proceeds will equal the Surrender Value;
(2) you will pay no further cost of insurance charges; and
(3) you may not pay additional Payments; and
(4) the guaranteed death benefit does not apply.
Other Contract provisions may also be modified after the Maturity Date.
We will continue to charge the Separate Account Expense Charge during the
maturity extension period, even though there no longer will be a mortality risk
under your Contract. We will continue to impose this charge, because the portion
of this charge attributable to mortality risk reflects our expectations as to
the mortality risks and the amount of such charges expected to be paid under
all Contracts, including Contracts covered by Maturity Extension Agreements.
Your decision whether or not to enter into an extended maturity agreement
will have tax consequences. Accordingly, before you make that decision you
should consult your tax adviser.
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
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a Contract within the right to return period. This right to return may vary in
certain states 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 11-12. 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.
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 preced-
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ing 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 deduct the remainder of the
Monthly Deduction pro rata from 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 monthly Cost of Insurance Charge is the lesser of:
(a) the applicable current asset-based cost of insurance rate times the
Account Value on the Monthly Date; or
(b) the applicable guaranteed cost of insurance rate multiplied by the net
amount at risk on the Monthly Date.
Our current asset-based cost of insurance rate for the Single Life,
Standard Rating Class (NT) is 0.45% of Account Value annually. Our current
asset-based cost of insurance rate for Second to Die Contracts, when both
Insureds are in the Standard Rating Class (NT), is 0.15% of Account Value
annually. 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).
Your guaranteed cost of insurance rates are set forth in the mortality
tables in your Contract. The net amount at risk is (a) - (b), where:
(a) is the Death Benefit on the first day of the Contract Month divided by
the sum of 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. In general, under these formulas, when your current
monthly cost of insurance charge is determined using the asset-based rate, an
increase in your Account Value increases your current monthly cost of insurance
charge, up to the guaranteed maximum cost of insurance charge determined as
described above. Since that maximum charge is based on the net amount at risk,
which generally declines as your Account Value increases, increases in your
Account Value generally reduce the guaranteed maximum cost of insurance charge.
Thus, if the asset--
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based charge would be higher than the guaranteed maximum charge, further
increases in your Account Value generally will reduce your current cost of
insurance charge.
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 Contracts 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 13-14
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
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a Withdrawal Charge 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 and sales
expenses, which include agents' sales commissions and other sales and
distribution expenses. We expect to recover total premium tax 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 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
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withdrawal fee is intended to compensate us for our administrative costs in
effecting a partial withdrawal.
Transfer Fee. The Contract permits us to charge a maximum transfer fee of
$25 per transfer on each transfer, including transfers under our Dollar Cost
Averaging and Asset Rebalancing Programs. We currently are waiving the transfer
fee on all transfers. We may impose a limit on the number of free transfers, or
change that number, at any time. If we limit the number of free transfers to 12
or less per Contract Year, we will notify you of any reduction in the number of
free transfers at least 90 days in advance of the effective date of the change,
and the change will not be effective until your next Contract Anniversary.
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 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.
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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. In the absence of fraud, 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, 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.
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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 permitted 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
(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
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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.
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
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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.
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
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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 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.
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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 in income, unless the
withdrawals are made: (1) after you reach age 591/2, (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 591/2. 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
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
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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 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. If you extend
the Maturity Date past the year in which the Insured reaches age 100 pursuant
to an extended maturity agreement (which must be done before the original
Maturity Date), we believe the Contract will continue to qualify as life
insurance under the Tax Code. However, there is some uncertainty regarding this
treatment. It is possible, therefore, that you would be viewed as
constructively receiving the Surrender Value in the year in which the Insured
attains age 100 and would realize taxable income at that time, even if the
Contract proceeds were not distributed 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.
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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 ("Liberty Mutual") and Liberty Mutual Fire Insurance Company.
Liberty Mutual is a multi-line insurance and financial services institution.
Pursuant to a Guarantee Agreement dated February 3, 1998, 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. 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.
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.
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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; Senior Vice President, Liberty Mutual Insurance
Company, May 1997 to date; Vice President, Liberty Mutual Insurance Company,
April 1995 to May 1997; employee of Liberty Mutual Insurance Company since June
1985.
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 Markets, 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.
William J. O'Connell; Vice President and Assistant General Counsel,
November 1998 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.
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 Manager--Corporate Tax, Liberty Mutual Insurance Company,
January 1999 to date; Assistant Controller and Director--Corporate Tax, Liberty
Mutual Insurance Company, prior to January 1999.
Bernard Gillen; Assistant Treasurer, June 1996 to date; Director--Tax
Compliance, Liberty Mutual Insurance Company.
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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 on July
10, 1998, as a segregated asset account of Liberty Life, under the laws of the
Commonwealth of Massachusetts. 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.
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
48
<PAGE>
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 have
allocated significant resources, both internal and external, to an on-going,
carefully planned and managed effort to examine all relevant internal computing
systems to identify areas that may require changes. Our efforts include both
applications which we have developed internally and software which has been
acquired from external sources. In addition to the effort to modify existing
systems, we have established Year 2000 compliance standards for all new
internal systems.
We completed our Year 2000 efforts on all critical internal application
systems ahead of our self imposed 12/31/98 schedule. We believe that these
systems are Year 2000 capable in accordance with our corporate standards and
guidelines.
We continue to monitor and test third party software to determine whether
it meets our Year 2000 standards. As needed, we will replace, upgrade or work
around non-compliant products. The effort with respect to third party software
will continue through 1999 as needed. Extended testing is dictated by routine
changes, upgrades and updates issued by our vendors.
Prior to 1998 with respect to banks and in 1998 for other suppliers, we
established an on-going effort to identify key partners and to reach out to
these entities to determine whether and to what extent there could be an impact
on our business. We have issued Year 2000 readiness surveys to key business
suppliers identified by our Strategic Business Units. We are evaluating
responses to determine which suppliers may present risk and to put in place
appropriate business continuity plans.
Our objective is to provide uninterrupted service to all of our
policyholders and customers through and beyond 2000.
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.
49
<PAGE>
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 affiliated and
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. In addition, we may pay or permit other
promotional incentives, in cash, or credit or other compensation. We may also
pay asset-based expense allowances and service fees.
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.
The name and position of each officer and manager of LLD as of March 31,
1999, is as follows:
John B. Conners, Chairman of the Board of Managers
J. Paul Condrin, Manager
A. Alexander Fontanes, Manager
Christopher C. Mansfield, Manager
Morton E. Spitzer, Manager
John T. Treece, Jr., President
Richard B. Lassow, Vice President, Administration
Richard W. Hadley, Treasurer
Elliott J. Williams, Assistant Treasurer
Barry S. Gilvar, Secretary
William J. O'Connell, Assistant Secretary
James R. Pugh, Assistant Secretary
Lee W. Rabkin, Assistant Secretary
The principal business address of Mr. Treece is 100 Liberty Way, Dover,
New Hampshire 03820-5808. The principal business address of the remaining
officers and managers of LLD is 175 Berkeley Street, Boston, Massachusetts
02117.
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.
50
<PAGE>
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., Vice
President and Assistant General 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.
EXPERTS
The financial statements of Liberty Life Assurance Company of Boston as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, included in this Prospectus have been audited by Ernst &
Young LLP, 200 Clarendon Street, Boston, Massachusetts, independent auditors,
as set forth in their report appearing elsewhere herein, and are included in
reliance on such report given upon the authority of such firm 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,
Associate 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. Liberty Life's most current audited financial
statements are those as of the end of the most recent fiscal year. There has
been no material adverse change in Liberty Life's financial position since the
date of the audited financial statements.
51
<PAGE>
Audited Financial Statements
Liberty Life Assurance Company
of Boston
Years ended December 31, 1998 and 1997
<PAGE>
Liberty Life Assurance Company of Boston
Audited Financial Statements
Years ended December 31, 1998 and 1997
Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors .............. F-2
Audited Financial Statements
Balance Sheets .............................. F-3
Statements of Income ........................ F-4
Statements of Stockholders' Equity .......... F-5
Statements of Cash Flows .................... F-6
Notes to Financial Statements ............... F-8
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Liberty Life Assurance Company of Boston
We have audited the accompanying balance sheets of Liberty Life Assurance
Company of Boston (the Company) as of December 31, 1998 and 1997, and the
related statements of income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Liberty Life Assurance
Company of Boston at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 8, 1999
F-2
<PAGE>
Liberty Life Assurance Company of Boston
Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------- -------------
Assets (In Thousands)
<S> <C> <C>
Investments:
Fixed maturities, available for sale ............... $2,506,333 $2,143,658
Equity securities, available for sale ............. 1 3,187
Policy loans ...................................... 53,153 49,331
Short-term investments ............................ 38,359 57,956
Other invested assets ............................. 50,760 43,747
---------- ----------
Total investments .................................. 2,648,606 2,297,879
Cash and cash equivalents .......................... 117,610 37,211
Amounts recoverable from reinsurers ................ 58,277 55,313
Premiums receivable ................................ 22,390 13,606
Federal income taxes recoverable ................... 718
Investment income due and accrued .................. 28,624 23,764
Deferred policy acquisition costs .................. 98,856 89,154
Other assets ....................................... 12,594 7,977
Assets held in separate accounts ................... 1,914,657 1,487,078
---------- ----------
Total assets ....................................... $4,901,614 $4,012,700
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits ............................ $1,335,685 $1,128,468
Policyholders' and beneficiaries' funds ........... 832,234 687,458
Policy and contract claims ........................ 38,792 42,222
Dividends to policyholders ........................ 11,826 11,246
Experience rating refund reserves ................. 823 1,760
Liability for participating policies .............. 74,664 72,811
Federal income taxes payable ...................... 18,603
Deferred federal income taxes ..................... 101,900 102,767
Due to Parent ..................................... 13,408 8,262
Accrued expenses and other liabilities ............ 170,709 112,724
Liabilities related to separate accounts .......... 1,914,657 1,487,078
---------- ----------
Total liabilities .................................. 4,513,301 3,654,796
Stockholders' equity:
Common stock, $312.50 par value; 8,000 shares
authorized, issued and outstanding .............. 2,500 2,500
Additional paid-in capital ........................ 52,500 52,500
Retained earnings ................................. 176,269 170,995
Accumulated other comprehensive income ............ 157,044 131,909
---------- ----------
Total stockholders' equity ......................... 388,313 357,904
---------- ----------
Total liabilities and stockholders' equity ......... $4,901,614 $4,012,700
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums, net ....................................... $469,510 $ 415,636 $ 283,965
Net investment income ............................... 164,998 144,989 122,527
Realized capital gains on investments ............... 18,311 8,074 6,722
Contractholder charges and assessments .............. 9,816 7,335 5,759
Other revenues ...................................... 20,289 9,010 4,469
------- --------- ---------
Total revenues ....................................... 682,924 585,044 423,442
Benefits and expenses:
Death and other policy benefits ..................... 298,277 249,449 173,281
Recoveries from reinsurers on ceded claims .......... (12,740) (11,382) (11,454)
Provision for future policy benefits and other
policy liabilities ................................ 213,368 186,883 121,347
Interest credited to policyholders .................. 42,355 38,128 32,252
Change in deferred policy acquisition costs ......... (12,920) (16,709) (15,247)
General expenses .................................... 120,495 100,535 69,926
Insurance taxes and licenses ........................ 11,960 10,069 6,956
Dividends to policyholders .......................... 11,561 9,279 12,610
------- --------- ---------
Total benefits and expenses .......................... 672,356 566,252 389,671
------- --------- ---------
Income from continuing operations before federal
income taxes and earnings of participating
policies .......................................... 10,568 18,792 33,771
Federal income taxes ................................ 3,441 6,726 10,327
------- --------- ---------
Income from continuing operations before
earnings of participating policies ................ 7,127 12,066 23,444
Earnings of participating policies net of federal
income tax benefit of $3,317 in 1998, $3,719 in
1997 and $2,514 in 1996 ........................... 1,853 4,307 3,247
-------- --------- ---------
Income from continuing operations ................... 5,274 7,759 20,197
Discontinued operations:
Loss from operations on discontinued group
health, net of federal income tax benefits of
$29 in 1997 and $175 in 1996 ..................... (54) (325)
--------- ---------
Net income .......................................... $ 5,274 $ 7,705 $ 19,872
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
-------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ................ $2,500 $ 2,500 $143,418 $ 123,832 $272,250
Additional paid-in capital ................ 50,000 50,000
Comprehensive income:
Net income ............................... 19,872 19,872
Other comprehensive income, net of
tax:
Net unrealized losses on investments (41,545) (41,545)
Foreign currency translation
adjustment ............................. 182 182
--------
Comprehensive income ...................... (21,491)
----- ------- -------- --------- --------
Balance at December 31, 1996 .............. 2,500 52,500 163,290 82,469 300,759
Comprehensive income:
Net income ............................... 7,705 7,705
Other comprehensive income, net of
tax:
Net unrealized gains on investments ..... 48,996 48,996
Foreign currency translation
adjustment ............................. 444 444
--------
Comprehensive income ...................... 57,145
--------
Balance at December 31, 1997 .............. 2,500 52,500 170,995 131,909 357,904
Comprehensive income:
Net income ............................... 5,274 5,274
Other comprehensive income, net of
tax:
Net unrealized gains on investments ..... 24,174 24,174
Foreign currency translation
adjustment ............................. 961 961
--------
Comprehensive income ...................... 30,409
------ ------- -------- --------- --------
Balance at December 31, 1998 .............. $2,500 $52,500 $176,269 $ 157,044 $388,313
====== ======= ======== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Premiums collected ...................................... $ 445,376 $ 413,539 $ 280,613
Investment income received .............................. 137,106 117,860 98,899
Other considerations received ........................... 13,595 10,300 10,331
Policyholder claims paid ................................ (210,111) (188,976) (124,297)
Surrender benefits paid ................................. (76,775) (44,534) (33,748)
General expenses paid ................................... (102,627) (89,327) (67,834)
Insurance taxes and licenses paid ....................... (12,584) (9,955) (3,959)
Policyholder dividends paid ............................. (10,996) (10,962) (12,008)
Federal income taxes recovered (paid), including
capital gains taxes ................................... 773 (5,829) (5,858)
Intercompany net receipts ............................... 5,146 (645) (426)
Other (payments) receipts ............................... (3,268) 11,157 12,218
---------- ---------- ----------
Net cash provided by operating activities ............... 185,635 202,628 153,931
Cash flows from investing activities
Proceeds from fixed maturities sold ..................... 301,907 159,987 128,493
Proceeds from fixed maturities matured .................. 52,370 89,033 91,292
Cost of fixed maturities acquired ....................... (639,354) (550,588) (480,206)
Proceeds from equity securities sold .................... 6,973 5,039 125,997
Cost of equity securities acquired ...................... (342) (369) (122,197)
Change in policy loans .................................. (3,822) (3,986) (4,673)
Investment cash in transit .............................. (1,881) 59 126
Proceeds from short-term investments sold or
matured ............................................... 1,002,551 802,596 833,144
Cost of short-term investments acquired ................. (982,689) (780,872) (790,040)
Proceeds from other long-term investments sold .......... 8,623 7,962 5,997
Cost of other long-term investments acquired ............ (14,934) (10,972) (6,904)
---------- ---------- ----------
Net cash used in investing activities ................... (270,598) (282,111) (218,971)
Cash flows from financing activities
Additional paid-in capital .............................. -- -- 50,000
Policyholders' deposits on investment contracts ......... 239,357 185,488 139,579
Policyholders' withdrawals from investment
contracts ............................................. (133,503) (82,425) (65,343)
Change in securities loaned ............................. 59,508 (20,741) (89,625)
---------- ---------- ----------
Net cash provided by financing activities ................ 165,362 82,322 34,611
---------- ---------- ----------
Change in cash and cash equivalents ...................... 80,399 2,839 (30,429)
Cash and cash equivalents, beginning of year ............. 37,211 34,372 64,801
---------- ---------- ----------
Cash and cash equivalents, end of year ................... $ 117,610 $ 37,211 $ 34,372
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Liberty Life Assurance Company of Boston
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
------------ ----------- ------------
(In Thousands)
<S> <C> <C> <C>
Reconciliation of net income to net cash provided
by operating activities:
Net income ........................................... $ 5,274 $ 7,705 $ 19,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized capital gains on investments .............. (18,311) (8,074) (6,722)
Accretion of bond discount ......................... (22,783) (23,586) (20,271)
Interest credited to policyholders ................. 43,958 38,128 32,252
Changes in assets and liabilities: .................
(Repayments of) proceeds from securities
loaned .......................................... (59,508) 20,741 89,625
Amounts recoverable from reinsures ................ (2,964) (6,513) (11,881)
Premiums receivable ............................... (8,784) (5,185) (3,447)
Investment income due and accrued ................. (4,860) (2,944) (3,545)
Deferred policy acquisition costs ................. (12,920) (16,709) (15,247)
Other assets ...................................... (4,617) (1,514) 495
Future policy benefits ............................ 207,217 191,626 127,800
Policy and contract claims ........................ (3,430) 11,828 11,050
Dividends to policyholders ........................ 580 (1,673) 610
Experience rating refund liabilities .............. (937) (640) 1,210
Liability for participating policies .............. 1,853 4,307 3,248
Change in federal income tax balances ............. 19,321 (1,260) 542
Deferred federal income taxes ..................... (15,107) 2,128 3,805
Due to Parent ..................................... 5,146 (645) (427)
Accrued expenses and other liabilities ............ 56,507 (5,092) (75,038)
-------- --------- ---------
Net cash provided by operating activities ......... $185,635 $ 202,628 $ 153,931
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements
(In Thousands)
1. Nature of Operations and Significant Accounting Policies
Organization
Liberty Life Assurance Company of Boston (the Company) is domiciled in the
Commonwealth of Massachusetts. The Company is directly owned 100% by Liberty
Mutual Property-Casualty Holding Corporation, a subsidiary directly owned 90%
by Liberty Mutual Insurance Company and 10% by Liberty Mutual Fire Insurance
Company (Liberty Mutual).
The Company insures life, annuity and accident and health risks for groups
and individuals. The Company also issues structured settlement contracts and
administers separate account contracts. The Company is licensed and sells its
products in all 50 states, the District of Columbia and Canada.
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements, and the
reported amounts of revenues and expenses during the year. Actual amounts could
subsequently differ from such estimates.
Reporting Changes
During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components and requires that selected changes in stockholders' equity be
added to net income and reported as comprehensive income. The Company adopted
this Statement retroactively and has reported this information within the
statement of stockholders' equity and the footnotes to the financial
statements. The adoption of SFAS No. 130 had no impact on the Company's
financial position or results of operations.
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the disclosure of information about the Company's operating segments, which
are defined on the same basis that the Company is managed, including disclosures
about products and services, geographic areas, and major customers. The adoption
of SFAS No. 131 did not affect the Company's financial position or results of
operations, nor did it affect the manner in which the Company defines its
operating segments. Data reported for all periods has been presented to conform
to the requirements of SFAS No. 131.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 provides
F-8
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
guidance for determining whether computer software is for internal use and when
costs incurred for internal use software are to be capitalized. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The adoption of
SOP 98-1 is not expected to have a material impact on the Company's financial
statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities." The SOP is effective beginning on January 1, 1999, and requires
that start-up costs capitalized prior to January 1, 1999 be written-off and any
future start-up costs be expensed as incurred. Restatement of previously issued
financial statements is not permitted. SOP 98-5 is not expected to have a
material impact on the Company's financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance
for assessments related to insurance activities and requirements for disclosure
of certain information. SOP 97-3 is effective for financial statements issued
for periods beginning after December 31, 1998. Restatement of previously issued
financial statements is not permitted. SOP 97-3 is not expected to have a
material impact on the Company's financial statements.
SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk," provides guidance on how to
account for insurance and reinsurance contracts that do not transfer insurance
risk under a method referred to as deposit accounting. SOP 98-7 is effective for
fiscal years beginning after June 15, 1999. SOP 98-7 is not expected to have a
material impact on the Company's financial statements.
Investments
Fixed maturity and equity securities are classified as available for sale
and are carried at fair value. Unrealized gains and losses on fixed maturity
and equity securities are reflected in accumulated other comprehensive income,
net of applicable deferred income taxes.
For the mortgage-backed bond portion of the fixed maturity investment
portfolio, the Company recognizes income using a constant effective yield based
on anticipated prepayments over the estimated economic life of the security.
When actual prepayments differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to date and
anticipated future payments and any resulting adjustments are included in
investment income.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
Other invested assets, principally investments in limited partnerships,
are accounted for using the equity method.
Policy loans are reported at unpaid loan balances.
Realized capital gains and losses are determined on the specific
identification basis.
F-9
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Deferred Policy Acquisition Costs
Policy acquisition costs are the costs of acquiring new business which
vary with, and are primarily related to, the production of new business. Such
costs include commissions, costs of policy underwriting and variable agency
expenses. Acquisition costs related to traditional and group life insurance and
certain long-duration group accident and health insurance, to the extent
recoverable from future policy revenues, are deferred and amortized over the
premium-paying period of the related policies using assumptions consistent with
those used in computing policy benefit reserves. Costs relating to group life
and disability insurance policies are amortized straight line over a five-year
period. For universal life insurance and investment products, to the extent
recoverable from future gross profits, deferred policy acquisition costs are
amortized generally in proportion to the present value of expected gross
profits from surrender charges and investment, mortality and expense margins.
Deferred policy acquisition costs are adjusted for amounts relating to
unrealized gains and losses on fixed maturity and equity securities the Company
has designated as available for sale. This adjustment, net of tax, is included
with the net unrealized gains or losses that are reflected in accumulated other
comprehensive income.
Recognition of Traditional Life Premium Revenue and Related Expenses
Premiums on traditional life insurance policies are recognized as revenue
when due. Benefits and expenses are associated with premiums so as to result in
the recognition of profits over the life of the policies. This association is
accomplished by providing liabilities for future policy benefits and the
deferral and subsequent amortization of acquisition costs.
Recognition of Universal Life Revenue and Policy Account Balances
Revenues from universal life policies represent investment income from the
related invested assets and amounts assessed against policyholders. Included in
such assessments are mortality charges, surrender charges paid and
administrative fees. Policy account balances consist of consideration received
plus credited interest, less accumulated policyholder charges, assessments and
withdrawals. Credited interest rates were between 5.5% and 6.3% in 1998, 1997
and 1996.
Investment Contracts
The Company writes certain annuity and structured settlement contracts
without mortality risk which are accounted for as investment contracts.
Revenues for investment contracts consist of investment income from the related
invested assets, with profits recognized to the extent investment income earned
exceeds the amount credited to the contract. This method of computing the
liability for future policy benefits effectively results in recognition of
profits over the benefit period. Policy account balances consist of
consideration received plus credited interest less policyholder withdrawals.
Credited interest rates for annuity contracts were between 5.0% and 5.85% in
1998, 5.30% and 7.25% in 1997 and 5.35% and 7.05% in 1996. Credited interest
rates for structured settlement contracts were between 6.1% and 11.4% in 1998,
1997 and 1996.
F-10
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
Future Policy Benefits
Liabilities for future policy benefits for traditional life policies have
been computed using the net level premium method based on estimated future
investment yield, mortality and withdrawal experience. Interest rate
assumptions were between 4.5% and 10.25% for all years of issue. Mortality
assumptions have been calculated principally on an experience multiple applied
to the 1955-60 and 1965-70 Select and Ultimate Basic Tables for issues prior to
1986, the 1986 Bragg Non-Smoker/Smoker Select and Ultimate Basic Tables for
1986 to 1992 issues and the 1991 Bragg Non-Smoker/Smoker Select and Ultimate
Basic Tables for 1993 and subsequent issues. Withdrawal assumptions generally
are based on the Company's experience.
The liability for future policy benefits with respect to structured
settlement contracts with life contingencies and single premium group annuities
(group pension) is determined based on interest crediting rates between 6.1%
and 11.4%, and the mortality assumptions are based on the 1971 GAM and IAM
tables.
Future policy benefits for long-term disability cases are computed using
the 1987 Commissioners' Group Disability Table adjusted for the Companys'
experience.
Policy and Contract Claims
Accident and health business policy and contract claims principally
include claims in course of settlement and claims incurred but not reported,
which are determined based on a formula derived as a result of the Company's
past experience. Claims liabilities may be more or less than the amounts paid
when the claims are ultimately settled. Such differences are considered changes
in estimates and are recorded in the statement of income in the year the claims
are settled.
Reinsurance
All assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis in the accompanying balance sheets. The accompanying
statements of income reflect premiums, benefits and settlement expenses net of
reinsurance ceded.
Reinsurance premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for original policies issued and the terms of the
reinsurance contracts.
Federal Income Taxes
Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
F-11
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
1. Nature of Operations and Significant Accounting Policies (continued)
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date. The measurement of deferred tax assets is reduced by a
valuation allowance if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Participating Policies
Participating policies approximate 28%, 29% and 33% of ordinary life
insurance in force at December 31, 1998, 1997 and 1996, respectively, and 13%,
12% and 18% of ordinary insurance premium revenue in 1998, 1997 and 1996,
respectively. Dividends to participating policyholders are calculated as the
sum of the difference between the assumed mortality, interest and loading, and
the actual experience of the Company relating to participating policyholders.
As a result of statutory regulations, the major portion of earnings from
participating policies inures to the benefit of the participating policyholders
and is not available to stockholders. Undistributed earnings of the
participating block of business is represented by the liability for
participating policies in the accompanying balance sheets. The payment of
dividends to stockholders is further restricted by insurance laws of the
Commonwealth of Massachusetts.
Foreign Currency Translations
The Company enters into certain transactions that are denominated in a
currency other than the U.S. dollar. Functional currencies are assigned to
foreign currencies. These amounts are accumulated and then converted to U.S.
dollars. The unrealized gain or loss from the translation is reflected in
accumulated other comprehensive income, net of deferred federal income taxes.
The translations are calculated using current exchange rates for the balance
sheet and average exchange rates for the statement of income.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered, principally
for annuity contracts, and for which the contractholder, rather than the
Company, bears the investment risk. Separate account contractholders have no
claim against the assets of the general account of the Company. Separate
account assets are reported at market value. The operations of the separate
accounts are not included in the accompanying financial statements. Fees
charged on separate account policyholder deposits are included in other income.
Reclassification
Certain 1996 and 1997 amounts have been reclassified to conform to the
1998 presentation.
F-12
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments
Fixed Maturities
The amortized cost, gross unrealized gains and losses, and fair value of
investments in fixed maturities available for sale are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1998
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .......... $ 378,791 $ 108,906 $ (163) $ 487,534
Debt securities issued by states
and municipalities ................. 55,805 3,651 59,456
Corporate securities ................ 998,995 102,351 (1,687) 1,099,659
U.S. government guaranteed
mortgage-backed securities ......... 823,966 36,695 (977) 859,684
---------- --------- -------- ----------
Total fixed maturities available
for sale ........................... $2,257,557 $ 251,603 $ (2,827) $2,506,333
========== ========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .......... $ 403,296 $ 99,877 $ (80) $ 503,093
Debt securities issued by states
and municipalities ................. 50,794 2,848 53,642
Corporate securities ................ 773,208 68,035 (601) 840,642
U.S. government guaranteed
mortgage-backed securities ......... 712,132 34,543 (394) 746,281
---------- -------- -------- ----------
Total fixed maturities available
for sale ........................... $1,939,430 $205,303 $ (1,075) $2,143,658
========== ======== ======== ==========
</TABLE>
F-13
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
The amortized cost and fair value of the Company's investment in fixed
maturities available for sale by contractual maturity is summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------
Amortized Fair
Cost Value
------------- -------------
<S> <C> <C>
Maturity in one year or less .................................. $ 37,559 $ 37,981
Maturity after one year through five years .................... 316,747 340,845
Maturity after five years through ten years ................... 508,497 551,012
Maturity after ten years ...................................... 570,788 716,811
U.S. government guaranteed mortgage-backed securities ......... 823,966 859,684
---------- ----------
Total fixed maturities available for sale ..................... $2,257,557 $2,506,333
========== ==========
</TABLE>
The expected maturities in the foregoing table may differ from the
contractual maturities because certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
Gross gains of $11,163, $1,145 and $1,472, and gross losses of $516,
$1,019 and $1,411, were realized on the sales of fixed maturities available for
sale during 1998, 1997 and 1996, respectively.
At December 31, 1998, bonds with a cost of $8,851 were on deposit with
state insurance departments to satisfy regulatory requirements.
Equity Securities and Other Invested Assets
Unrealized gains and losses on investments in equity securities available
for sale and other invested assets are reflected in stockholders' equity and do
not affect operations. The cost, gross unrealized gains and losses, and fair
value of those investments are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1998
---------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Equity securities ............. $ 1 $ 1
Other invested assets ......... 49,674 $5,071 $ (3,985) 50,760
------- ------ -------- -------
Total ......................... $49,675 $5,071 $ (3,985) $50,761
======= ====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Equity securities ............. $ 3,003 $ 401 $ (217) $ 3,187
Other invested assets ......... 39,217 6,304 (1,774) 43,747
------- ------ -------- -------
Total ......................... $42,220 $6,705 $ (1,991) $46,934
======= ====== ======== =======
</TABLE>
F-14
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
2. Investments (continued)
Net Investment Income
Major categories of the Company's net investment income are summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Fixed maturities .................................... $160,351 $139,894 $118,365
Equity securities ................................... 83
Policy loans ........................................ 3,238 3,020 2,672
Short-term investments and cash equivalents ......... 2,598 2,376 1,633
Other invested assets ............................... 2,003 1,623 1,476
-------- -------- --------
Gross investment income .............................. 168,190 146,913 124,229
Less investment expenses ............................. 3,192 1,924 1,702
-------- -------- --------
Net investment income ................................ $164,998 $144,989 $122,527
======== ======== ========
</TABLE>
Realized Capital Gains on Investments
Realized capital gains on investments were derived from the following
sources:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities .............................. $ 10,647 $ 126 $ 61
Equity securities ............................. 3,629 4,575 3,812
Other invested assets ......................... 4,035 3,373 2,849
-------- ------- -------
Realized capital gains on investments ......... $ 18,311 $ 8,074 $ 6,722
======== ======= =======
</TABLE>
Concentration of Investments
There were no investments in a single entity's fixed maturities in excess
of ten percent of stockholders' equity at December 31, 1998 and 1997.
3. Reinsurance
Certain premiums and benefits are assumed from and ceded to other
insurance companies under various reinsurance agreements. The Company cedes
business to reinsurers to share risks under life, health, and annuity contracts
for the purpose of providing the Company with increased capacity to write
larger risks and maintain its exposure to loss within capital resources. The
effect of reinsurance assumed and ceded on premiums was as follows:
F-15
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
3. Reinsurance (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------------------------------------
Assumed
From Ceded to
Direct Other Other Net
Amount Companies Companies Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Individual Life and Annuity ......... $148,153 $3,873 $ 1,907 $150,119
Group Life and Disability ........... 317,155 482 14,758 302,879
Group Pension and Other ............. 20,908 5,354 9,750 16,512
-------- ------ ------- --------
Total premiums ...................... $486,216 $9,709 $26,415 $469,510
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
-----------------------------------------------------
Assumed
From Ceded to
Direct Other Other Net
Amount Companies Companies Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Individual Life and Annuity ......... $142,357 $6,022 $ 1,456 $146,923
Group Life and Disability ........... 265,620 2,698 10,699 257,619
Group Pension and Other ............. 15,263 4,169 11,094
-------- ------- --------
Total premiums ...................... $423,240 $8,720 $16,324 $415,636
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------------------------------
Assumed
From Ceded to
Direct Other Other Net
Amount Companies Companies Amount
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Individual Life and Annuity ......... $102,373 $2,939 $ 5,536 $ 99,776
Group Life and Disability ........... 187,766 55 7,746 180,075
Group Pension and Other ............. 6,438 2,324 4,114
-------- ------- --------
Total premiums ...................... $296,577 $2,994 $15,606 $283,965
======== ====== ======= ========
</TABLE>
Amounts payable or recoverable for reinsurance on policy and contract
liabilities are not subject to periodic or maximum limits. At December 31,
1998, no individual reinsurer owed the Company an amount that was equal to or
greater than 3% of the Company's surplus.
The Company remains obligated for amounts ceded in the event that the
reinsurers do not meet their obligations.
4. Federal Income Taxes
The Company is included in a consolidated federal income tax return with
Liberty Mutual and its other subsidiaries. Under a written tax sharing
agreement, approved by the Board of Directors, Liberty Mutual collects from and
refunds to the subsidiaries the amount of taxes or benefits determined as if
Liberty Mutual and the subsidiaries filed separate returns.
F-16
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes (continued)
Federal income tax expense (benefit) attributable to income from
operations was composed of the following:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Current ........................... $ 18,548 $ 4,598 $ 7,011
Deferred .......................... (15,107) 2,128 3,316
-------- ------- -------
Federal income tax expense ......... $ 3,441 $ 6,726 $10,327
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
------ ---------- -----------
<S> <C> <C> <C>
Discontinued operations:
Current ........................... $ 0 $ (29) $ (175)
Deferred .......................... 0 0 0
--- ------ -------
Federal income tax benefit ......... $ 0 $ (29) $ (175)
=== ====== =======
</TABLE>
A reconciliation of federal income tax expense as recorded in the
statements of income with expected federal income tax expense computed at the
applicable federal income tax rate of 35% is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected income tax expense ....................... $ 3,699 $ 6,577 $ 11,820
Adjustments to income taxes resulting from:
Reconciliation of prior year tax return ......... (756) 68 (1,226)
Other, net ...................................... 498 81 (267)
------- ------- --------
Federal income tax expense ........................ $ 3,441 $ 6,726 $ 10,327
======= ======= ========
</TABLE>
F-17
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
4. Federal Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred liabilities are summarized as
follows:
<TABLE>
<CAPTION>
At December 31
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Dividends to policyholders ..................................... $ 2,984 $ 2,816
Unearned interest on policy loans .............................. 338 323
Unearned group premium adjustment .............................. 91 1,021
Accrued surrender charges on deposit funds ..................... 1,531 426
Bonds purchased at market premium .............................. 3,318
Recapture of statutory reinsurance ............................. 21,777
Other .......................................................... 292 93
---------- ----------
Total deferred tax assets ....................................... 30,331 4,679
---------- ----------
Deferred tax liabilities:
Future policy benefits ......................................... (23,343) (11,483)
Deferred acquisition costs ..................................... (21,504) (20,772)
Bonds purchased at market discount ............................. (2,115)
Bonds market valuation adjustment .............................. (83,366) (68,569)
Unrealized gain on other long-term investments ................. (380) (1,649)
Reconciliation of taxes on other long-term investments ......... (1,145) (951)
Cumulative foreign currency translations ....................... (1,370) (852)
Deferred and uncollected premium adjustment .................... (791) (646)
Other .......................................................... (332) (409)
---------- ----------
Total deferred tax liabilities .................................. (132,231) (107,446)
---------- ----------
Net deferred tax liability ...................................... $ (101,900) $ (102,767)
========== ==========
</TABLE>
In the opinion of management, it is more likely than not that the Company
will realize the benefit of the deferred tax assets and, therefore, no
valuation allowance has been established.
Prior to 1984, a portion of the Company's income was not taxed, but was
accumulated in a "policyholders' surplus account." In the event that those
amounts are distributed to stockholders', or the balance of the account exceeds
certain limitations under the Internal Revenue Code, the excess amounts would
become taxable at current rates. The policyholders' surplus account balance at
December 31, 1998 and 1997 was approximately $4,000. Management does not intend
to take actions nor does management expect any events to occur that would cause
federal income taxes to become payable on that amount. However, if such taxes
were assessed, the amount of taxes payable would be approximately $1,400 in
1998 and 1997.
F-18
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
5. Unpaid Claims Liability for Group Accident and Health Business
The following table provides a reconciliation of the beginning and ending
balances of unpaid claim liabilities, principally included in future policy
benefits, net of reinsurance recoverables:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Unpaid claim liabilities, at beginning of year ......... $254,002 $163,035
Less reinsurance recoverables ......................... 490 238
-------- --------
Net balance at beginning of year ....................... 253,512 162,797
Claims incurred related to:
Current year .......................................... 247,527 196,941
Prior years--incurred ................................. 9,693 6,432
Prior years--interest ................................. 13,400 9,132
-------- --------
Total incurred ......................................... 270,620 212,505
Claims paid related to:
Current year .......................................... 78,851 76,710
Prior years ........................................... 79,198 45,080
-------- --------
Total paid ............................................. 158,049 121,790
-------- --------
Net balance at end of year ............................. 366,083 253,512
Add reinsurance recoverables ........................... 852 490
-------- --------
Unpaid claim liabilities, at end of year ............... $366,935 $254,002
======== ========
</TABLE>
The adverse development during 1998 and 1997 primarily resulted from a
higher incidence of new claims on certain policies. Interest accrued on prior
year reserves has been calculated on the opening reserve balance less one half
year's cash payments at the average rate at which the Company's reserves were
discounted during 1998 and 1997.
6. Risk-Based Capital and Retained Earnings
Life insurance companies are subject to certain Risk-Based Capital (RBC)
requirements as specified by the NAIC. Under those requirements, the amount of
capital and surplus maintained by a life insurance company is to be determined
based on the various risk factors related to it. At December 31, 1998, the
Company meets the RBC requirements.
The payment of dividends by the Company to stockholders is limited and
cannot be made except from earned profits. The maximum amount of dividends that
may be paid by life insurance companies without prior approval of the
Commonwealth of Massachusetts Insurance Commissioner is subject to restrictions
relating to statutory surplus and net gain from operations.
F-19
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
6. Risk-Based Capital and Retained Earnings (continued)
According to a resolution voted by the Board of Directors of the Company,
not more than the larger of 10% of statutory profits on participating business
or fifty cents per thousand dollars of participating business in force in a
given year may accrue to the benefit of stockholders. The amount of statutory
unassigned (deficit) surplus held for the benefit of participating
policyholders and stockholders was $(14,047) and $73,746, respectively, at
December 31, 1998. Dividends paid to policyholders were $10,996 in 1998, and
there were no dividends paid to stockholders in 1998.
7. Commitments and Contingencies
The Company is named as a defendant in various legal actions arising
principally from claims made under insurance policies and contracts. Those
actions are considered by the Company in estimating reserves for policy and
contract liabilities. The Company's management believes that the resolution of
those actions will not have a material effect on the Company's financial
position or results of operations.
The Company is subject to insurance guaranty fund laws in the states in
which it does business. These laws assess insurance companies amounts to be
used to pay benefits to policyholders and claimants of insolvent insurance
companies. Many states allow these assessments to be credited against future
premium taxes. At December 31, 1998, 1997 and 1996, the Company has accrued
$645, $576 and $888, respectively, of premium tax deductions. The Company
recognizes its obligations for guaranty fund assessments when it receives
notice that an amount is payable to a guaranty fund. Expenses incurred for
guaranty fund assessments were $23, $443 and $150 in 1998, 1997 and 1996,
respectively.
8. Separate Accounts
Separate Accounts held by the Company represent primarily funds which are
administered for pension plans. The assets consist of common stock, long-term
bonds, real estate and short-term investments which are carried at estimated
fair value. Investment income and changes in asset values do not affect the
operating results of the Company. Separate Accounts business is maintained
independently from the general account of the Company. The Company provides
administrative services for these contracts. Fees earned by the Company related
to these contracts included in other revenues were $2,016, $1,700 and $1,503
for the years ended December 31, 1998, 1997 and 1996, respectively.
9. Benefit Plans
Significant benefit plans are sponsored by Liberty Mutual and the
associated costs are shared by members of the Liberty Companies. Liberty
Mutual's sponsored plans are summarized as follows:
F-20
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
9. Benefit Plans (continued)
(a) Pension Plan
Liberty Mutual sponsors noncontributory defined benefit pension plans
(the Plans) covering U.S. employees who have attained age 21 and have
completed one year of service and Canadian employees who have completed
one year of service. The benefits are based on years of service and the
employee's "final average compensation" which is the employee's average
annual compensation for the highest five consecutive calendar years
during the ten years immediately preceding retirement.
In 1997, Liberty Mutual adopted SFAS No. 87, Employers' Accounting For
Pensions, for vested employees. In 1996, the accounting policy was
primarily to recognize expense equal to the amount funded. Assets of
the Plans consist primarily of investments in life insurance company
separate accounts and a collective investment trust fund, which invests
primarily in fixed income and Standard and Poor's Index of 500 equity
securities. At December 31, 1998 and 1997, assets of the Plans totaling
$1,548,141 and $1,197,094, respectively, were held in separate accounts
managed by the Company.
Under the intercompany pooling agreement, there was no pension expense
charged to the Company in 1998 and 1997 and $395 of pension expense
charged to the Company in 1996.
(b) Postretirement Benefits
Liberty Mutual provides certain health care and life insurance benefits
(postretirement) for retired employees. Substantially all employees may
become eligible for these benefits if they reach retirement age and
have ten years of service working for the Liberty Companies.
Alternatively, retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are based upon a participant's final
compensation subject to the plan maximum.
Under the intercompany pooling arrangement, $372, $166 and $236 of
postretirement expense was charged to the Company in 1998, 1997 and
1996, respectively.
(c) Thrift-Incentive Plan
Liberty Mutual sponsors a defined contribution savings plan for all
employees of the Liberty Companies who meet certain eligibility
requirements. During 1998, 1997 and 1996, employees were permitted to
contribute up to 16% of their annual compensation on a combined
before-tax and after-tax basis, subject to certain limitations imposed
by the Tax Reform Act of 1986. In 1998, 1997 and 1996, Liberty Mutual
made matching contributions of $1.00, $1.00 and $0.87, respectively,
for each dollar contributed by employees, up to 6% of their annual
compensation. Liberty Mutual's expense was $40,278, $36,850 and $30,075
in 1998, 1997 and 1996, respectively.
F-21
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
9. Benefit Plans (continued)
Under the intercompany pooling arrangement, the Company's expense
related to the Thrift-Incentive Plan is borne by Liberty Mutual.
10. Related-Party Transactions
Under a Service Agreement between the Company and Liberty Mutual, the
latter provides personnel, office space, equipment, computer processing and
other services. The Company reimburses Liberty Mutual for these services at
cost, and for any other special services supplied at the Company's request.
Substantially all of the Company's general expenses incurred in 1998, 1997 and
1996 related to this agreement.
The Company insures the group term life and disability risks for Liberty
Mutual employees. Premiums associated with these policies amounted to $17,249,
$15,768 and $13,903 in 1998, 1997 and 1996, respectively.
The Company insures key officers of Liberty Mutual Group under an Optional
Life Insurance Plan. Premiums associated with this plan amounted to $9,329,
$8,252 and $4,967 in 1998, 1997 and 1996, respectively.
Liberty Mutual purchases structured settlement annuity contracts, with and
without life contingencies, from the Company. Premiums under these contracts
amounted to $137,663, $136,161 and $91,754 in 1998, 1997 and 1996,
respectively. The related policy and contract reserves with respect to all
structured settlement annuity contracts purchased by Liberty Mutual amounted to
$714,886 and $595,146 at December 31, 1998 and 1997, respectively.
Liberty Mutual deposited $3,206 and $774 with the Company in 1998 and
1997, respectively, to fund certain Liberty Mutual environmental claim
transactions. Such amounts have been included in the liability for
policyholders' and beneficiaries' funds at December 31, 1998 and 1997,
respectively.
In 1996, Keyport Life Insurance Company began ceding 100% of the premiums
and benefits of certain structured settlement annuity contracts, with and
without life contingencies, to the Company. Premiums under these contracts
amounted to $4,280, $6,002 and $3,194 in 1998, 1997 and 1996, respectively. The
related policy and contract reserves with respect to these structured
settlement annuity contracts assumed by the Company amounted to $13,223 and
$8,501 at December 31, 1998 and 1997, respectively.
F-22
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
11. Deferred Policy Acquisition Costs
Details with respect to deferred policy acquisition costs are summarized
as follows:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
------------ ------------
<S> <C> <C>
Balance, beginning of year ....................... $ 89,154 $ 77,424
Additions ....................................... 31,405 28,736
Amortization .................................... (18,485) (12,027)
Valuation adjustment for unrealized gain on fixed
maturities ..................................... (3,218) (4,979)
--------- ---------
Balance, end of year ............................. $ 98,856 $ 89,154
========= =========
</TABLE>
12. Statutory Financial Information
The Company prepares their statutory-basis financial statements in
accordance with accounting practices prescribed or permitted by the Division of
Insurance of the Commonwealth of Massachusetts. Prescribed statutory accounting
practices include state laws, regulations and administrative rules, as well as
guidance published by the NAIC. Permitted accounting practices encompass all
accounting practices that are not prescribed by the sources noted above.
During 1998, the Company entered into a reinsurance agreement with Liberty
Mutual Insurance Company to cede to Liberty Mutual 100% of its existing group
long and short-term disability, individual accident and sickness, and student
accident and health business. The Company received permission from the
Commonwealth of Massachusetts to treat this agreement as prospective
reinsurance in its entirety for 1998. This agreement increased the Company's
statutory net gain from operations before federal income taxes by $64,898 in
1998. There are no other material permitted practices.
Statutory net income (loss) and capital and surplus is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------- ----------
<S> <C> <C> <C>
Statutory net income (loss) ........... $ 9,741 $ (8,549) $ 3,554
Statutory capital and surplus ......... 115,449 126,669 137,933
</TABLE>
F-23
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
13. Stockholders' Equity
The components of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
Net Foreign Accumulated
Unrealized Currency Other
Gains Translation Comprehensive
(Losses) Adjustment Income
------------ ------------- --------------
<S> <C> <C> <C>
Balance at January 1, 1996 ...................... $122,875 $ 957 $ 123,832
Gross unrealized losses (net of deferred
income tax benefit of $20,222) ................. (37,556) (37,556)
Less reclassification adjustment for gains,
realized in net income (net of tax
expense of $2,353) ............................. (4,369) (4,369)
Adjustment to deferred policy acquisition
costs (net of deferred income tax
expense of $205) ............................... 380 380
-------- ---------
Net unrealized losses ........................... (41,545) (41,545)
Foreign currency translation adjustment ......... 182 182
------ ---------
Balance at December 31, 1996 .................... 81,330 1,139 82,469
Gross unrealized gains (net of deferred
income tax expense of $30,951) ................. 57,480 57,480
Less reclassification adjustment for gains,
realized in net income (net of tax
expense of $2,826) ............................. (5,248) (5,248)
Adjustment to deferred policy acquisition
costs and present value of future profits
(net of deferred income tax benefit
of $1,743) ..................................... (3,236) (3,236)
-------- ---------
Net unrealized gains ............................ 48,996 48,996
Foreign currency translation adjustment ......... 444 444
------ ---------
Balance at December 31, 1997 .................... 130,326 1,583 131,909
Gross unrealized gains (net of deferred
income tax expense of $20,552) ................. 38,168 38,168
Less reclassification adjustment for
gains, realized in net income (net of tax
expense of $6,409) ............................. (11,902) (11,902)
Adjustment to deferred policy acquisition
costs (net of deferred income tax
benefit of $1,126) ............................. (2,092) (2,092)
-------- ---------
Net unrealized gains ............................ 24,174 24,174
Foreign currency translation adjustment ......... 961 961
------ ---------
Balance at December 31, 1998 .................... $154,500 $2,544 $ 157,044
======== ====== =========
</TABLE>
F-24
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
13. Stockholders' Equity (continued)
Net unrealized investment gains, included in the balance sheets as a
component of stockholders' equity are summarized as follows:
<TABLE>
<CAPTION>
At December 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities .......................... $248,776 $ 204,228 $ 121,967
Equity investments and other .............. 1,086 4,714 6,576
-------- --------- ---------
Total ....................................... 249,862 208,942 128,543
Amounts of unrealized investment gains
attributable to:
Deferred policy acquisition costs ......... (11,616) (8,398) (3,419)
Deferred federal income taxes ............. (83,746) (70,218) (43,794)
-------- --------- ---------
Total ....................................... (95,362) (78,616) (47,213)
-------- --------- ---------
Net unrealized investment gains ............. $154,500 $ 130,326 $ 81,330
======== ========= =========
</TABLE>
14. Segment Information
The Company's business is organized in three principal segments:
Individual Life and Annuity, Group Life and Disability, and Group Pension and
Other. In the Individual Life and Annuity segment, the Company sells a variety
of individual products, including participating whole life, term insurance,
universal life, structured settlements, and immediate and deferred annuity
contracts. These products are sold through a combination of distribution
methods, including Company agents, Liberty Mutual personal markets agents,
direct marketers, and banks. In the Group Life and Disability segment, the
Company sells group life and long-term and short-term disability products to
corporate and organizational customers through the Company's group market
agency force. The Group Pension and Other segment is a closed block of active
pension customers, as well as international customer life and disability
products.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates performance based on the income from continuing
operations before federal income taxes and earnings of participating policies
of the segments.
F-25
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
14. Segment Information (continued)
The following table summarizes selected financial information by segment:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
-------------- -------------- -----------
<S> <C> <C> <C>
Revenues:
Individual Life and Annuity .................. $ 274,175 $ 250,751 $186,696
Group Life and Disability .................... 351,384 301,684 203,911
Group Pension and Other ...................... 57,365 32,609 32,835
---------- ---------- --------
Total revenues ................................ $ 682,924 $ 585,044 $423,442
========== ========== ========
Income (loss) from continuing operations before
federal income taxes and earnings of
participating policies:
Individual Life and Annuity ................. $ 31,446 $ 28,874 $ 24,319
Group Life and Disability ................... (23,160) (11,588) 8,377
Group Pension and Other ..................... 2,282 1,506 1,075
---------- ---------- --------
Total income from continuing operations before
federal income taxes and earnings of
participating policies ....................... $ 10,568 $ 18,792 $ 33,771
========== ========== ========
At December 31
1998 1997
----------- ------------
Assets:
Individual Life and Annuity .................. $1,875,583 $1,640,099
Group Life and Disability .................... 571,695 522,569
Group Pension and Other ...................... 2,454,336 1,850,032
----------- ------------
Total assets .................................. $4,901,614 $4,012,700
=========== ============
</TABLE>
15. Fair Value of Financial Instruments
Fair values generally represent quoted market value prices for securities
traded in the public marketplace, or analytically determined values using bid
or closing prices for securities not traded in the public marketplace.
The following methods and assumptions were used by the Company in
estimating the "fair value" disclosures for financial instruments in the
accompanying financial statements and notes thereto:
Fixed maturities
Fair values for publicly-traded fixed maturates are determined using
values reported by an independent pricing service. Fair values of
private placement fixed maturities are determined by obtaining market
indications from various broker-dealers.
F-26
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
15. Fair Value of Financial Instruments (continued)
Equity securities
The fair values for equity securities are based upon quoted market
prices, where available; for equity securities that are not actively
traded, estimated fair values are based on values of issues of
comparable yield and quality.
Policy loans
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Short-term investments
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Other invested assets
The fair values of other invested assets are based on the financial
statements of the underlying funds.
Investment contracts
The fair values for the Company's liabilities under investment-type
insurance contracts, including individual and group annuities, are
estimated using discounted cash flow calculations, based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Policy account balances
The fair values of the Company's liabilities for insurance contracts
other than investment-type contracts are not required to be disclosed.
However, the fair values of liabilities under all insurance contracts
are taken into consideration in the Company's overall management of
interest rate risk, such that the Company's exposure to changing
interest rates is minimized through the matching of investment
maturities with amounts due under insurance contracts.
Additional data with respect to fair values of the Company's
investments is disclosed is Note 2.
F-27
<PAGE>
Liberty Life Assurance Company of Boston
Notes to Financial Statements (continued)
(In Thousands)
15. Fair Value of Financial Instruments (continued)
The carrying amount and fair value of the Company's financial instruments
are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Fixed maturities ....................... $2,506,333 $2,506,333 $2,143,658 $2,143,658
Equity securities ...................... 1 1 3,187 3,187
Policy loans ........................... 53,153 53,153 49,331 49,331
Short-term investments ................. 38,359 38,359 57,956 57,956
Other invested assets .................. 50,760 50,760 43,747 43,747
Individual and group annuities ......... 100,748 99,988 131,549 131,297
</TABLE>
16. Discontinued Operations
On December 31, 1993, the Company discontinued its Group Medical insured
and administrative services line of business. Substantially all of the insured
operating assets and future policy liabilities, as of December 31, 1993, were
ceded to Liberty Mutual effective January 1, 1994, until the termination date
of the contracts. After termination there is no additional insurance risk
associated with this particular line of business and all insured operating
assets and future policy liabilities will be extinguished.
17. Impact of Year 2000 (unaudited)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize the date "00" as
the year 1900 rather than the Year 2000. This may cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
The Company has allocated significant resources to examining all relevant
internal computing systems to identify areas that may require changes. Efforts
include an examination of both internally developed and purchased software
applications to ensure vendor Year 2000 compliance and working with major
vendors to ensure Year 2000 compliance. As of December 31, 1998, the Company
had substantially completed their Year 2000 efforts and will continue
monitoring and working toward infrastructure readiness throughout 1999.
F-28
<PAGE>
PART II--OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, as amended, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION AS TO FEES AND CHARGES
Liberty Life Assurance Company of Boston hereby represents that the fees and
charges deducted under the Modified Single Payment Variable Universal Life
Insurance Contracts hereby registered by this Registration Statement in the
aggregate are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Liberty Life Assurance
Company of Boston.
REPRESENTATION PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company Act
of 1940, as amended (the "1940 Act").
UNDERTAKING AS TO INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
CONTENTS OF THIS REGISTRATION STATEMENT
This Registration Statement consists of the following papers and documents:
Facing Sheet
Cross-Reference Sheet
Prospectus consisting of pages
Undertaking to File Reports
Undertaking As To Indemnification
Representation As To Fees and Charges
Representation Pursuant to Rule 6e-3(T)
Signature Pages
Exhibits
II-1
<PAGE>
EXHIBIT LIST
1. Exhibits required by paragraph A of the instructions as to Exhibits of Form
N-8B-2
(1) Resolution of the Board of Directors of Liberty Life Assurance Company of
Boston authorizing establishment of LLAC Variable Account (3)
(2) Custodian Agreement (not applicable)
(3) (a) Form of Distribution Agreement (3)
(b) Form of Broker-Dealer and General Agent Sales Agreement (3)
(c) Schedule of Sales Commissions (3)
(4) Other Agreements between the depositor, principal underwriter, and
custodian with respect to Registrant or its securities (not applicable)
(5) (a) Specimen Single Life Contract (3)
(b) Specimen Survivorship Agreement (3)
(c) Specimen Extended Maturity Agreement (filed herewith)
(d) Specimen Group Contract (individual coverage) (filed herewith)
(e) Specimen Certificate (individual coverage) (filed herewith)
(f) Specimen Group Contract (joint and last survivor coverage) (filed
herewith)
(g) Specimen Certificate (joint and last survivor coverage) (filed
herewith)
(h) Specimen Last Survivor Death Benefit Agreement (for Group Contract)
(filed herewith)
(i) Specimen Last Survivor Death Benefit Agreement (for Certificate)
(filed herewith)
(6) (a) Articles of Incorporation of Liberty Life Assurance Company of
Boston, as amended(1)
(b) By-laws of Liberty Life Assurance Company of Boston (2)
(7) Not applicable
(8) Form of Participation Agreements
(a)(1) Form of Participation Agreement By and Among AIM Variable
Insurance Funds, Inc., AIM Distributors Inc., Liberty Life
Assurance Company of Boston, on behalf of itself and its Separate
Accounts, and Liberty Life Distributors, LLC (filed herewith)
(a)(2) Form of Administrative Service Agreement between Liberty Life
Assurance Company of Boston and AIM Advisers, Inc. (filed
herewith)
(b) Form of Participation Agreement By and Among Life Insurance Company,
Liberty Variable Investment Trust, and Liberty Financial Investments,
Inc. (3)
(c)(1) Form of Fund Participation Agreement Between Liberty Life
Assurance Company of Boston, Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible
II-2
<PAGE>
Growth Fund, Inc., and Dreyfus Life and Annuity Index Fund, Inc.
(d/b/a Dreyfus Stock Index Fund) (filed herewith)
(c)(2) Form of Administrative Services Agreement By and Between The
Dreyfus Corporation and Liberty Life Assurance Company of Boston
(filed herewith)
(d)(1) Form of Participation Agreement By and Among MFS Variable
Insurance Trust, Liberty Life Assurance Company of Boston, and
Massachusetts Financial Services Company (filed herewith)
(d)(2) Form of Administrative Services Agreement by and between
Massachusetts Financial Services Company and Liberty Life
Assurance Company of Boston (filed herewith)
(e) Form of Participation Agreement By and Among Keyport Financial
Services Corp., , and Stein Roe Variable Investment Trust (3)
(9) Other Material Contracts (not applicable)
(10) (a) Specimen Application (3)
(b) Specimen Application (3)
(c) Specimen Variable Life Insurance Supplemental Application (3)
2. Opinion and Consent of Counsel (filed herewith)
3. All financial statements omitted from the Prospectus (not applicable)
4. Not applicable
5. Financial Data Schedule (not applicable)
6. Procedures memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) (filed herewith)
7. Actuarial Opinion and Consent (filed herewith)
8. Consent of Independent Auditors (filed herewith)
9. Illustrations (filed herewith)
- ------------
(1) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement of Variable Account J of Liberty Life Assurance Company of Boston
(File No. 333-29811; 811-08269), filed on or about July 17, 1997.
(2) 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.
(3) Incorporated by reference to Registration Statement of LLAC Variable Account
on Form S-6 (File No. 333-65957), filed October 21, 1998.
II-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the registrant has duly caused this Registration Statement to be
signed on its behalf in the City of Boston, Commonwealth of Massachusetts, on
the 14th day of May, 1999.
LLAC VARIABLE ACCOUNT
(Registrant)
BY: LIBERTY LIFE ASSURANCE COMPANY
OF BOSTON
(Depositor)
By: /s/ Elliot J. Williams
-------------------------------
Elliot J. Williams
Treasurer
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<S> <C> <C>
/s/ Gary L. Countryman
-----------------------------
Gary L. Countryman Chairman of the Board May 14, 1999
/s/ Edmund F. Kelly
- -----------------------------
Edmund F. Kelly President, Chief Executive Officer May 14, 1999
and Director
/s/ Elliot J. Williams
-----------------------------
Elliot J. Williams Treasurer May 14, 1999
/s/ J. Paul Condrin
-----------------------------
J. Paul Condrin Director May 14, 1999
/s/ John B. Conners
-----------------------------
John B. Conners Director May 14, 1999
/s/ A. Alexander Fontanes
-----------------------------
A. Alexander Fontanes Director May 14, 1999
/s/ Christopher C. Mansfield
-----------------------------
Christopher C. Mansfield Director May 14, 1999
/s/ Jean M. Scarrow
-----------------------------
Jean M. Scarrow Director May 14, 1999
/s/ Morton E. Spitzer
-----------------------------
Morton E. Spitzer Director May 14, 1999
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
1.5(c) Specimen Extended Maturity Agreement.
1.5(d) Specimen Group Contract (individual coverage)
1.5(e) Specimen Certificate (individual coverage)
1.5(f) Specimen Group Contract (joint and last survivor coverage)
1.5(g) Specimen Certificate (joint and last survivor coverage)
1.5(h) Specimen Last Survivor Death Benefit Agreement (for Group Contract)
1.5(i) Specimen Last Survivor Death Benefit Agreement (for Certificate)
1.8(a)(1) Form of Participation Agreement By and Among AIM Variable Insurance
Funds, Inc., AIM Distributors, Inc., Liberty Life Assurance Company
of Boston, on behalf of itself and its Separate Accounts, and
Liberty Life Distributors, LLC.
1.8(a)(2) Form of Administrative Service Agreement between Liberty Life
Assurance Company of Boston, and AIM Adviser, Inc.
1.8(c)(1) Form of Participation Agreement Between Liberty Life Assurance
Company of Boston, 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).
1.8(c)(2) Form of Administrative Services Agreement By and Between The Dreyfus
Corporation and Liberty Life Assurance Company of Boston.
1.8(d)(1) Form of Participation Agreement By and Among MFS Variable Insurance
Trust, Liberty Life Assurance Company of Boston, and Massachusetts
Financial Services Company.
1.8(d)(2) Form of Administrative Services Agreement by and between
Massachusetts Financial Services Company and Liberty Life Assurance
Company of Boston.
2. Opinion and Consent of Counsel.
6. Procedures memorandum pursuant to Rule 6e-3(T)(b)(12)(iii).
7. Actuarial opinion and consent.
8. Consent of Independent Auditors.
9. Illustrations.
EXHIBIT 1.5(c)
--------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
EXTENDED EXTENDED MATURITY OPTION
MATURITY You may continue Your contract after the Maturity
AGREEMENT Date if the Insured is living on that date and before
the Maturity Date You elect by Written Request to
extend the maturity option.
On the contract's Maturity Date, this Agreement will
modify the contract in the following manner:
The Initial Death Benefit will be reduced to zero;
The Guaranteed Death Benefit Provision will terminate;
You will pay no further cost of insurance charges; and
At the Insured's death, the Death Benefit Proceeds will
equal the Surrender Value.
Your decision whether or not to exercise this option
will have tax consequences. Accordingly, before
making this decision You should consult Your tax
advisor.
TERMINATION
This Agreement will terminate on the earliest of:
(1) the date of death of the surviving Insured;
(2) the date any Monthly Deduction, Cost of Insurance
Charge or premium due for the contract remains
unpaid at the end of its Grace Period; or
(3) the date the contract matures; is surrendered;
or terminates for any reason.
THIS AGREEMENT AND THE CONTRACT
This Agreement is made a part of Your contract if We
have listed it on the Contract Information page.
EFFECTIVE DATE
This Agreement takes effect on the later of:
The Contract Date shown on the Contract Information
page of this contract; or The date, if any, shown
here.
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Home Office: 175 Berkeley Street, P.O. Box 140, Boston, Massachusetts 02117-0140.
Service Center: 100 Liberty Way, Dover, New Hampshire 03820-5808
</TABLE>
<TABLE>
<S> <C> <C> <C>
Contract Number: [SPWL-G-004] Issue Date: [February 19, 1999]
Contractholder: [Trustee of Liberty Life Assurance Co. of Boston State of Delivery: [Rhode Island]
Group Insurance Trust]
</TABLE>
READ THIS INSURANCE CONTRACT CAREFULLY
This is a legal contract between the Contractholder and the Company.
Liberty Life Assurance Company of Boston, a stock Company, will pay the benefits
provided by the Group Contract, subject to its terms and conditions. The
CONTRACT GUIDE on the inside of the front cover shows where the major contract
provisions can be found.
This Group Contract is governed by the State of Delivery.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
GROUP CONTRACT ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT,
THE FIXED ACCOUNT EARNINGS AND CONTRACT CHARGES. SEPARATE ACCOUNT VALUES ARE
VARIABLE AND MAY INCREASE OR DECREASE. THESE VALUES ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. THE DEATH BENEFIT IS DESCRIBED ON PAGE 3.
Signed for the Company.
/s/ Barry S. Gilvar /s/ Edmund F. Kelly
------------------- -------------------
SECRETARY PRESIDENT
CONTRACT DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT.
The Death Benefit is payable if the Insured dies while this Group Contract is in
force and before the Certificate's Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Certificate's
Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Contract Charges.
This Group Contract is not eligible for Dividends.
<PAGE>
Page
CONTRACT ASSIGNMENT.....................................................6
GUIDE INTEREST AND CHARGES..........................................23
CERTIFICATE LOANS.............................................11
CERTIFICATE VALUES.............................................7
DEATH BENEFIT..................................................3
DEFINITIONS....................................................2
GENERAL CONTRACT PROVISIONS....................................5
GRACE PERIOD...................................................4
INCONTESTABILITY AND SUICIDE...................................7
MATURITY BENEFIT...............................................4
OWNER AND BENEFICIARY..........................................6
PAYMENT OF PROCEEDS...........................................18
PAYMENT OF PROCEEDS OPTIONS...................................18
REINSTATEMENT..................................................5
SEPARATE ACCOUNT PROVISIONS....................................9
PAYMENTS.......................................................4
TABLE OF GUARANTEED MONTHLY MAXIMUM
COST OF INSURANCE RATES...................................21, 22
TABLE OF WITHDRAWAL CHARGES...................................23
WITHDRAWAL....................................................12
ANY ADDITIONAL AGREEMENTS, ENDORSEMENTS
AND A COPY OF THE APPLICATION APPEAR
AFTER PAGE....................................................23
DEFINITIONS This is what We mean when We use the following words in this
Group Contract:
Accumulation Unit. An accounting unit of measurement which We use
to calculate the value of a sub-account.
Attained Age. The Insured's age on his or her last birthday.
Contract Date. The date when insurance coverage becomes
effective.
Indebtedness. Any unpaid Certificate loan and unpaid loan
interest.
Insured. A person who is:
o [a customer of the financial institution shown in the
Contract Data; and]
o covered as an Insured under this Group Contract as evidenced
by a Certificate issued in his or her name.
Loan Account. An account established for amounts transferred from
the sub-accounts or the Fixed Account as security for outstanding
Indebtedness.
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
the Account Value.
Net Death Benefit. The Death Benefit, less any Indebtedness.
Proceeds. All or part of the amount payable under any provision
of this Group Contract.
Written Request. A notice in writing, satisfactory to Us, placed
on file at Our Service Center.
Valuation Day. The day when a sub-account is valued. This occurs
every day We are open and the New York Stock Exchange is open for
trading.
Valuation Period. The time period between the close of business
on successive Valuation Days.
We, Our, Us, The Company. Liberty Life Assurance Company of
Boston.
Owner. The Owner of a Certificate, who may be someone other than
the Insured.
2
<PAGE>
DEATH THE BENEFIT
BENEFIT If an Insured dies while coverage under the Certificate and this
Group Contract is in force, we will pay a Death Benefit to the
Beneficiary of the Insured's Certificate. The Death Benefit will
be the greater of:
o the Initial Death Benefit shown on the Certificate
Information page; or
o a percentage, shown below, of the Certificate's Account
Value.
The Initial Death Benefit is reduced proportionately for partial
withdrawals. We will reduce the Death Benefit by any
Indebtedness. The Death Benefit will be determined on the date We
receive proof, satisfactory to Us, of the Insured's death. The
applicable percentage depends on an Insured's attained age.
<TABLE>
<CAPTION>
Attained Age Account Value % Attained Age Account Value % Attained Age Account Value % Attained Age Account Value %
<S> <C> <C> <C> <C> <C> <C> <C>
40 & less 250 51 178 62 126 73 109
41 243 52 171 63 124 74 107
42 236 53 164 64 122 75-90 105
43 229 54 157 65 120 91 104
44 222 55 150 66 119 92 103
45 215 56 146 67 118 93 102
46 209 57 142 68 117 94-99 101
47 203 58 138 69 116 100 100
48 197 59 134 70 115
49 191 60 130 71 113
50 185 61 128 72 111
</TABLE>
GUARANTEED DEATH BENEFIT
Each Certificate has a guaranteed Death Benefit equal to the
Initial Death Benefit. In the absence of Indebtedness, this
guaranteed Death Benefit will be in effect until the Maturity
Date. The guaranteed Death Benefit is reduced proportionately for
partial withdrawals (see page 11). We will reduce the guaranteed
Death Benefit by any Indebtedness.
On any Monthly Date when the Surrender Value is not sufficient to
cover the Monthly Deduction and the Certificate has no
Indebtedness, We will waive that insufficiency and waive all
future Monthly Deductions with respect to that Certificate until
its Surrender Value is sufficient to cover the Monthly
Deductions.
If the Certificate has Indebtedness and the Surrender Value is
not sufficient to pay the Monthly Deduction or Loan Interest, the
Certificate will enter the Grace Period. To keep the coverage
under the Certificate in force, an amount at least as large as
(A) plus (B) plus (C) must be remitted, where:
(A) is the amount by which the Monthly Deduction is
insufficient;
3
<PAGE>
(B) is the next three Monthly Deductions; and
(C) is the net loan interest for the next 3 months (net loan
interest is Certificate loan interest charged less interest
credited on the loan balance).
This remittance will be considered a loan repayment, unless
otherwise specified in writing. If the amount necessary to keep
coverage under this Group Contract and Certificate in force
exceeds the outstanding Indebtedness, only the Indebtedness is
due. Once the Indebtedness has been repaid, all future Monthly
Deductions will be waived until the Surrender Value is sufficient
to cover the Monthly Deductions.
INTEREST ON DEATH BENEFIT
We will pay interest on any Death Benefit payable in one sum. The
interest rate will never be less than 3-1/2% per year from the
date of death to the date of payment, or the rate required by
applicable state law, if greater.
MATURITY MATURITY BENEFIT
BENEFIT We will pay a Maturity Benefit if an Insured is living and
coverage under the Certificate and this Group Contract is in
force on the Maturity Date. The Maturity Date is the Certificate
anniversary on or following the Insured's 100th birthday. The
Maturity Benefit of the Certificate is equal to the Surrender
Value.
PAYMENTS INITIAL PAYMENT
The Initial Payment for each Certificate is payable on or before
delivery of the Certificate. The Initial Payment is shown on the
Certificate Information page and is payable on or before delivery
of the Certificate. The payment is payable at Our Service Center
or to an authorized agent. A copy of the Owner's application,
signed by Us or Our authorized agent, is the receipt for the
Initial Payment.
SUBSEQUENT PAYMENTS
We will accept additional payments if:
o the payment is required to keep coverage under this Group
Contract in force; or
o the payment is at least $1,000 and the payment will not
result in the disqualification of coverage under this Group
Contract as a life insurance under the Internal Revenue Code
as it now exists or may later be amended.
If We accept an additional payment, evidence of insurability
satisfactory to Us will be required if an increase in the Death
Benefit occurs as a result of such payment.
PAYMENT ALLOCATION
An Initial Payment for each Certificate of coverage will be
allocated to the Fixed Account on the date We receive the
payment.
The Account Value of the Fixed Account will then be allocated to
the sub-accounts, in whole percentages, according to the payment
allocation specified in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of the Certificate.
GRACE PERIOD
If there is any Indebtedness under a Certificate and the
Surrender Value is insufficient to pay the Monthly Deduction or
Loan Interest, a Grace Period of 61 days will be permitted for a
payment sufficient to continue coverage under the Certificate. We
will send a notice to the last known address of the Owner
requesting the amount due. If the required amount is not received
within 61 days, coverage will terminate without value. If the
Insured dies during a Grace Period, the Death Benefit will be
reduced by any Monthly Deductions or Loan Interest due but not
paid.
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REINSTATEMENT
A Certificate may be reinstated within five years of the end of
the Grace Period and prior to the Maturity Date if We receive:
o Written Request to reinstate the Certificate;
o evidence of insurability satisfactory to Us; and
o a payment equal to at least three Monthly Deductions
following the effective date of reinstatement.
If the Indebtedness is not repaid, such Indebtedness will also be
reinstated.
LIFE LIFE INSURANCE QUALIFICATION
INSURANCE Coverage under this Group Contract is intended to qualify for
QUALI- treatment as a life insurance contract under the Internal Revenue
FICATION Code as it now exists or may later be amended. We reserve the
right to amend this Group Contract and any Certificate issued
under this Group Contract to comply with future changes in the
Code and its Regulations. Any amendments will be made by an
agreement approved by the proper regulatory authorities. We will
promptly provide the Contractholder and the Owner with a copy of
any amendment.
We reserve the right to refuse premium payments and to return
those premium payments, in whole or in part, if accepting them
would disqualify coverage under this Group Contract from
favorable tax treatment under the Code. A premium payment will
not be refused if the payment will prevent coverage from
terminating.
GENERAL ENTIRE CONTRACT
CONTRACT The entire contract consists of:
PROVISIONS
o this Group Contract and any amendments, agreements or
endorsements attached;
o the application for this Group Contract, a copy of which is
attached to this Group Contract; and
o individual applications for coverage under this Group
Contract by the Owner's of Certificates.
All statements made by the Contractholder, by the Owner of a
Certificate, or by an Insured are representations and not
warranties. No statement made by or on behalf of an Insured will
be used by us to rescind the coverage under this Group Contract,
or defend a claim under it, unless a copy of the instrument
containing such statement has been furnished to an Insured, if
living, otherwise to the Beneficiary of the coverage being
contested.
Any additional agreements which may be included as part of this
Group Contract are shown on the Contract Information page. These
agreements are attached to and made a part of this Group
Contract.
WAIVER
Only an officer of the Company can waive or change any provision
of this Group Contract, and only by means of a written
instrument. No agent may change or waive any provision of this
Group Contract or a Certificate issued under this Group Contract.
We may modify the terms and conditions of this Group Contract to
conform to any new law or regulation affecting this Group
Contract or a Certificate issued under this Group Contract. Any
change to this Group Contract or any Certificate agreed to
between the Contractholder and us will not prejudice the rights
of any individual covered under the Group Contract on the
effective date of the change.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, any Proceeds
will be adjusted to that amount
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which the payments paid would have purchased at the correct age
and sex. Age refers to the Insured's age last birthday on the
Certificate Date.
ASSIGNMENT
This Group Contract may not be assigned.
An Owner may assign a Certificate. We will not be on notice of
any assignment until a duplicate of the original assignment is
filed at our Home Office. We assume no responsibility for the
validity or effect of any assignment, and may rely solely on the
assignee's statement of interest.
CONTRACT AND CERTIFICATE ANNIVERSARIES
Contract years and anniversaries will be computed from the
Contract Date. Certificate years and anniversaries will be
computed from the Certificate Date.
INDIVIDUAL CERTIFICATES OF INSURANCE
We will issue to each Owner an individual Certificate stating the
essential features of the Insured's coverage under this Group
Contract.
COMPLIANCE WITH LAW
If any provision of this Group Contract is in conflict with any
applicable law, it is hereby amended to comply with the minimum
requirements of such law.
FACTS RELATING TO COVERAGE
At any reasonable time we will have the right to inspect any
records of the Contractholder which relate to this Group
Contract.
CLERICAL ERRORS
A clerical error will not end insurance otherwise in force, nor
continue it after it would otherwise have ended.
ACTION OF TRUSTEES
If the Contractholder is a Trust, we will not be bound by any
provisions of such trust agreement. We will not be responsible
for any failure of any trustee to perform his duties as a trustee
nor for the application or disposition of any money paid to such
trustee if coverage under the Group Contract was transferred to
another insurance carrier. Payment to such trustee will fully
discharge us for the amount so paid.
OWNER AND OWNER
BENEFICIARY The Owner is as named in the application on the Certificate Date,
and may be changed from time to time. Unless otherwise provided,
the ownership rights of an individual who dies before the Insured
will belong to the surviving joint owner, or if no joint owner,
to the executors or administrators of that individual's estate.
The ownership rights of a corporation, partnership or fiduciary
will belong to its successors or assigns.
During an Insured's lifetime, the rights and privileges stated in
this Group Contract may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date of Issue, and may be changed from time to time. The interest
of any Beneficiary who dies before an Insured will terminate at
the death of that Beneficiary.
If no Beneficiary designation is in effect at the Insured's
death, or if there is no designated Beneficiary then living, the
Owner will be the Beneficiary. However, if the Insured was the
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Owner, the executors or administrators of the Insured's estate
will be the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
The Owner may change the Owner or any Beneficiary by Written
Request during the Insured's lifetime. The change will take
effect as of the date the request is signed after We acknowledge
receipt in writing, whether or not the Owner or the Insured is
living at the time of acknowledgment. The change will be subject
to any assignment, and to any payment made or action taken by Us
before acknowledgment.
INCONTEST- INCONTESTABILITY AFTER TWO YEARS
ABILITY AND In the absence of fraud, an Insured's coverage under this Group
SUICIDE Contract will be incontestable after it has been in force during
the Insured's lifetime;
o with respect to the Initial Death Benefit, for two years
from the Certificate Date; and
o with respect to each increase in the Initial Death Benefit,
for two years from the effective date of that increase.
SUICIDE WITHIN TWO YEARS
If the Insured dies by suicide within two years from the
Certificate Date, while sane or insane, the amount payable under
this Group Contract will be limited to the greater of the Account
Value less Indebtedness or the minimum value required by the
state where this Group Contract was issued for delivery.
CERTIFICATE ACCOUNT VALUE
VALUES The Account Value of a Certificate on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value equals:
o the sum of the value of the Accumulation Units in the
sub-accounts; plus
o the Account Value in the Fixed Account; plus
o the value of the Loan Account, if any; minus
o the Monthly Deduction.
On each Valuation Day, other than a Monthly Date, the Account
Value equals:
o the sum of the value of the Accumulation Units in the
sub-accounts; plus
o the Account Value in the Fixed Account; plus
o the value of the Loan Account, if any.
CASH VALUE
A Withdrawal Charge will be subtracted from the Account Value to
determine the Cash Value. The Withdrawal Charges are shown on the
Interest and Charges page.
SURRENDER VALUE
The Surrender Value is equal to the Cash Value, minus the
Certificate Fee, and minus any Indebtedness.
ACCOUNT VALUE IN FIXED ACCOUNT
The Account Value in the Fixed Account on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value in the Fixed Account is
equal to:
o the Account Value in the Fixed Account on the preceding
Monthly Date with one month's
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interest; plus
o the Account Values transferred to the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o the Account Values transferred from the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus all
withdrawals from the Fixed Account since the preceding
Monthly Date plus interest from the date of the withdrawal
to the Monthly Date; minus
o the portion of the Monthly Deduction allocated to the
Account Value in the Fixed Account, to cover the Certificate
month following the Monthly Date.
On any date other than a Monthly Date, the Account Value will be
calculated on a consistent basis.
SUB-ACCOUNT VALUES
Amounts allocated to sub-accounts are applied to provide
Accumulation Units in each sub-account. An Accumulation Unit is
used to calculate the value of a sub-account. The number of
Accumulation Units credited to each sub-account is determined by
dividing the amount allocated to a sub-account by the dollar
value of one Accumulation Unit for such sub-account. The number
of the Accumulation Units is not affected by any subsequent
change in the value of the units. The Accumulation Unit values in
each sub-account may increase or decrease daily.
SUB-ACCOUNT ACCUMULATION UNIT VALUE
The Accumulation Unit value for each sub-account will vary to
reflect the investment experience of the applicable sub-account
and will be determined on each Valuation Day by multiplying the
Accumulation Unit value of the particular sub-account on the
preceding Valuation Day by a net investment factor for that
sub-account for the Valuation Period then ended. The net
investment factor for each sub-account is equal to the net asset
value per share of the corresponding investment at the end of the
Valuation Period (plus the per share amount of any dividend or
capital gain distributions paid by that investment in the
Valuation Period then ended) divided by the net asset value per
share of the corresponding investment at the beginning of the
Valuation Period, less the Separate Account Expense Charge.
While We are not currently making a provision for current taxes,
any new taxes or increase in taxes attributable to the operations
of the Separate Account, We reserve the right to deduct such a
charge from the Accumulation Unit value.
SUB-ACCOUNT ACCUMULATION VALUE
The accumulation value in any sub-account equals:
o the number of Accumulation Units in that sub-account on the
Valuation Day;
o multiplied by that sub-account's Accumulation Unit value on
the Valuation Day.
EMERGENCY PROCEDURE
With the exception of weekends or holidays, if a national stock
exchange is closed, or trading is restricted due to an existing
emergency as defined by the Securities and Exchange Commission
(SEC) so that We cannot value the sub-accounts, or as otherwise
ordered by the SEC, We may postpone all procedures which require
valuation of the sub-accounts until valuation is possible. Any
provision of this Group Contract which specifies a Valuation Day
will be superseded by the emergency procedure.
COST OF INSURANCE
The Cost of Insurance for a Certificate is determined on the
Monthly Date and is computed as follows:
o Divide the Death Benefit on the first day of the Certificate
month by 1 plus the Guaranteed Monthly Equivalent Interest
Rate shown on the Interest and Charges page;
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o Reduce the result by the Account Value on that day before
computing the Monthly Deduction for the Cost of Insurance;
and
o Multiply the difference by the Cost of Insurance Rate for
that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is the rate applied to the insurance
under this Group Contract to determine the Cost of Insurance. It
is based on the Attained Age, sex and rating classification of
the Insured. The Cost of Insurance Rate will not be greater than
the guaranteed rates shown in the Table of Guaranteed Monthly
Maximum Cost of Insurance Rates (see pages 19 and 20).
MONTHLY DEDUCTION
A Monthly Deduction is made for the Cost of Insurance,
Certificate Fee, the Expense Charge on the Fixed Account and the
cost of any Additional Benefit Agreements. The Monthly Deduction
for a Certificate month will be calculated by adding:
o the Certificate Fee, if due;
o the Expense Charge on the Fixed Account;
o the Cost of Insurance for the Certificate month; and
o the cost for the Certificate month of any Additional Benefit
Agreements.
The Expense Charge on the Fixed Account will be deducted from the
Fixed Account balance. The remainder of the Monthly Deduction for
a Certificate month will be allocated among the Fixed Account and
the sub-accounts of the Separate Account in proportion to the
Account Value in each account. When determining these
proportions, the Account Values are used net of any Indebtedness
at the beginning of the month. The Monthly Deduction for each
date that falls on a Certificate anniversary also includes the
Certificate Fee.
CERTIFICATE FEE
On each Certificate anniversary, the Certificate Fee shown on the
Interest and Charges page will be deducted from the Fixed Account
and the sub-accounts in proportion to the Account Value in each
account. The Certificate Fee is also deducted upon full surrender
of the contract.
FIXED ACCOUNT EXPENSE CHARGE
On each Monthly Date, an expense charge equal to the monthly
equivalent of the annual rate as shown on the Interest and
Charges page is deducted from the Fixed Account.
INTEREST RATES
The Guaranteed Interest Rate for the Fixed Account is shown on
the Interest and Charges page. Interest rates are expressed as
effective annual rates. The rate is compounded daily and is used
to calculate Account Values of the Fixed Account. We may credit
interest in excess of the Guaranteed Interest Rate. Such excess
interest will be at Our sole discretion.
The Account Value allocated to the Fixed Account will be
guaranteed and the rate of interest will be guaranteed for at
least the balance of the Certificate year. We determine interest
rates in accordance with market conditions and other factors. We
may change the rate guaranteed on new allocations at any time.
This may cause the guaranteed interest rate on Account Values at
the beginning of a Certificate year to differ from the guaranteed
rate on values transferred in at a later date. Once We guarantee
an interest rate for an amount in the Fixed Account, We will not
change it until the end of the current guarantee period.
Interest on Indebtedness will be credited on each Certificate
anniversary at the Guaranteed Interest Rate for the Fixed
Account, as shown on the Interest and Charges page.
BASIS OF VALUES
The method used in computing Account Values and reserves in the
Separate Account is in accordance with actuarial procedures that
recognize the variable nature of the Separate Account.
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A detailed statement of the method of computing values has been
filed with the Insurance Department of the state in which this
Group Contract was issued for delivery. All Certificate values
are equal to or in excess of the minimum values required and all
comply with the laws of that state.
SEPARATE SEPARATE ACCOUNT
ACCOUNT The assets of the Separate Account will be used to provide values
PROVISIONS and benefits under this Group Contract and any similar policies.
The assets of the Separate Account are owned by Us and cannot be
charged with liabilities which may arise from any other business
the Company may conduct. The assets of the Separate Account are
not part of Our general account. We may transfer to Our general
account any assets of the Separate Account which exceed the
reserves and other contract liabilities of the account. Unless
otherwise permitted by law, the investment policy of the Separate
Account will not be changed without the express or deemed
approval of the state where this Group Contract was issued for
delivery.
INVESTMENT ALLOCATIONS
The Separate Account is divided into several sub-accounts. We use
amounts allocated to a sub-account to buy shares or units of the
investment option shown in the prospectus for that sub-account.
The Initial Payment under a Certificate is initially allocated to
the Fixed Account. Subsequently, the payment will be allocated as
the Owner requested in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of the Certificate.
SUBSTITUTION
We may substitute another underlying investment without consent.
Substitution would occur if We determine that the use of such
underlying investment is no longer possible or if We determine it
is no longer appropriate for the purposes of the Group Contract.
No substitution will be made without notice to the Owner and
without the prior approval of the SEC and the state where this
Group Contract was issued for delivery, if required. Should a
substitution, addition or deletion occur, the Owner will be
allowed to select from the then current sub-accounts and
substitution may be made with respect to both existing payments
and the investment of future payments.
TRANSFERS
The Owner may transfer Account Values among the sub-accounts or
from the sub-accounts into the Fixed Account, upon request. The
value transferred from any sub-account must be at least $250 or
the entire balance, if less. The Account Value remaining in a
sub-account after any transfer must be at least $500. If the
balance remaining in a sub-account as a result of a transfer is
less than $500, we may require the Owner to transfer the entire
balance.
Transfers may be subject to a transfer charge. This charge will
not exceed $25.
Transfers from the Fixed Account to the sub-accounts must occur
within 60 days after each Certificate anniversary. The largest
amount that may be transferred out in each Certificate year is
the greater of the amount transferred in the prior Certificate
year or 20% of the balance in the Fixed Account. A transfer of
all of the Account Value from the Separate Account to the Fixed
Account will not be subject to a transfer charge.
We may modify or terminate the transfer privilege at any time.
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SEPARATE ACCOUNT EXPENSE CHARGE
On each Valuation Day, an expense charge equal to the daily
equivalent of the annual rate as shown on the Interest and
Charges page is deducted proportionately from the sub-accounts.
REPORTS ANNUAL REPORT
At least once each year, We will send each Owner a report which
shows:
o the current Death Benefit;
o the current Account Value;
o the current Cash Value;
o the Payments paid;
o investment gain/loss;
o any Indebtedness;
o the Cost of Insurance;
o the Expense Charge;
o the current Surrender Value; and
o any other information required by the state in which this
Group Contract was issued for delivery.
ILLUSTRATION OF BENEFITS
During any Certificate year, We will provide the Owner with one
illustration of hypothetical future Account Values and Death
Benefits at any time upon Written Request. We may charge a
reasonable fee for any subsequent illustrations during the same
Certificate year. However, the fee will not be greater than $25.
CERTIFICATE LOANS
LOANS Each Certificate has a Loan Value which is equal to 90% of the
Cash Value (see page 7) as of the date of the loan. Loans must be
at least $250. An Owner may borrow the Loan Value by assigning
this Certificate to Us as security for the loan. The assignment
form must be satisfactory to Us. Loans may be made at any time
while coverage under this Group Contract is in force. We may
defer the granting of a loan for up to 6 months.
The Owner may decide the proportions in which to allocate the
Certificate loan among the sub-accounts of the Separate Account.
If the Owner does not specify the allocation, then the loan will
be allocated among the sub-accounts of the Separate Account and
the Fixed Account in proportion to the Account Value in each
account. The Account Value equal to the portion of the
Certificate loan allocated to a sub-account and the Fixed Account
will be transferred from that sub-account and the Fixed Account
to the Loan Account and the Account Value in that sub-account and
the Fixed Account will be reduced by the amount transferred. If
loan interest is not paid when due, an amount of Account Value
equal to the loan interest will also be transferred.
If on any Certificate anniversary, the Certificate's Indebtedness
exceeds the Account Value in the Loan Account, We will transfer
Account Value equal to the excess Indebtedness from the Fixed
Account and the sub-accounts of the Separate Account to the Loan
Account as security for the excess debt in the same manner as the
original loan.
PREFERRED LOAN
The amount available for a Preferred Loan is the earnings of the
Certificate since its inception.
Earnings equals (A) minus (B) minus (C) minus (D) plus (E); where
(A) is the Account Value;
(B) is total payments made;
(C) is the preferred loan balance;
(D) is accrued loan interest; and
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(E) is all prior partial withdrawals in excess of earnings.
LOAN INTEREST
Interest on Certificate loans equals the Guaranteed Interest Rate
For the Fixed Account, as shown on the Interest and Charges page,
plus 2%. Interest on Preferred Loans equals the Guaranteed
Interest Rate For the Fixed Account, as shown on the Interest and
Charges page. Interest will accrue daily from the date of the
loan, and is due on each Certificate anniversary. Unpaid interest
will be added to existing Indebtedness, and will accrue interest
at the same rate.
REPAYMENT
While coverage under this Group Contract is in force during an
Insured's lifetime, any loan may be repaid in whole or in part.
When a loan repayment is made, the Account Value in the Loan
Account will be reduced by the loan repayment, and this amount
will be allocated proportionately among the Fixed Account and
sub-accounts of the Separate Account.
WITHDRAWAL WITHDRAWAL
The Owner may withdraw from a Certificate its full Surrender
Value upon Written Request at any time during the lifetime of the
Insured. Upon withdrawal of the full Surrender Value, coverage of
the Insured under this Group Contract will terminate.
The Owner may also make a partial withdrawal from a Certificate.
Partial withdrawals must be at least $250. For any partial
withdrawal after the first in any Certificate year, We may charge
a transaction fee of the lesser of $25 or 2% of the amount of the
partial withdrawal. The Owner may select the sub-accounts from
which to deduct the amount of the partial withdrawal. If the
Owner does not indicate where the funds will be deducted from,
the amount of the partial withdrawal will be deducted on a pro
rata basis from the sub-accounts and the Fixed Account. The
Initial Death Benefit is reduced on the date of the partial
withdrawal in the same proportion that the Account Value was
reduced. If a partial withdrawal less any applicable Withdrawal
Charge, as described below, reduces the Account Value to below
Our current minimum, then the withdrawal request will be treated
as a request to withdraw the full Surrender Value.
We may defer the payment of the withdrawal from the Fixed Account
for up to 6 months.
WITHDRAWAL CHARGE
Unless waived by Us, a Withdrawal Charge will be deducted from
the Account Value in the event of a withdrawal.
For a full withdrawal, the Withdrawal Charge is calculated by
multiplying (B) by (C) and subtracting the product from (A),
where:
(A) is the Initial Payment multiplied by the applicable
percentage rate from the Table of Withdrawal Charges;
(B) is each previous withdrawal charge collected; and
(C) is the Withdrawal Charge percentage in effect at the time of
a full withdrawal divided by the Withdrawal Charge
percentage at the time each withdrawal was made.
For a partial withdrawal, the Withdrawal Charge is calculated by
multiplying the applicable percentage rate from the Table of
Withdrawal Charges by the amount of the partial withdrawal. The
total of the Withdrawal Charges in a Certificate year may not be
greater than the applicable percentage rate from the Table of
Withdrawal Charges multiplied by the portion of the Initial
Payment not previously withdrawn as of the beginning of the
Certificate year.
WAIVER OF WITHDRAWAL CHARGE
We will waive the Withdrawal Charge on that portion of a
withdrawal not exceeding the greater of:
o 10% of the Account Value less any prior partial withdrawals
and Preferred Loans taken
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during the Certificate year; or
o the earnings of the Certificate since its inception (see
page 11).
We will also waive the Withdrawal Charge in the event of a
Qualifying Medical Stay. To qualify for this waiver:
o the Insured must have a Qualifying Medical Stay which begins
after the first Certificate year and lasts at least 45 days
during any continuous 60 day period; or
o the Insured's spouse must have a Qualifying Medical Stay
which begins after the first Certificate year and lasts at
least 45 days during any continuous 60 day period; and
o The Owner must mail a Written Request for this waiver,
together with proof, satisfactory to Us, of the stay, within
180 days of initial eligibility.
If the Insured's spouse had a Qualifying Medical Stay within 45
days prior to the Certificate Date, a waiver of the Withdrawal
Charge will not be considered for the Insured's spouse, until the
later of:
o 6 months from the date of the last Qualifying Medical Stay;
or
o the first Certificate anniversary.
Qualifying Medical Stay means: 1) confinement in a Qualifying
Institution; and 2) treatment by a Qualifying Medical
Professional.
Qualifying Institution means a licensed hospital or licensed
skilled or intermediate care nursing facility at which: 1)
medical treatment is available on a daily basis; and 2) daily
medical records are kept on each patient. It does not include: 1)
a facility whose purpose is to provide accommodations, board or
personal care services to individuals who do not need medical or
nursing care; or 2) a place mainly for rest.
A Qualifying Medical Professional is a legally qualified
practitioner of the healing arts who is: 1) acting within the
scope of his or her license; 2) not a resident of the Insured's
household; and 3) not a member of the Owner's immediate family
(children, grandchildren, parents, grandparents, siblings and
their spouses).
Treatment means the rendering of medical care or advice related
to a specific medical condition. Treatment includes diagnosis and
subsequent care. It does not include routine monitoring unless
medically necessary.
TERMINATION TERMINATION OF THE GROUP CONTRACT
This Group Contract will terminate without the right of
reinstatement on the date the coverage ends for the last
remaining Insured covered under this Group Contract.
DISCONTINUANCE OF THE GROUP CONTRACT
This Group Contract will be discontinued if:
o the Contractholder gives us 30 days written notice
requesting that the Group Contract be discontinued; or
o we give the Contractholder 30 days written notice prior to
the date we discontinue the Group Contract; or;
o the coverage on Insureds under this Group Contract is being
transferred to another insurance carrier and the
Contractholder has given us at least 90 days written notice
of discontinuance.
No additional persons will be accepted for insurance after the
date of discontinuance.
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If this Group Contract is discontinued, the party who initiated
the discontinuance will send a notice to each Owner of record, at
the Owner's last known address, at least 15 days prior to the
date of discontinuance.
CONTINUATION OF INSUREDS' COVERAGE AFTER DISCONTINUANCE
If this Group Contract is discontinued, any insurance then in
effect will remain in force under the Certificate, provided it is
not cancelled or surrendered by the Owner.
TERMINATION OF AN INSURED'S COVERAGE
An Insured's coverage under the Group Contract will terminate
when one of the following events occur:
o an Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value; or
o the date an Insured's coverage is surrendered for its
Surrender Value; or
o the date the Group Contract terminates or is discontinued,
except as provided in the Continuation of Insureds' Coverage
After Discontinuance provision.
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ACCELERATED THE RECEIPT OF AN ACCELERATED DEATH BENEFIT MAY BE TAXABLE.
DEATH OWNERS SHOULD CONSULT THEIR PERSONAL TAX OR LEGAL ADVISOR BEFORE
BENEFIT APPLYING FOR THIS BENEFIT.
PROVISIONS
THE DEATH BENEFIT, ACCOUNT VALUE AND LOAN VALUE WILL BE REDUCED
IF AN ACCELERATED DEATH BENEFIT IS PAID.
ACCELERATED DEATH BENEFIT
If, while coverage under this Group Contract is in force, We
receive proof, satisfactory to Us, that the Insured either:
(1) has a Terminal Condition; or
(2) is Chronically Ill;
We will pay a portion of a Certificate's Death Benefit to the
Owner as an Accelerated Death Benefit.
The balance of the Death Benefit is payable upon the Insured's
Death. Only one Accelerated Death Benefit payment is payable
under each Certificate.
DEFINITION OF TERMINAL CONDITION
Terminal Condition means a medical condition which is expected to
result in the Insured's death within 24 months from the date of
the medical certification submitted to Us in connection with the
application for the Accelerated Death Benefit and from which
there is no reasonable prospect of recovery. Such Terminal
Condition must be certified by a physician who meets the
definition of a physician under Section 101(g) of the Internal
Revenue Code.
DEFINITION OF CHRONICALLY ILL
Chronically Ill means any Insured who has been certified by a
licensed health care practitioner within the last 12 months as:
(1) being unable to perform, without substantial assistance from
another individual, at least two activities of daily living
for a period of at least 90 days due to a loss of functional
capacity; or
(2) requiring substantial supervision to protect such individual
from threats to health and safety due to severe cognitive
impairment.
Such licensed health care practitioner must meet the definition
of a licensed health care practitioner under Section 7702B(c) of
the Internal Revenue Code.
ACTIVITIES OF DAILY LIVING
The activities of daily living prescribed in item (1) above are:
o eating
o toileting
o transferring
o bathing
o dressing
o continence.
AMOUNT OF ACCELERATED DEATH BENEFIT
We first calculate the Benefit Base, which equals the Death
Benefit as defined in the DEATH BENEFIT section of this Group
Contract (before subtracting any Indebtedness).
We then calculate the Maximum Available Accelerated Death Benefit
by multiplying the Benefit Base by 90%.
The Owner may elect all or a portion of this Maximum Available
Accelerated Death Benefit. However, the amount elected may not be
less than $10,000, nor greater than $250,000.
15
<PAGE>
Additionally, the Initial Death Benefit for a Certificate
remaining in force must be no less than $10,000.
The Owner will receive less than the amount elected because We:
(1) discount the amount received because it is an early payment;
(2) deduct a processing fee not to exceed $100; and
(3) repay and reduce any Indebtedness by the percentage of Death
Benefit accelerated.
In discounting the amount elected, We will assume that the Death
Benefit would have been paid 24 months after the date the
Accelerated Death Benefit is paid. The discount rate will equal
the greater of:
(1) the current yield on 90 day treasury bills; or
(2) the current maximum statutory adjustable Certificate loan
interest rate based on the greater of:
(a) Moody's Corporate Bond Yield Averages-Monthly Average
Corporates-published by Moody's Investors Services, Inc., or
any successor thereto for the calendar month ending two
months before the date of application for an accelerated
payment; and (b) the Group Contract's Guaranteed Annual
Interest Rate for the Fixed Account rate plus 1%.
No Withdrawal Charge will apply when the Owner receives an
Accelerated Death Benefit.
TERMINAL CONDITION OPTION
This option provides that the Accelerated Death Benefit will be
paid in equal monthly installments for 12 months. For each $1,000
of Accelerated Death Benefit, each payment will be at least
$84.65. This assumes an annual interest rate of 3.5%.
If the Insured dies before all the payments have been made, We
will pay the Beneficiary in one sum. The one sum payment will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If the Owner does not want monthly payments, We will pay the
Accelerated Death Benefit in one sum, upon written request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision.
CHRONICALLY ILL PAYMENT OPTION
This option provides level monthly payments for the number of
years shown in the table that follows.
For each $1,000 of Accelerated Death Benefit, each payment will
be at least the minimum amount shown in the table. The table uses
an annual interest rate of 3.5%; We may use a higher rate.
<TABLE>
<CAPTION>
ATTAINED PAYMENT MINIMUM MONTHLY
AGE OF PERIOD IN PAYMENT FOR EACH
INSURED YEARS $1,000 OF DISCOUNTED BENEFIT
<S> <C> <C>
64 and under 10 $9.83
65-67 8 $11.90
68-70 7 $13.38
71-73 6 $15.35
74-77 5 $18.12
78-81 4 $22.27
82-86 3 $29.19
87 and over 2 $43.05
</TABLE>
If the Insured dies before all the payments have been made, We
will pay the beneficiary in one sum. The one sum We pay will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
16
<PAGE>
If We agree, the Owner may choose a longer payment period than
that shown in the table; if the Owner so chooses, monthly
payments will be reduced so that the present value of the
payments is the same. We will use an interest rate of at least
3.5%.
We reserve the right to set a maximum monthly benefit that We
will pay under this option. If We do so, it will be at least
$5,000.
If the Owner does not want monthly payments, We will pay the
Accelerated Death Benefit in one sum, upon written request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision with the exception of the
period over which the payment will be discounted. The lump sum
payment will be discounted over a period not less than the
Payment Period in Years section of this provision. If the Insured
dies before the end of the discount period, we will recalculate
the Accelerated Benefit based upon the number of years between
the end of the discount period and the date of death. The
Beneficiary will be paid the difference between this recalculated
amount and the amount that was received, minus the processing
fee.
EFFECT ON THE CERTIFICATE
When We pay the Accelerated Death Benefit, We will calculate a
percentage which equals:
(1) the amount the Owner elects to receive (before any
reductions); divided by
(2) the Benefit Base.
We will reduce by that percentage:
(1) the Initial Death Benefit;
(2) the Account Value; and
(3) any Indebtedness.
Any future Monthly Deductions, Cost of Insurance charges, or
Withdrawal Charges will be based on the reduced amount of
insurance.
Once We approve the Owner's claim, We will send a new Certificate
Information page with these changes. The subsequent payment of a
Death Benefit or Maturity Benefit under a Certificate will
constitute full settlement of the obligations of this Group
Contract and of any Certificate issued under this Group Contract.
CONDITIONS
The Owner's right to receive the Accelerated Death Benefit is
subject to the following conditions:
(1) We must receive evidence, satisfactory to Us, of the
Insured's eligibility for this Benefit. Evidence
satisfactory to Us, may include, but is not limited to:
o the records of the Insured's attending physician,
including a prognosis of the Insured;
o all pertinent facts concerning the Insured's health;
and
o a medical examination of the Insured conducted by a
physician chosen by Us and at Our expense. If there is
a difference of opinion as to the prognosis of the
Insured, the opinion of a licensed physician,
acceptable to both Us and the Insured, will control.
(2) The Owner must choose the option in writing in a form that
meets Our needs.
(3) If the Owner has assigned all or a portion of a Certificate,
the Owner must also give Us a signed consent form from the
assignee.
(4) All beneficiaries must consent in writing to the payment of
the Accelerated Death Benefit on the date the Benefit is
requested.
(5) The Owner must send Us the Certificate.
EXCEPTIONS
This Benefit will not be paid if:
(1) the Insured is required by a governmental agency to claim
this Benefit in order to apply for, receive, or continue a
government benefit or entitlement;
17
<PAGE>
(2) the Insured is required by law to use this Benefit to meet
the claims of creditors, whether in bankruptcy or otherwise;
(3) all or part of the Certificate's Death Benefit must be paid
to the Insured's children or spouse or former spouse as part
of a divorce decree, separate maintenance or property
settlement contract; or
(4) the Insured is married and lives in a community property
state, unless the Insured's spouse has given Us signed
written consent.
PAYMENT OF PAYMENT
PROCEEDS The Proceeds of a Certificate issued under this Group Contract
will be subject first to the interest of an assignee, to whom
payment will be made in one sum. We will pay any remaining
Proceeds to the Owner before the Insured's death, and to the
Beneficiary after the Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the Insured's death. Unless otherwise
provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
DELAY OF PAYMENT
We will pay Surrender Values, withdrawals and Certificate loans
allocated to the Separate Account within seven days after We
receive the Owner's Written Request. We will pay death Proceeds
allocated to the Separate Account within seven days, only after
We receive the Owner's Written Request and receive proof,
satisfactory to Us, of the Insured's death. Payment may be
delayed if:
o the New York Stock Exchange is closed on other than
customary weekend and holiday closings or trading on the New
York Stock Exchange is restricted as determined by the SEC;
or
o an emergency exists, as determined by the SEC, as a result
of which disposal of securities is not reasonably
practicable to determine the value of the sub-accounts; or
o the SEC, by order, permits postponement for the protection
of Owners.
PAYMENT OF PAYMENT OF PROCEEDS OPTIONS
PROCEEDS The Proceeds may be applied under one of the following Options.
OPTIONS An Option must be selected by Written Request. The Owner may
select an Option during the Insured's lifetime. If the Owner has
not selected an Option before the Insured's death, the
Beneficiary may choose one. We will not permit surrenders or
partial withdrawals after payments under a proceeds option
involving life contingencies commence.
THE OPTIONS
1. Interest. We will pay interest monthly on Proceeds left on
deposit with Us. We will declare the interest rate each year. It
will never be less than 3-1/2% a year.
2. Fixed Amount. We will pay equal monthly installments, first
payment immediately, until the Proceeds and the interest have
been exhausted. Interest will be credited on unpaid balances at
the rate which We will declare each year. It will never be less
than 3-1/2%, compounded annually.
3. Fixed Period. We will pay equal monthly installments, first
payment immediately, for not more than 25 years. The minimum
amount of each installment may be determined from the OPTION 3
TABLE on page 18. This Table is based on a guaranteed interest
rate of 3-1/2%, compounded annually.
4. Life Income. We will pay equal monthly installments, first
payment immediately, for the lifetime of the payee with or
without a guaranteed period. The minimum amount of each
installment may be determined from the OPTION 4 TABLE on page 18.
This Table is based
18
<PAGE>
on a guaranteed interest rate of 3-1/2%, compounded annually. The
guaranteed period selected may be: (1) 10 years; (2) 15 years; or
(3) 20 years.
5. Other Payment. We will pay the Proceeds in any other manner
that may be mutually agreed upon.
AVAILABILITY
No Option may be selected unless the amount to be applied is more
than $2,000 and will provide an installment payment of at least
$20. Unless We consent, these Options will not be available if
the payee is an assignee, administrator, executor, trustee,
association, partnership or corporation.
ADDITIONAL INTEREST
At our discretion, additional interest may be declared annually
on all Payment Options. This interest will lengthen the period
under Option 2, and increase the installment amounts under
Options 3 and 4.
19
<PAGE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
Number Monthly Number Monthly Number Monthly Number Monthly Number Monthly
of Years Payment of Years Payment of Years Payment of Years Payment of Years Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $84.65 6 $15.35 11 $9.09 16 $6.76 21 $5.56
- -------------------------------------------------------------------------------------------------------------------
2 43.05 7 13.38 12 8.46 17 6.47 22 5.39
- -------------------------------------------------------------------------------------------------------------------
3 29.19 8 11.90 13 7.94 18 6.20 23 5.24
- -------------------------------------------------------------------------------------------------------------------
4 22.27 9 10.75 14 7.49 19 5.97 24 5.09
- -------------------------------------------------------------------------------------------------------------------
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 4 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
MALE FEMALE
- -------------------------------------------------------------------------------------------------------------------
No Guaranteed Guaranteed Guaranteed No Guaranteed Guaranteed Guaranteed
Guaranteed Period Period Period Guaranteed Period Period Period
Age Period 10 Years 15 Years 20 Years Age Period 10 Years 15 Years 20 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.45 $4.41 $4.36 $4.29 50 $4.11 $4.09 $4.07 $4.04
51 4.52 4.47 4.42 4.34 51 4.16 4.15 4.12 4.09
52 4.59 4.55 4.48 4.40 52 4.22 4.20 4.18 4.14
53 4.67 4.62 4.55 4.45 53 4.29 4.27 4.24 4.19
54 4.76 4.70 4.62 4.51 54 4.36 4.33 4.30 4.24
55 4.85 4.78 4.70 4.57 55 4.43 4.40 4.36 4.30
56 4.94 4.87 4.77 4.63 56 4.50 4.47 4.42 4.36
57 5.04 4.96 4.85 4.70 57 4.58 4.54 4.49 4.42
58 5.15 5.06 4.93 4.76 58 4.67 4.62 4.57 4.48
59 5.26 5.16 5.02 5.82 59 4.76 4.71 4.64 4.55
60 5.39 5.26 5.11 4.89 60 4.85 4.80 4.72 4.61
61 5.52 5.38 5.20 4.95 61 4.95 4.89 4.81 4.68
62 5.66 5.50 5.29 5.01 62 5.06 4.99 4.89 4.75
63 5.80 5.62 5.39 5.08 63 5.18 5.10 4.98 4.82
64 5.96 5.75 5.49 5.14 64 5.30 5.21 5.08 4.89
65 6.14 5.89 5.58 5.20 65 5.43 5.32 5.18 4.96
66 6.32 6.03 5.68 5.26 66 5.57 5.45 5.28 5.03
67 6.51 6.18 5.78 5.31 67 5.72 5.58 5.38 5.10
68 6.72 6.33 5.88 5.37 68 5.89 5.72 5.49 5.17
69 6.94 6.49 5.98 5.42 69 6.06 5.86 5.60 5.23
70 7.18 6.65 6.08 5.46 70 6.25 6.01 5.71 5.30
71 7.44 6.82 6.18 5.50 71 6.45 6.18 5.82 5.36
72 7.71 6.99 6.27 5.54 72 6.67 6.34 5.93 5.41
73 7.99 7.16 6.36 5.58 73 6.91 6.52 6.04 5.46
74 8.30 7.33 6.44 5.61 74 7.17 6.70 6.15 5.51
75 8.63 7.51 6.52 5.63 75 7.45 6.89 6.26 5.55
76 8.99 7.68 6.60 5.66 76 7.75 7.08 6.36 5.59
77 9.37 7.86 6.67 5.68 77 8.08 7.28 6.45 5.62
78 9.77 8.03 6.73 5.69 78 8.43 7.48 6.54 5.65
79 10.21 8.19 6.79 5.71 79 8.81 7.68 6.62 5.67
80 10.67 8.36 6.84 5.72 80 9.22 7.88 6.70 5.69
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
NON-TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.1442 0.1259 70 3.0703 1.8585
1 0.0859 0.0701 36 0.1517 0.1342 71 3.4033 2.0584
2 0.0826 0.0667 37 0.1617 0.1442 72 3.7600 2.3037
3 0.0809 0.0651 38 0.1726 0.1551 73 4.1934 2.5976
4 0.0776 0.0642 39 0.1843 0.1667 74 4.6701 2.9361
5 0.0734 0.6254 40 0.1984 0.1809 75 5.1801 3.3143
6 0.0692 0.0609 41 0.2134 0.1959 76 5.7192 3.7239
7 0.0651 0.0592 42 0.2293 0.2109 77 6.2835 4.1631
8 0.0626 0.0584 43 0.2468 0.2259 78 6.8762 4.6390
9 0.0617 0.0576 44 0.2660 0.2409 79 7.5161 5.1666
10 0.0626 0.0567 45 0.2876 0.2576 80 8.2238 5.7673
11 0.0676 0.0584 46 0.3110 0.2751 81 9.0181 6.4590
12 0.0767 0.0609 47 0.3360 0.2943 82 9.9157 7.2573
13 0.0892 0.0642 48 0.3635 0.3143 83 10.9129 8.1594
14 0.1034 0.0684 49 0.3935 0.3368 84 11.9904 9.1556
15 0.1134 0.0717 50 0.4277 0.3618 85 13.1242 10.2354
16 0.1234 0.0751 51 0.4669 0.3894 86 14.3000 11.3917
17 0.1309 0.0776 52 0.5120 0.4211 87 15.5000 12.6232
18 0.1359 0.0801 53 0.5637 0.4561 88 16.7191 13.9315
19 0.1392 0.0826 54 0.6213 0.4920 89 17.9749 15.3273
20 0.1401 0.0842 55 0.6855 0.5303 90 19.2858 16.8225
21 0.1384 0.0859 56 0.7556 0.5687 91 20.6825 18.4527
22 0.1359 0.0867 57 0.8299 0.6063 92 22.2180 20.2807
23 0.1326 0.0884 58 0.9125 0.6438 93 24.0437 22.4383
24 0.1292 0.0901 59 1.0052 0.6864 94 26.5035 25.2231
25 0.1251 0.0917 60 1.1088 0.7364 95 30.2074 29.2496
26 0.1226 0.0942 61 1.2240 0.7982 96 36.3581 35.7221
27 0.1209 0.0959 62 1.3569 0.8750 97 47.2118 46.8683
28 0.1201 0.0984 63 1.5073 0.9693 98 66.2071 66.0943
29 0.1201 0.1017 64 1.6745 1.0754 99 82.5000 81.6667
30 0.1209 0.1042 65 1.8577 1.1898
31 0.1234 0.1076 66 2.0559 1.3084
32 0.1267 0.1109 67 2.2685 1.4296
33 0.1317 0.1151 68 2.4996 1.5550
34 0.1376 0.1201 69 2.7560 1.6946
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.2268 0.1676 70 4.7492 2.4376
1 0.0859 0.0701 36 0.2434 0.1817 71 5.1624 2.6722
2 0.0826 0.0667 37 0.2643 0.1984 72 5.6299 2.9596
3 0.0809 0.0651 38 0.2876 0.2176 73 6.1485 3.3017
4 0.0776 0.0642 39 0.3143 0.2384 74 6.7174 3.6920
5 0.0734 0.0626 40 0.3452 0.2635 75 7.3258 4.1186
6 0.0692 0.0609 41 0.3785 0.2901 76 7.9486 4.5725
7 0.0651 0.0592 42 0.4152 0.3168 77 8.5746 5.0471
8 0.0626 0.0584 43 0.4553 0.3435 78 9.2082 5.5490
9 0.0617 0.0576 44 0.4995 0.3702 79 9.8715 6.0962
10 0.0626 0.0567 45 0.5462 0.3985 80 10.5868 6.7098
11 0.0676 0.0584 46 0.5946 0.4277 81 11.3746 7.4070
12 0.0767 0.0609 47 0.6471 0.4578 82 12.2491 8.2009
13 0.0892 0.0642 48 0.7039 0.4903 83 13.1961 9.1191
14 0.1034 0.0684 49 0.7656 0.5262 84 14.1843 10.1164
15 0.1467 0.0801 50 0.8341 0.5645 85 15.1804 11.1778
16 0.1634 0.0842 51 0.9117 0.6054 86 16.1604 12.2952
17 0.1751 0.0884 52 0.9994 0.6521 87 17.1682 13.4579
18 0.1843 0.0926 53 1.0988 0.7039 88 18.2203 14.6722
19 0.1901 0.0951 54 1.2073 0.7565 89 19.2685 15.9376
20 0.1934 0.0976 55 1.3235 0.8107 90 20.3284 17.3441
21 0.1934 0.0992 56 1.4463 0.8641 91 21.4331 18.8626
22 0.1901 0.1017 57 1.5759 0.9142 92 22.7172 20.5523
23 0.1868 0.1042 58 1.7121 0.9635 93 24.3689 22.5437
24 0.1817 0.1067 59 1.8585 1.0161 94 26.6300 25.2231
25 0.1759 0.1092 60 2.0216 1.0787 95 30.2074 29.2496
26 0.1726 0.1134 61 2.2057 1.1572 96 36.3581 35.7221
27 0.1709 0.1167 62 2.4134 1.2583 97 47.2118 46.8683
28 0.1709 0.1209 63 2.6454 1.3811 98 66.2071 66.0943
29 0.1734 0.1259 64 2.8993 1.5182 99 82.5000 81.6667
30 0.1776 0.1317 65 3.1684 1.6628
31 0.1834 0.1367 66 3.4502 1.8100
32 0.1909 0.1426 67 3.7423 1.9522
33 0.2009 0.1501 68 4.0489 2.0961
34 0.2126 0.1584 69 4.3817 2.2526
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
22
<PAGE>
INTEREST AND CHARGES
Interest Rates
Guaranteed Annual Interest Rate For the Fixed Account [3.50%]
Guaranteed Monthly Equivalent Interest Rate [0.28709%]
Contract Charges
Certificate Fee [$30.00] per year
Cost of Insurance as defined on page 8.
Fixed Account Expense Charge [0.48%] per year
Separate Account Expense Charge [1.65%] per year
Withdrawal Charge on Withdrawal as defined on page 11.
<TABLE>
<CAPTION>
Table of Withdrawal Charges
This table applies to the Initial Payment in the event of a
Withdrawal in the first [7] Certificate years.
Certificate Percentage Certificate Percentage
Year Year
<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 and thereafter 0.00%]
</TABLE>
Mortality Table
1980 Commissioners Standard Ordinary Age Last Birthday Smoker or Non-smoker
A Certificate may end before the Maturity Date if the payments are not
sufficient to continue the coverage issued under this Group Contract to that
date. If current values change, this will also affect the benefits.
23
<PAGE>
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
CONTRACT DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT.
The Death Benefit is payable if the Insured dies while this Group Contract is in
force and before the Certificate's Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Certificate's
Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Contract Charges. This Group Contract is not eligible for Dividends.
24
<PAGE>
CONTRACT INFORMATION
Each Certificate will be issued with the following information.
[First] Insured [John Doe]
Contract Number [NV-12345678]
Issue Age/Sex [65] [Male]
Contract Date [January 1, 1999]
Rating Class [Standard] [Non-Tobacco]
Additional Agreements
[none]
25
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Home Office: 175 Berkeley Street, P.O. Box 140, Boston, Massachusetts 02117-0140.
Service Center: 100 Liberty Way, Dover, New Hampshire 03820-5808
</TABLE>
READ THIS INSURANCE CERTIFICATE CAREFULLY
RIGHT TO RETURN
This is a legal contract between You and the Company. If You are not satisfied,
You may return it to Us or Your agent [20] days of its receipt and any payment
will be refunded, less the amount of any partial withdrawals.
Liberty Life Assurance Company of Boston, a stock Company has issued a Modified
Single Payment Variable Life Insurance contract to the Contractholder. We will
pay the benefits provided by the Group Contract, subject to its terms and
conditions, in consideration of Your application for coverage under the Group
Contract and the receipt of Your Initial Payment. The CERTIFICATE GUIDE on the
inside of the front cover shows where the major Certificate provisions can be
found.
This Certificate is evidence of your coverage under the Group Contract. It
contains a summary of the Group Contract. If there is a conflict between this
Certificate and the Group Contract, the provisions of the Group Contract will
govern.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
CERTIFICATE ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, THE
FIXED ACCOUNT EARNINGS AND CERTIFICATE CHARGES. SEPARATE ACCOUNT VALUES ARE
VARIABLE AND MAY INCREASE OR DECREASE. THESE VALUES ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. THE DEATH BENEFIT IS DESCRIBED ON PAGE 3.
Signed for the Company.
/s/ Barry S. Gilvar /s/ Edmund F. Kelly
------------------- -------------------
SECRETARY PRESIDENT
CERTIFICATE DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CERTIFICATE.
The Death Benefit is payable if the Insured dies while this Certificate is in
force and before the Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Certificate charges. This Certificate is not eligible for Dividends.
<PAGE>
Page
CERTIFICATE ASSIGNMENT......................................................5
GUIDE INTEREST AND CHARGES...........................................21
CERTIFICATE LOANS..............................................10
CERTIFICATE VALUES..............................................6
DEATH BENEFIT...................................................3
DEFINITIONS.....................................................2
GENERAL CERTIFICATE PROVISIONS..................................5
GRACE PERIOD....................................................4
INCONTESTABILITY AND SUICIDE....................................6
MATURITY BENEFIT................................................4
OWNER AND BENEFICIARY...........................................6
PAYMENT OF PROCEEDS............................................16
PAYMENT OF PROCEEDS OPTIONS....................................16
REINSTATEMENT...................................................4
SEPARATE ACCOUNT PROVISIONS.....................................9
PAYMENTS........................................................4
TABLE OF GUARANTEED MONTHLY MAXIMUM
COST OF INSURANCE RATES.....................................19,20
TABLE OF WITHDRAWAL CHARGES....................................21
WITHDRAWAL.....................................................11
ANY ADDITIONAL AGREEMENTS, ENDORSEMENTS
AND A COPY OF THE APPLICATION APPEAR
AFTER PAGE.....................................................21
DEFINITIONS This is what We mean when We use the following words in Your
Certificate:
Accumulation Unit. An accounting unit of measurement which We use
to calculate the value of a sub-account.
Attained Age. The Insured's age on his or her last birthday.
Certificate Date. The date when insurance coverage becomes
effective.
Indebtedness. Any unpaid Certificate loan and unpaid loan
interest.
Loan Account. An account established for amounts transferred from
the sub-accounts or the Fixed Account as security for outstanding
Indebtedness.
Monthly Date. The same day in each month as the Certificate Date.
The day of the month on which the Monthly Deduction is taken from
Your Account Value.
Net Death Benefit. The Death Benefit, less any Indebtedness.
Proceeds. All or part of the amount payable under any provision
of this Certificate.
Written Request. A notice in writing, satisfactory to Us, placed
on file at Our Service Center.
Valuation Day. The day when a sub-account is valued. This occurs
every day We are open and the New York Stock Exchange is open for
trading.
Valuation Period. The time period between the close of business
on successive Valuation Days.
We, Our, Us, The Company. Liberty Life Assurance Company of
Boston.
You, Your, Owner. The Owner of this Certificate, who may be
someone other than the Insured.
2
<PAGE>
DEATH THE BENEFIT
BENEFIT If the Insured dies while this Certificate is in force, we will
pay a Death Benefit to the Beneficiary. The Death Benefit will be
the greater of:
o the Initial Death Benefit shown on the Certificate
Information page; or
o a percentage, shown below, of the Account Value.
The Initial Death Benefit is reduced proportionately for partial
withdrawals (see page 11). We will reduce the Death Benefit by
any Indebtedness. The Death Benefit will be determined on the
date We receive proof, satisfactory to Us, of the Insured's
death. The applicable percentage is based upon the Insured's
Attained Age.
<TABLE>
<CAPTION>
Attained Age Account Attained Account Attained Age Account Value Attained Account
Value % Age Value % % Age Value %
<S> <C> <C> <C> <C> <C> <C> <C>
40 & less 250 51 178 62 126 73 109
41 243 52 171 63 124 74 107
42 236 53 164 64 122 75-90 105
43 229 54 157 65 120 91 104
44 222 55 150 66 119 92 103
45 215 56 146 67 118 93 102
46 209 57 142 68 117 94-99 101
47 203 58 138 69 116 100 100
48 197 59 134 70 115
49 191 60 130 71 113
50 185 61 128 72 111
</TABLE>
GUARANTEED DEATH BENEFIT
The Certificate has a guaranteed Death Benefit equal to the
Initial Death Benefit. In the absence of Indebtedness, this
guaranteed Death Benefit will be in effect until the Maturity
Date. The guaranteed Death Benefit is reduced proportionately for
partial withdrawals (see page 11). We will reduce the guaranteed
Death Benefit by any Indebtedness.
On any Monthly Date when the Surrender Value is not sufficient to
cover the Monthly Deduction and the Certificate has no
Indebtedness, We will waive that insufficiency and waive all
future Monthly Deductions until the Surrender Value is sufficient
to cover the Monthly Deductions.
If the Certificate has Indebtedness and the Surrender Value is
not sufficient to pay the Monthly Deduction or Loan Interest, the
Certificate will enter the Grace Period. To keep the Certificate
in force, an amount at least as large as (A) plus (B) plus (C)
must be remitted, where:
(A) is the amount by which the Monthly Deduction is
insufficient;
(B) is the next three Monthly Deductions; and
(C) is the net loan interest for the next 3 months (net loan
interest is Certificate loan interest charged less interest
credited on the loan balance).
This remittance will be considered a loan repayment, unless
otherwise specified in writing. If the
3
<PAGE>
amount necessary to keep the Certificate in force exceeds the
outstanding Indebtedness, only the Indebtedness is due. Once the
Indebtedness has been repaid, all future Monthly Deductions will
be waived until the Surrender Value is sufficient to cover the
Monthly Deductions.
INTEREST ON DEATH BENEFIT
We will pay interest on any Death Benefit payable in one sum. The
interest rate will never be less than 3-1/2% per year from the
date of death to the date of payment, or the rate required by
applicable state law, if greater.
MATURITY MATURITY BENEFIT
BENEFIT We will pay a Maturity Benefit to You if the Insured is living
and coverage under the Group Contract is in force on the Maturity
Date, which is the Certificate anniversary on or following the
Insured's 100th birthday. The amount of the Maturity Benefit is
equal to the Surrender Value.
PAYMENTS INITIAL PAYMENT
The Initial Payment is shown on the Certificate Information page
and is payable on or before delivery of the Certificate. The
payment is payable at Our Service Center or to an authorized
agent. A copy of Your application, signed by Us or Our authorized
agent, is Your receipt for Your Initial Payment.
SUBSEQUENT PAYMENTS
We will accept additional payments if:
o the payment is required to keep the Certificate in force; or
o the payment is at least $1,000 and the payment will not result
in the disqualification of coverage under the Group Contract as
life insurance under the Internal Revenue Code as it now exists
or may later be amended.
If We accept an additional payment, evidence of insurability
satisfactory to Us will be required if an increase in the Death
Benefit occurs as a result of such payment.
PAYMENT ALLOCATION
The Initial Payment will be allocated to the Fixed Account on the
date We receive the payment.
The Account Value of the Fixed Account will then be allocated to
the sub-accounts, in whole percentages, according to the payment
allocation specified in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of Your Certificate.
GRACE PERIOD
If the Certificate has Indebtedness and the Surrender Value is
insufficient to pay the Monthly Deduction or Loan Interest, a
Grace Period of 61 days will be permitted for a payment
sufficient to continue the Certificate in force. We will send a
notice to You at Your last known address requesting the amount
due. If the required amount is not received within 61 days, the
Certificate will terminate without value. If the Insured dies
during a Grace Period, the Death Benefit will be reduced by any
Monthly Deductions or Loan Interest due but not paid.
REINSTATEMENT
This Certificate may be reinstated within five years of the end
of the Grace Period and prior to the Maturity Date if We receive:
o Your Written Request to reinstate the Certificate;
o evidence of insurability satisfactory to Us; and
o a payment equal to at least three Monthly Deductions
following the effective date of reinstatement.
If the Indebtedness is not repaid, such Indebtedness will also be
reinstated.
4
<PAGE>
LIFE LIFE INSURANCE QUALIFICATION
INSURANCE Coverage under the Group Contract is intended to qualify for
QUALI- treatment as life insurance under the Internal Revenue Code as it
FICATION now exists or may later be amended. We reserve the right to amend
the Group Contract and this Certificate to comply with future
changes in the Code and its Regulations. Any amendments will be
made by an agreement approved by the proper regulatory
authorities. We will promptly provide You with a copy of any
amendment.
We reserve the right to refuse premium payments and to return
those premium payments, in whole or in part, if accepting them
would disqualify coverage under the Group Contract from favorable
tax treatment under the Code. A premium payment will not be
refused if the payment will prevent the Certificate from
terminating.
GENERAL YOUR CERTIFICATE
CERTIFICATE Your Certificate is issued in consideration of your application
PROVISIONS for coverage under the Group Contract and the Initial Payment.
This Certificate contains a summary of the terms of the Group
Contract. All statements made by the Contractholder, or by an
Owner, or an Insured are representations and not warranties. No
statement made by or on behalf of an Insured will be used by us
to rescind the coverage under the Group Contract, or defend a
claim under it, unless a copy of the instrument containing such
statement has been furnished to an Insured, if living, otherwise
to the Beneficiary of the coverage being contested.
Any additional amendments to the Certificate, summarizing changes
to the Group Contract are shown on the Certificate Information
page. These amendments are attached to and made a part of this
Certificate.
WAIVER
Only an officer of the Company can waive or change any provision
of the Group Contract or a Certificate issued under the Group
Contract, and only by means of a written instrument.
No agent may change or waive any provision of the Group Contract
or a Certificate issued under the Group Contract.
We may modify the terms and conditions of the Group Contract to
conform to any new law or regulation affecting the Group Contract
or a Certificate issued under the Group Contract. Any change to
the Group Contract or any Certificate agreed to between the
Contractholder and us will not prejudice the rights of any
individual covered under the Group Contract on the effective date
of the change.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, any Proceeds
will be adjusted to that amount which the payments paid would
have purchased at the correct age and sex. Age refers to the
Insured's age last birthday on the Certificate Date.
ASSIGNMENT
Your Certificate may be assigned. We will not be on notice of any
assignment until a duplicate of the original assignment is filed
at Our Service Center. We assume no responsibility for the
validity or effect of any assignment, and may rely solely on the
assignee's statement of interest.
CERTIFICATE ANNIVERSARY
Certificate years and anniversaries will be computed from the
Certificate Date.
COMPLIANCE WITH LAW
If any provision of this Certificate is in conflict with any
applicable law, it is hereby amended to comply with the minimum
requirements of such law.
5
<PAGE>
OWNER AND OWNER
BENEFICIARY The Owner is as named in the application on the Certificate Date,
and may be changed from time to time. Unless otherwise provided,
the ownership rights of an individual who dies before the Insured
will belong to the surviving joint owner, or if no joint owner,
to the executors or administrators of that individual's estate.
The ownership rights of a corporation, partnership or fiduciary
will belong to its successors or assigns.
During the Insured's lifetime, the rights and privileges stated
in this Certificate may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date, and may be changed from time to time. The interest of any
Beneficiary who dies before the Insured will terminate at the
death of that Beneficiary.
If no Beneficiary designation is in effect at the Insured's
death, or if there is no designated Beneficiary then living, You
will be the Beneficiary. However, if the Insured was the Owner,
the executors or administrators of the Insured's estate will be
the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
You may change the Owner or any Beneficiary by Written Request
during the Insured's lifetime. The change will take effect as of
the date the request is signed after We acknowledge receipt in
writing, whether or not You or the Insured is living at the time
of acknowledgment. The change will be subject to any assignment,
and to any payment made or action taken by Us before
acknowledgment.
INCONTEST- INCONTESTABILITY AFTER TWO YEARS
ABILITY AND In the absence of fraud, an Insured's coverage under the Group
SUICIDE Contract will be incontestable after it has been in force during
the Insured's lifetime;
o with respect to the Initial Death Benefit, for two years
from the Certificate Date; and
o with respect to each increase in the Initial Death Benefit,
for two years from the effective date of that increase.
SUICIDE WITHIN TWO YEARS
If the Insured dies by suicide within two years from the
Certificate Date, while sane or insane, the amount payable under
the Group Contract will be limited to the greater of the Account
Value less Indebtedness or the minimum value required by the
state where this Certificate was issued for delivery.
CERTIFICATE ACCOUNT VALUE
VALUES Your Account Value on the Certificate Date is equal to the
Initial Payment less the Monthly Deduction for the first
Certificate month.
On each Monthly Date, Your Account Value equals:
o the sum of the value of Your Accumulation Units in the
sub-accounts; plus
o Your Account Value in the Fixed Account; plus
o the value of Your Loan Account, if any; minus
o the Monthly Deduction.
On each Valuation Day, other than a Monthly Date, Your Account
Value equals:
o the sum of the value of Your Accumulation Units in the
sub-accounts; plus
o Your Account Value in the Fixed Account; plus
o the value of Your Loan Account, if any.
6
<PAGE>
CASH VALUE
A Withdrawal Charge will be subtracted from the Account Value to
determine the Cash Value. The Withdrawal Charges are shown on the
Interest and Charges page.
SURRENDER VALUE
Your Surrender Value is equal to Your Cash Value, minus the
Certificate Fee, and minus any Indebtedness.
ACCOUNT VALUE IN FIXED ACCOUNT
The Account Value in the Fixed Account on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value in the Fixed Account is
equal to:
o the Account Value in the Fixed Account on the preceding
Monthly Date with one month's interest; plus
o the Account Values transferred to the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o the Account Values transferred from the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o all withdrawals from the Fixed Account since the preceding
Monthly Date plus interest from the date of the withdrawal
to the Monthly Date; minus
o the portion of the Monthly Deduction allocated to the
Account Value in the Fixed Account, to cover the Certificate
month following the Monthly Date.
On any date other than a Monthly Date, the Account Value will be
calculated on a consistent basis.
SUB-ACCOUNT VALUES
Amounts allocated to sub-accounts are applied to provide
Accumulation Units in each sub-account. An Accumulation Unit is
used to calculate the value of a sub-account. The number of
Accumulation Units credited to each sub-account is determined by
dividing the amount allocated to a sub-account by the dollar
value of one Accumulation Unit for such sub-account. The number
of Your Accumulation Units is not affected by any subsequent
change in the value of the units. The Accumulation Unit values in
each sub-account may increase or decrease daily.
SUB-ACCOUNT ACCUMULATION UNIT VALUE
The Accumulation Unit value for each sub-account will vary to
reflect the investment experience of the applicable sub-account
and will be determined on each Valuation Day by multiplying the
Accumulation Unit value of the particular sub-account on the
preceding Valuation Day by a net investment factor for that
sub-account for the Valuation Period then ended. The net
investment factor for each sub-account is equal to the net asset
value per share of the corresponding investment at the end of the
Valuation Period (plus the per share amount of any dividend or
capital gain distributions paid by that investment in the
Valuation Period then ended) divided by the net asset value per
share of the corresponding investment at the beginning of the
Valuation Period, less the Separate Account Expense Charge.
While We are not currently making a provision for current taxes,
any new taxes or increase in taxes attributable to the operations
of the Separate Account, We reserve the right to deduct such a
charge from the Accumulation Unit value.
SUB-ACCOUNT ACCUMULATION VALUE
Your accumulation value in any sub-account equals:
o the number of Your Accumulation Units in that sub-account on
the Valuation Day;
o multiplied by that sub-account's Accumulation Unit value on
the Valuation Day.
7
<PAGE>
EMERGENCY PROCEDURE
With the exception of weekends or holidays, if a national stock
exchange is closed, or trading is restricted due to an existing
emergency as defined by the Securities and Exchange Commission
(SEC) so that We cannot value the sub-accounts, or as otherwise
ordered by the SEC, We may postpone all procedures which require
valuation of the sub-accounts until valuation is possible. Any
provision of this Certificate which specifies a Valuation Day
will be superseded by the emergency procedure.
COST OF INSURANCE
The Cost of Insurance is determined on the Monthly Date and is
computed as follows:
o Divide the Death Benefit on the first day of the Certificate
month by 1 plus the Guaranteed Monthly Equivalent Interest
Rate shown on the Interest and Charges page;
o Reduce the result by the Account Value on that day before
computing the Monthly Deduction for the Cost of Insurance;
and
o Multiply the difference by the Cost of Insurance Rate for
that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is the rate applied to the insurance
under this Certificate to determine the Cost of Insurance. It is
based on the Attained Age, sex and rating classification of the
Insured. The Cost of Insurance Rate will not be greater than the
guaranteed rates shown in the Table of Guaranteed Monthly Maximum
Cost of Insurance Rates (see pages 18 and 19).
MONTHLY DEDUCTION
A Monthly Deduction is made for the Cost of Insurance,
Certificate Fee, the Expense Charge on the Fixed Account and the
cost of any Additional Benefit Agreements. The Monthly Deduction
for a Certificate month will be calculated by adding:
o the Certificate Fee, if due;
o the Expense Charge on the Fixed Account;
o the Cost of Insurance for the Certificate month; and
o the cost for the Certificate month of any Additional
Benefits.
The Expense Charge on the Fixed Account will be deducted from
Your Fixed Account balance. The remainder of the Monthly
Deduction for a Certificate month will be allocated among the
Fixed Account and the sub-accounts of the Separate Account in
proportion to the Account Value in each account. When determining
these proportions, the Account Values are used net of any
Indebtedness at the beginning of the month. The Monthly Deduction
for each date that falls on a Certificate anniversary also
includes the Certificate Fee.
CERTIFICATE FEE
On each Certificate anniversary, the Certificate Fee shown on the
Interest and Charges page will be deducted from the Fixed Account
and the sub-accounts in proportion to the Account Value in each
account. The Certificate Fee is also deducted upon full surrender
of the Certificate.
FIXED ACCOUNT EXPENSE CHARGE
On each Monthly Date, an expense charge equal to the monthly
equivalent of the annual rate as shown on the Interest and
Charges page is deducted from the Fixed Account.
INTEREST RATES
The Guaranteed Interest Rate for the Fixed Account is shown on
the Interest and Charges page. Interest rates are expressed as
effective annual rates. The rate is compounded daily and is used
to calculate Account Values of the Fixed Account. We may credit
interest in excess of the Guaranteed Interest Rate. Such excess
interest will be at Our sole discretion.
8
<PAGE>
The Account Value allocated to the Fixed Account will be
guaranteed and the rate of interest will be guaranteed for at
least the balance of the Certificate year. We determine interest
rates in accordance with market conditions and other factors. We
may change the rate guaranteed on new allocations at any time.
This may cause the guaranteed interest rate on Account Values at
the beginning of a Certificate year to differ from the guaranteed
rate on values transferred in at a later date. Once We guarantee
an interest rate for an amount in the Fixed Account, We will not
change it until the end of the current guarantee period.
Interest on Indebtedness will be credited on each Certificate
anniversary at the Guaranteed Interest Rate for the Fixed
Account, as shown on the Interest and Charges page.
BASIS OF VALUES
The method used in computing Account Values and reserves in the
Separate Account is in accordance with actuarial procedures that
recognize the variable nature of the Separate Account. A detailed
statement of the method of computing values has been filed with
the Insurance Department of the state in which the Group Contract
was issued for delivery. All Certificate values are equal to or
in excess of the minimum values required and all comply with the
laws of that state.
SEPARATE SEPARATE ACCOUNT
ACCOUNT The assets of the Separate Account will be used to provide values
PROVISIONS and benefits under this Certificate and any similar policies. The
assets of the Separate Account are owned by Us and cannot be
charged with liabilities which may arise from any other business
the Company may conduct. The assets of the Separate Account are
not part of Our general account. We may transfer to Our general
account any assets of the Separate Account which exceed the
reserves and other Certificate liabilities of the account. Unless
otherwise permitted by law, the investment policy of the Separate
Account will not be changed without the express or deemed
approval of the state where this Certificate was issued for
delivery.
INVESTMENT ALLOCATIONS
The Separate Account is divided into several sub-accounts. We use
amounts allocated to a sub-account to buy shares or units of the
investment option shown in the prospectus for that sub-account.
The Initial Payment is initially allocated to the Fixed Account.
Subsequently, the payment will be allocated as You requested in
the application. We may delay such allocation until after the
expiration of the Right to Return period stated on the front page
of Your Certificate.
SUBSTITUTION
We may substitute another underlying investment without Your
consent. Substitution would occur if We determine that the use of
such underlying investment is no longer possible or if We
determine it is no longer appropriate for the purposes of the
Certificate. No substitution will be made without notice to You
and without the prior approval of the SEC and the state where
this Certificate was issued for delivery, if required. Should a
substitution, addition or deletion occur, You will be allowed to
select from the then current sub-accounts and substitution may be
made with respect to both existing payments and the investment of
future payments.
TRANSFERS
You may transfer Account Values among the sub-accounts or from
the sub-accounts into the Fixed Account, upon request. The value
transferred from any sub-account must be at least $250 or the
entire balance, if less. The Account Value remaining in a
sub-account after any transfer must be at least $500. If the
balance remaining in a sub-account as a result of a transfer is
less than $500, we may require You to transfer the entire
balance.
Transfers may be subject to a transfer charge. This charge will
not exceed $25.
9
<PAGE>
Transfers from the Fixed Account to the sub-accounts must occur
within 60 days after each Certificate anniversary. The largest
amount that may be transferred out in each Certificate year is
the greater of the amount transferred in the prior Certificate
year or 20% of the balance in the Fixed Account. A transfer of
all of the Account Value from the Separate Account to the Fixed
Account will not be subject to a transfer charge.
We may modify or terminate the transfer privilege at any time.
SEPARATE ACCOUNT EXPENSE CHARGE
On each Valuation Day, an expense charge equal to the daily
equivalent of the annual rate as shown on the Interest and
Charges page is deducted proportionately from the sub-accounts.
REPORTS ANNUAL REPORT
At least once each year, We will send You a report which shows:
o the current Death Benefit;
o the current Account Value;
o the current Cash Value;
o the Payments paid;
o investment gain/loss;
o any Indebtedness;
o the Cost of Insurance;
o the Expense Charge;
o the current Surrender Value; and
o any other information required by the state in which the
Group Contract was issued for delivery.
ILLUSTRATION OF BENEFITS
During any Certificate year, We will provide You with one
illustration of hypothetical future Account Values and Death
Benefits at any time upon Written Request. We may charge a
reasonable fee for any subsequent illustrations during the same
Certificate year. However, the fee will not be greater than $25.
CERTIFICATE LOANS
LOANS Your Certificate has a Loan Value which is equal to 90% of the
Cash Value (see page 6) as of the date of the loan. Loans must be
at least $250. You may borrow the Loan Value by assigning this
Certificate to Us as security for the loan. The assignment form
must be satisfactory to Us. Loans may be made at any time while
an Insured is covered under the Group Contract. We may defer the
granting of a loan for up to 6 months.
You may decide the proportions in which to allocate the
Certificate loan among the sub-accounts of the Separate Account.
If You do not specify the allocation, then the Certificate loan
will be allocated among the sub-accounts of the Separate Account
and the Fixed Account in proportion to the Account Value in each
account. The Account Value equal to the portion of the
Certificate loan allocated to a sub-account and the Fixed Account
will be transferred from that sub-account and the Fixed Account
to the Loan Account and the Account Value in that sub-account and
the Fixed Account will be reduced by the amount transferred. If
loan interest is not paid when due, an amount of Account Value
equal to the loan interest will also be transferred.
If on any Certificate anniversary, the Certificate's Indebtedness
exceeds the Account Value in the Loan Account, We will transfer
Account Value equal to the excess Indebtedness from the Fixed
Account and the sub-accounts of the Separate Account to the Loan
Account as security for the excess debt in the same manner as the
original loan.
PREFERRED LOAN
10
<PAGE>
The amount available for a Preferred Loan is the earnings of the
Certificate since its inception.
Earnings equals (A) minus (B) minus (C) minus (D) plus (E); where
(A) is the Account Value;
(B) is total payments made;
(C) is the preferred loan balance;
(D) is accrued loan interest; and
(E) is all prior partial withdrawals in excess of earnings.
LOAN INTEREST
Interest on Certificate loans equals the Guaranteed Interest Rate
For the Fixed Account, as shown on the Interest and Charges page,
plus 2%. Interest on Preferred Loans equals the Guaranteed
Interest Rate For the Fixed Account, as shown on the Interest and
Charges page. Interest will accrue daily from the date of the
loan, and is due on each Certificate anniversary. Unpaid interest
will be added to existing Indebtedness, and will accrue interest
at the same rate.
REPAYMENT
While this Certificate is in force during the Insured's lifetime,
any loan may be repaid in whole or in part. When a loan repayment
is made, the Account Value in the Loan Account will be reduced by
the loan repayment, and this amount will be allocated
proportionately among the Fixed Account and sub-accounts of the
Separate Account.
WITHDRAWAL WITHDRAWAL
You may withdraw from this Certificate its full Surrender Value
upon Written Request at any time during the lifetime of the
Insured and while an Insured is covered under the Group Contract.
Upon withdrawal of the full Surrender Value, this Certificate
will terminate.
You may also make a partial withdrawal under this Certificate.
Partial withdrawals must be at least $250. For any partial
withdrawal after the first in any Certificate year, We may charge
a transaction fee of the lesser of $25 or 2% of the amount of the
partial withdrawal. You may select the sub-accounts from which to
deduct the amount of the partial withdrawal. If You do not
indicate where the funds will be deducted from, the amount of the
partial withdrawal will be deducted on a pro rata basis from the
sub-accounts and the Fixed Account. The Initial Death Benefit is
reduced on the date of the partial withdrawal in the same
proportion that the Account Value was reduced. If a partial
withdrawal less any applicable Withdrawal Charge, as described
below, reduces the Account Value to below Our current minimum,
then the withdrawal request will be treated as a request to
withdraw the full Surrender Value.
We may defer the payment of Your withdrawal from the Fixed
Account for up to 6 months.
WITHDRAWAL CHARGE
Unless waived by Us, a Withdrawal Charge will be deducted from
the Account Value in the event of a withdrawal.
For a full withdrawal, the Withdrawal Charge is calculated by
multiplying (B) by (C) and subtracting the product from (A),
where:
(A) is the Initial Payment multiplied by the applicable
percentage rate from the Table of Withdrawal Charges;
(B) is each previous withdrawal charge collected; and
(C) is the Withdrawal Charge percentage in effect at the time of
a full withdrawal divided by the Withdrawal Charge
percentage at the time each withdrawal was made.
For a partial withdrawal, the Withdrawal Charge is calculated by
multiplying the applicable percentage rate from the Table of
Withdrawal Charges by the amount of the partial withdrawal. The
total of the Withdrawal Charges in a Certificate year may not be
greater than the applicable percentage rate from the Table of
Withdrawal Charges multiplied by the portion of the Initial
11
<PAGE>
Payment not previously withdrawn as of the beginning of the
Certificate year.
WAIVER OF WITHDRAWAL CHARGE
We will waive the Withdrawal Charge on that portion of a
withdrawal not exceeding the greater of:
o 10% of the Account Value less any prior partial withdrawals
and Preferred Loans taken during the Certificate year; or
o the earnings of the Certificate since its inception (see
page 10).
We will also waive the Withdrawal Charge in the event of a
Qualifying Medical Stay. To qualify for this waiver:
o the Insured must have a Qualifying Medical Stay which begins
after the first Certificate year and lasts at least 45 days
during any continuous 60 day period; or
o the Insured's spouse must have a Qualifying Medical Stay
which begins after the first Certificate year and lasts at
least 45 days during any continuous 60 day period; and
o You must mail Your Written Request for this waiver, together
with proof, satisfactory to Us, of the stay, within 180 days
of initial eligibility.
If the Insured's spouse had a Qualifying Medical Stay within 45
days prior to the Certificate Date, a waiver of the Withdrawal
Charge will not be considered for the Insured's spouse, until the
later of:
o 6 months from the date of the last Qualifying Medical Stay;
or
o the first Certificate anniversary.
Qualifying Medical Stay means: 1) confinement in a Qualifying
Institution; and 2) treatment by a Qualifying Medical
Professional.
Qualifying Institution means a licensed hospital or licensed
skilled or intermediate care nursing facility at which: 1)
medical treatment is available on a daily basis; and 2) daily
medical records are kept on each patient. It does not include: 1)
a facility whose purpose is to provide accommodations, board or
personal care services to individuals who do not need medical or
nursing care; or 2) a place mainly for rest.
A Qualifying Medical Professional is a legally qualified
practitioner of the healing arts who is: 1) acting within the
scope of his or her license; 2) not a resident of Your household;
and 3) not a member of Your immediate family (children,
grandchildren, parents, grandparents, siblings and their
spouses).
Treatment means the rendering of medical care or advice related
to a specific medical condition. Treatment includes diagnosis and
subsequent care. It does not include routine monitoring unless
medically necessary.
ACCELERATED THE RECEIPT OF AN ACCELERATED DEATH BENEFIT MAY BE TAXABLE. YOU
DEATH SHOULD CONSULT YOUR PERSONAL TAX OR LEGAL ADVISOR BEFORE APPLYING
BENEFIT FOR THIS BENEFIT.
PROVISIONS
THE DEATH BENEFIT, ACCOUNT VALUE AND LOAN VALUE WILL BE REDUCED
IF AN ACCELERATED DEATH BENEFIT IS PAID.
ACCELERATED DEATH BENEFIT
If, while this Certificate is in force, We receive proof,
satisfactory to Us, that the Insured either:
(1) has a Terminal Condition; or
(2) is Chronically Ill;
We will pay a portion of the Certificate's Death Benefit to You
as an Accelerated Death Benefit.
12
<PAGE>
The balance of the Death Benefit is payable upon the Insured's
Death. Only one Accelerated Death Benefit payment is payable
under this Certificate.
DEFINITION OF TERMINAL CONDITION
Terminal Condition means a medical condition which is expected to
result in the Insured's death within 24 months from the date of
the medical certification submitted to Us in connection with the
application for the Accelerated Death Benefit and from which
there is no reasonable prospect of recovery. Such Terminal
Condition must be certified by a physician who meets the
definition of a physician under Section 101(g) of the Internal
Revenue Code.
DEFINITION OF CHRONICALLY ILL
Chronically Ill means any Insured who has been certified by a
licensed health care practitioner within the last 12 months as:
(1) being unable to perform, without substantial assistance from
another individual, at least two activities of daily living
for a period of at least 90 days due to a loss of functional
capacity; or
(2) requiring substantial supervision to protect such individual
from threats to health and safety due to severe cognitive
impairment.
Such licensed health care practitioner must meet the definition
of a licensed health care practitioner under Section 7702B(c) of
the Internal Revenue Code.
ACTIVITIES OF DAILY LIVING
The activities of daily living prescribed in item (1) above are:
o eating
o toileting
o transferring
o bathing
o dressing
o continence
AMOUNT OF ACCELERATED DEATH BENEFIT
We first calculate the Benefit Base, which equals the Death
Benefit as defined in the DEATH BENEFIT section of the
Certificate (before subtracting any Indebtedness).
We then calculate the Maximum Available Accelerated Death Benefit
by multiplying the Benefit Base by 90%.
You may elect all or a portion of this Maximum Available
Accelerated Death Benefit. However, the amount elected may not be
less than $10,000, nor greater than $250,000. Additionally, the
Initial Death Benefit for the Certificate remaining in force must
be no less than $10,000.
You will receive less than the amount You elect because We:
(1) discount the amount You receive because it is an early
payment;
(2) deduct a processing fee, not to exceed $100; and
(3) repay and reduce any Indebtedness by the percentage of Death
Benefit accelerated.
In discounting the amount You elect, We will assume that the
Death Benefit would have been paid 24 months after the date the
Accelerated Death Benefit is paid. The discount rate will equal
the greater of:
(1) the current yield on 90 day treasury bills; or
(2) the current maximum statutory adjustable Certificate loan
interest rate based on the greater of:
(a) Moody's Corporate Bond Yield Averages-Monthly Average
Corporates-published by Moody's Investors Services, Inc., or
any successor thereto for the calendar month ending two
months before the date of application for an accelerated
payment; and (b) the Certificate's Guaranteed Annual
Interest Rate for the Fixed Account rate plus 1%.
13
<PAGE>
No Withdrawal Charge will apply when You receive an Accelerated
Death Benefit.
TERMINAL CONDITION OPTION
This option provides that the Accelerated Death Benefit will be
paid to You in equal monthly installments for 12 months. For each
$1,000 of Accelerated Death Benefit, each payment will be at
least $84.65. This assumes an annual interest rate of 3.5%.
If the Insured dies before all the payments have been made, We
will pay the Beneficiary in one sum. The one sum payment will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If You do not want monthly payments, We will pay You the
Accelerated Death Benefit in one sum, upon Written Request. Such
payment will be calculated described in the Amount of Accelerated
Death Benefit provision.
CHRONICALLY ILL PAYMENT OPTION
This option provides level monthly payments for the number of
years shown in the table that follows. For each $1,000 of
Accelerated Death Benefit, each payment will be at least the
minimum amount shown in the table. The table uses an annual
interest rate of 3.5%; We may use a higher rate.
<TABLE>
<CAPTION>
ATTAINED PAYMENT MINIMUM MONTHLY
AGE OF PERIOD IN PAYMENT FOR EACH
INSURED YEARS $1,000 OF DISCOUNTED BENEFIT
<S> <C> <C>
64 and under 10 $9.83
65-67 8 $11.90
68-70 7 $13.38
71-73 6 $15.35
74-77 5 $18.12
78-81 4 $22.27
82-86 3 $29.19
87 and over 2 $43.05
</TABLE>
If the Insured dies before all the payments have been made, We
will pay the beneficiary in one sum. The one sum We pay will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If We agree, You may choose a longer payment period than that
shown in the table; if You do, monthly payments will be reduced
so that the present value of the payments is the same. We will
use an interest rate of at least 3.5%.
We reserve the right to set a maximum monthly benefit that We
will pay under this option. If We do so, it will be at least
$5,000.
If You do not want monthly payments, We will pay You the
Accelerated Death Benefit in one sum, upon Written Request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision with the exception of the
period over which the payment will be discounted. The lump sum
payment will be discounted over a period not less than the
Payment Period in Years section of this provision. If the Insured
dies before the end of the discount period, we will recalculate
the Accelerated Benefit based upon the number of years between
the end of the discount period and the date of death. The
Beneficiary will be paid the difference between this recalculated
amount and the amount that was received, minus the processing
fee.
EFFECT ON THIS CERTIFICATE
When We pay the Accelerated Death Benefit, We will calculate a
percentage which equals:
14
<PAGE>
(1) the amount You elect to receive (before any reductions);
divided by
(2) the Benefit Base.
We will reduce by that percentage:
(1) the Initial Death Benefit;
(2) the Account Value; and
(3) any Indebtedness.
Any future Monthly Deductions, Cost of Insurance charges, or
Withdrawal Charges will be based on the reduced amount of
insurance.
Once We approve Your claim, We will send You a new Certificate
Information page with these changes. The subsequent payment of a
Death Benefit or Maturity Benefit of this Certificate will
constitute full settlement of the obligations of the Group
Contract and of this Certificate.
CONDITIONS
Your right to receive the Accelerated Death Benefit is subject to
the following conditions:
(1) We must receive evidence, satisfactory to Us, of the
Insured's eligibility for this Benefit. Evidence
satisfactory to Us, may include, but is not limited to:
o the records of the Insured's attending physician,
including a prognosis of the Insured;
o all pertinent facts concerning the Insured's health;
and
o a medical examination of the Insured conducted by a
physician chosen by Us and at Our expense. If there is
a difference of opinion as to the prognosis of the
Insured, the opinion of a licensed physician,
acceptable to both Us and the Insured, will control.
(2) You must choose the option in writing in a form that meets
Our needs.
(3) If You have assigned all or a portion of this Certificate,
You must also give Us a signed consent form from the
assignee.
(4) All beneficiaries must consent in writing to the payment of
the Accelerated Death Benefit on the date the Benefit is
requested.
(5) You must send Us the Certificate.
EXCEPTIONS
This Benefit will not be paid if:
(1) the Insured is required by a governmental agency to claim
this Benefit in order to apply for, receive, or continue a
government benefit or entitlement;
(2) the Insured is required by law to use this Benefit to meet
the claims of creditors, whether in bankruptcy or otherwise;
(3) all or part of the Certificate's Death Benefit must be paid
to the Insured's children or spouse or former spouse as part
of a divorce decree, separate maintenance or property
settlement Certificate; or
(4) the Insured is married and lives in a community property
state, unless the Insured's spouse has given Us signed
written consent.
TERMINATION TERMINATION OF AN INSURED'S COVERAGE
An Insured's coverage under the Group Contract will terminate
when one of the following events occur:
o an Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value;
o the date an Insured's coverage is surrendered for its
Surrender Value;
o the date the Group Contract terminates or is discontinued,
except as provided in the Continuation of Insureds' Coverage
After Discontinuance provision.
CONTINUATION OF INSUREDS' COVERAGE AFTER DISCONTINUANCE
If the Group Contract is discontinued, any insurance then in
effect will remain in force under this
15
<PAGE>
Certificate, provided it is not cancelled or surrendered by the
Owner.
PAYMENT OF PAYMENT
PROCEEDS The Proceeds of this Certificate will be subject first to the
interest of an assignee, to whom payment will be made in one sum.
We will pay any remaining Proceeds to You before the Insured's
death, and to the Beneficiary after the Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the Insured's death. Unless otherwise
provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
DELAY OF PAYMENT
We will pay Surrender Values, withdrawals and Certificate loans
allocated to the Separate Account within seven days after We
receive Your Written Request. We will pay death Proceeds
allocated to the Separate Account within seven days, only after
We receive Your Written Request and receive proof, satisfactory
to Us, of the Insured's death. Payment may be delayed if:
o the New York Stock Exchange is closed on other than
customary weekend and holiday closings or trading on the New
York Stock Exchange is restricted as determined by the SEC;
or
o an emergency exists, as determined by the SEC, as a result
of which disposal of securities is not reasonably
practicable to determine the value of the sub-accounts; or
o the SEC, by order, permits postponement for the protection
of Certificate owners.
PAYMENT OF PAYMENT OF PROCEEDS OPTIONS
PROCEEDS The Proceeds may be applied under one of the following Options.
OPTIONS An Option must be selected by Written Request. You may select an
Option during the Insured's lifetime. If You have not selected an
Option before the Insured's death, the Beneficiary may choose
one. We will not permit surrenders or partial withdrawals after
payments under a proceeds option involving life contingencies
commence.
THE OPTIONS
1. Interest. We will pay interest monthly on Proceeds left on
deposit with Us. We will declare the interest rate each year. It
will never be less than 3-1/2% a year.
2. Fixed Amount. We will pay equal monthly installments, first
payment immediately, until the Proceeds and the interest have
been exhausted. Interest will be credited on unpaid balances at
the rate which We will declare each year. It will never be less
than 3-1/2%, compounded annually.
3. Fixed Period. We will pay equal monthly installments, first
payment immediately, for not more than 25 years. The minimum
amount of each installment may be determined from the OPTION 3
TABLE on page 17. This Table is based on a guaranteed interest
rate of 3-1/2%, compounded annually.
4. Life Income. We will pay equal monthly installments, first
payment immediately, for the lifetime of the payee with or
without a guaranteed period. The minimum amount of each
installment may be determined from the OPTION 4 TABLE on page 17.
This Table is based on a guaranteed interest rate of 3-1/2%,
compounded annually. The guaranteed period selected may be: (1)
10 years; (2) 15 years; or (3) 20 years.
5. Other Payment. We will pay the Proceeds in any other manner
that may be mutually agreed upon.
AVAILABILITY
No Option may be selected unless the amount to be applied is more
than $2,000 and will provide an installment payment of at least
$20. Unless We consent, these Options will not be available if
16
<PAGE>
the payee is an assignee, administrator, executor, trustee,
association, partnership or corporation.
ADDITIONAL INTEREST
At our discretion, additional interest may be declared annually
on all Payment Options. This interest will lengthen the period
under Option 2, and increase the installment amounts under
Options 3 and 4.
17
<PAGE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
Number Monthly Number Monthly Number Monthly Number Monthly Number Monthly
of Years Payment of Years Payment of Years Payment of Years Payment of Years Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $84.65 6 $15.35 11 $9.09 16 $6.76 21 $5.56
- -------------------------------------------------------------------------------------------------------------------
2 43.05 7 13.38 12 8.46 17 6.47 22 5.39
- -------------------------------------------------------------------------------------------------------------------
3 29.19 8 11.90 13 7.94 18 6.20 23 5.24
- -------------------------------------------------------------------------------------------------------------------
4 22.27 9 10.75 14 7.49 19 5.97 24 5.09
- -------------------------------------------------------------------------------------------------------------------
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 4 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
MALE FEMALE
- -------------------------------------------------------------------------------------------------------------------
No Guaranteed Guaranteed Guaranteed No Guaranteed Guaranteed Guaranteed
Guaranteed Period Period Period Guaranteed Period Period Period
Age Period 10 Years 15 Years 20 Years Age Period 10 Years 15 Years 20 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.45 $4.41 $4.36 $4.29 50 $4.11 $4.09 $4.07 $4.04
51 4.52 4.47 4.42 4.34 51 4.16 4.15 4.12 4.09
52 4.59 4.55 4.48 4.40 52 4.22 4.20 4.18 4.14
53 4.67 4.62 4.55 4.45 53 4.29 4.27 4.24 4.19
54 4.76 4.70 4.62 4.51 54 4.36 4.33 4.30 4.24
55 4.85 4.78 4.70 4.57 55 4.43 4.40 4.36 4.30
56 4.94 4.87 4.77 4.63 56 4.50 4.47 4.42 4.36
57 5.04 4.96 4.85 4.70 57 4.58 4.54 4.49 4.42
58 5.15 5.06 4.93 4.76 58 4.67 4.62 4.57 4.48
59 5.26 5.16 5.02 5.82 59 4.76 4.71 4.64 4.55
60 5.39 5.26 5.11 4.89 60 4.85 4.80 4.72 4.61
61 5.52 5.38 5.20 4.95 61 4.95 4.89 4.81 4.68
62 5.66 5.50 5.29 5.01 62 5.06 4.99 4.89 4.75
63 5.80 5.62 5.39 5.08 63 5.18 5.10 4.98 4.82
64 5.96 5.75 5.49 5.14 64 5.30 5.21 5.08 4.89
65 6.14 5.89 5.58 5.20 65 5.43 5.32 5.18 4.96
66 6.32 6.03 5.68 5.26 66 5.57 5.45 5.28 5.03
67 6.51 6.18 5.78 5.31 67 5.72 5.58 5.38 5.10
68 6.72 6.33 5.88 5.37 68 5.89 5.72 5.49 5.17
69 6.94 6.49 5.98 5.42 69 6.06 5.86 5.60 5.23
70 7.18 6.65 6.08 5.46 70 6.25 6.01 5.71 5.30
71 7.44 6.82 6.18 5.50 71 6.45 6.18 5.82 5.36
72 7.71 6.99 6.27 5.54 72 6.67 6.34 5.93 5.41
73 7.99 7.16 6.36 5.58 73 6.91 6.52 6.04 5.46
74 8.30 7.33 6.44 5.61 74 7.17 6.70 6.15 5.51
75 8.63 7.51 6.52 5.63 75 7.45 6.89 6.26 5.55
76 8.99 7.68 6.60 5.66 76 7.75 7.08 6.36 5.59
77 9.37 7.86 6.67 5.68 77 8.08 7.28 6.45 5.62
78 9.77 8.03 6.73 5.69 78 8.43 7.48 6.54 5.65
79 10.21 8.19 6.79 5.71 79 8.81 7.68 6.62 5.67
80 10.67 8.36 6.84 5.72 80 9.22 7.88 6.70 5.69
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
NON-TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.1442 0.1259 70 3.0703 1.8585
1 0.0859 0.0701 36 0.1517 0.1342 71 3.4033 2.0584
2 0.0826 0.0667 37 0.1617 0.1442 72 3.7600 2.3037
3 0.0809 0.0651 38 0.1726 0.1551 73 4.1934 2.5976
4 0.0776 0.0642 39 0.1843 0.1667 74 4.6701 2.9361
5 0.0734 0.6254 40 0.1984 0.1809 75 5.1801 3.3143
6 0.0692 0.0609 41 0.2134 0.1959 76 5.7192 3.7239
7 0.0651 0.0592 42 0.2293 0.2109 77 6.2835 4.1631
8 0.0626 0.0584 43 0.2468 0.2259 78 6.8762 4.6390
9 0.0617 0.0576 44 0.2660 0.2409 79 7.5161 5.1666
10 0.0626 0.0567 45 0.2876 0.2576 80 8.2238 5.7673
11 0.0676 0.0584 46 0.3110 0.2751 81 9.0181 6.4590
12 0.0767 0.0609 47 0.3360 0.2943 82 9.9157 7.2573
13 0.0892 0.0642 48 0.3635 0.3143 83 10.9129 8.1594
14 0.1034 0.0684 49 0.3935 0.3368 84 11.9904 9.1556
15 0.1134 0.0717 50 0.4277 0.3618 85 13.1242 10.2354
16 0.1234 0.0751 51 0.4669 0.3894 86 14.3000 11.3917
17 0.1309 0.0776 52 0.5120 0.4211 87 15.5000 12.6232
18 0.1359 0.0801 53 0.5637 0.4561 88 16.7191 13.9315
19 0.1392 0.0826 54 0.6213 0.4920 89 17.9749 15.3273
20 0.1401 0.0842 55 0.6855 0.5303 90 19.2858 16.8225
21 0.1384 0.0859 56 0.7556 0.5687 91 20.6825 18.4527
22 0.1359 0.0867 57 0.8299 0.6063 92 22.2180 20.2807
23 0.1326 0.0884 58 0.9125 0.6438 93 24.0437 22.4383
24 0.1292 0.0901 59 1.0052 0.6864 94 26.5035 25.2231
25 0.1251 0.0917 60 1.1088 0.7364 95 30.2074 29.2496
26 0.1226 0.0942 61 1.2240 0.7982 96 36.3581 35.7221
27 0.1209 0.0959 62 1.3569 0.8750 97 47.2118 46.8683
28 0.1201 0.0984 63 1.5073 0.9693 98 66.2071 66.0943
29 0.1201 0.1017 64 1.6745 1.0754 99 82.5000 81.6667
30 0.1209 0.1042 65 1.8577 1.1898
31 0.1234 0.1076 66 2.0559 1.3084
32 0.1267 0.1109 67 2.2685 1.4296
33 0.1317 0.1151 68 2.4996 1.5550
34 0.1376 0.1201 69 2.7560 1.6946
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
19
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.2268 0.1676 70 4.7492 2.4376
1 0.0859 0.0701 36 0.2434 0.1817 71 5.1624 2.6722
2 0.0826 0.0667 37 0.2643 0.1984 72 5.6299 2.9596
3 0.0809 0.0651 38 0.2876 0.2176 73 6.1485 3.3017
4 0.0776 0.0642 39 0.3143 0.2384 74 6.7174 3.6920
5 0.0734 0.0626 40 0.3452 0.2635 75 7.3258 4.1186
6 0.0692 0.0609 41 0.3785 0.2901 76 7.9486 4.5725
7 0.0651 0.0592 42 0.4152 0.3168 77 8.5746 5.0471
8 0.0626 0.0584 43 0.4553 0.3435 78 9.2082 5.5490
9 0.0617 0.0576 44 0.4995 0.3702 79 9.8715 6.0962
10 0.0626 0.0567 45 0.5462 0.3985 80 10.5868 6.7098
11 0.0676 0.0584 46 0.5946 0.4277 81 11.3746 7.4070
12 0.0767 0.0609 47 0.6471 0.4578 82 12.2491 8.2009
13 0.0892 0.0642 48 0.7039 0.4903 83 13.1961 9.1191
14 0.1034 0.0684 49 0.7656 0.5262 84 14.1843 10.1164
15 0.1467 0.0801 50 0.8341 0.5645 85 15.1804 11.1778
16 0.1634 0.0842 51 0.9117 0.6054 86 16.1604 12.2952
17 0.1751 0.0884 52 0.9994 0.6521 87 17.1682 13.4579
18 0.1843 0.0926 53 1.0988 0.7039 88 18.2203 14.6722
19 0.1901 0.0951 54 1.2073 0.7565 89 19.2685 15.9376
20 0.1934 0.0976 55 1.3235 0.8107 90 20.3284 17.3441
21 0.1934 0.0992 56 1.4463 0.8641 91 21.4331 18.8626
22 0.1901 0.1017 57 1.5759 0.9142 92 22.7172 20.5523
23 0.1868 0.1042 58 1.7121 0.9635 93 24.3689 22.5437
24 0.1817 0.1067 59 1.8585 1.0161 94 26.6300 25.2231
25 0.1759 0.1092 60 2.0216 1.0787 95 30.2074 29.2496
26 0.1726 0.1134 61 2.2057 1.1572 96 36.3581 35.7221
27 0.1709 0.1167 62 2.4134 1.2583 97 47.2118 46.8683
28 0.1709 0.1209 63 2.6454 1.3811 98 66.2071 66.0943
29 0.1734 0.1259 64 2.8993 1.5182 99 82.5000 81.6667
30 0.1776 0.1317 65 3.1684 1.6628
31 0.1834 0.1367 66 3.4502 1.8100
32 0.1909 0.1426 67 3.7423 1.9522
33 0.2009 0.1501 68 4.0489 2.0961
34 0.2126 0.1584 69 4.3817 2.2526
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
20
<PAGE>
INTEREST AND CHARGES
Interest Rates
Guaranteed Annual Interest Rate For the Fixed Account [3.50%]
Guaranteed Monthly Equivalent Interest Rate [0.28709%]
Certificate Charges
Certificate Fee [$30.00] per year
Cost of Insurance as defined on page 8.
Fixed Account Expense Charge [0.48%] per year
Separate Account Expense Charge [1.65%] per year
Withdrawal Charge on Withdrawal as defined on page 11.
<TABLE>
<CAPTION>
Table of Withdrawal Charges
This table applies to the Initial Payment in the event of a
Withdrawal in the first [7] Certificate years.
Certificate Percentage Certificate Percentage
Year Year
<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 and thereafter 0.00%]
</TABLE>
Mortality Table
1980 Commissioners Standard Ordinary Age Last Birthday Smoker or Non-smoker
The Certificate may end before the Maturity Date if the payments are not
sufficient to continue the Certificate to that date. If current values change,
this will also affect the benefits.
21
<PAGE>
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
CERTIFICATE DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CERTIFICATE.
The Death Benefit is payable if the Insured dies while this Certificate is in
force and before the Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Certificate charges.
This Certificate is not eligible for Dividends.
22
<PAGE>
CONTRACT INFORMATION
[First] Insured [John Doe]
Contract Number [NV-12345678]
Issue Age/Sex [65] [Male]
Contract Date [January 1, 1999]
Rating Class [Standard] [Non-Tobacco]
Additional Agreements
[none]
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Home Office: 175 Berkeley Street, P.O. Box 140, Boston, Massachusetts 02117-0140.
Service Center: 100 Liberty Way, Dover, New Hampshire 03820-5808
</TABLE>
<TABLE>
<S> <C> <C> <C>
Contract Number: [SPWL-G-004] Issue Date: [February 19, 1999]
Contractholder: [Trustee of Liberty Life Assurance Co. of Boston State of Delivery: [Rhode Island]
Group Insurance Trust]
</TABLE>
READ THIS INSURANCE CONTRACT CAREFULLY
This is a legal contract between the Contractholder and the Company.
Liberty Life Assurance Company of Boston, a stock Company, will pay the benefits
provided by the Group Contract, subject to its terms and conditions. The
CONTRACT GUIDE on the inside of the front cover shows where the major contract
provisions can be found.
This Group Contract is governed by the State of Delivery.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
GROUP CONTRACT ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT,
THE FIXED ACCOUNT EARNINGS AND CONTRACT CHARGES. SEPARATE ACCOUNT VALUES ARE
VARIABLE AND MAY INCREASE OR DECREASE. THESE VALUES ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT.
THE DEATH BENEFIT IS DESCRIBED ON PAGE 3.
Signed for the Company.
/s/ Barry S. Gilvar /s/ Edmund F. Kelly
------------------- -------------------
SECRETARY PRESIDENT
CONTRACT DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT.
The Death Benefit is payable if the Insured dies while this Group Contract is in
force and before the Certificate's Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Certificate's
Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Contract Charges.
This Group Contract is not eligible for Dividends.
<PAGE>
Page
CONTRACT ASSIGNMENT......................................................6
GUIDE INTEREST AND CHARGES...........................................23
CERTIFICATE LOANS..............................................11
CERTIFICATE VALUES..............................................7
DEATH BENEFIT...................................................3
DEFINITIONS.....................................................2
GENERAL CONTRACT PROVISIONS.....................................5
GRACE PERIOD....................................................4
INCONTESTABILITY AND SUICIDE....................................7
MATURITY BENEFIT................................................4
OWNER AND BENEFICIARY...........................................6
PAYMENT OF PROCEEDS............................................16
PAYMENT OF PROCEEDS OPTIONS....................................16
REINSTATEMENT...................................................5
SEPARATE ACCOUNT PROVISIONS....................................10
PAYMENTS........................................................4
TABLE OF GUARANTEED MONTHLY MAXIMUM
COST OF INSURANCE RATES....................................21, 22
TABLE OF WITHDRAWAL CHARGES....................................23
WITHDRAWAL.....................................................11
ANY ADDITIONAL AGREEMENTS, ENDORSEMENTS
AND A COPY OF THE APPLICATION APPEAR
AFTER PAGE.....................................................23
DEFINITIONS This is what We mean when We use the following words in this
Group Contract:
Accumulation Unit. An accounting unit of measurement which We use
to calculate the value of a sub-account.
Attained Age. The Insured's age on his or her last birthday.
Contract Date. The date when insurance coverage becomes
effective.
Indebtedness. Any unpaid Certificate loan and unpaid loan
interest.
Insured. A person who is:
o [a customer of the financial institution shown in the
Contract Data; and]
o covered as an Insured under this Group Contract as evidenced
by a Certificate issued in his or her name.
Loan Account. An account established for amounts transferred from
the sub-accounts or the Fixed Account as security for outstanding
Indebtedness.
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
the Account Value.
Net Death Benefit. The Death Benefit, less any Indebtedness.
Proceeds. All or part of the amount payable under any provision
of this Group Contract.
Written Request. A notice in writing, satisfactory to Us, placed
on file at Our Service Center.
Valuation Day. The day when a sub-account is valued. This occurs
every day We are open and the New York Stock Exchange is open for
trading.
Valuation Period. The time period between the close of business
on successive Valuation Days.
We, Our, Us, The Company. Liberty Life Assurance Company of
Boston.
Owner. The Owner of a Certificate, who may be someone other than
the Insured.
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DEATH THE BENEFIT
BENEFIT If an Insured dies while coverage under the Certificate and this
Group Contract is in force, we will pay a Death Benefit to the
Beneficiary of the Insured's Certificate. The Death Benefit will
be the greater of:
o the Initial Death Benefit shown on the Certificate
Information page; or
o a percentage, shown below, of the Certificate's Account
Value.
The Initial Death Benefit is reduced proportionately for partial
withdrawals. We will reduce the Death Benefit by any
Indebtedness. The Death Benefit will be determined on the date We
receive proof, satisfactory to Us, of the Insured's death. The
applicable percentage depends on an Insured's attained age.
<TABLE>
<CAPTION>
Attained Age Account Value % Attained Age Account Value % Attained Age Account Value % Attained Age Account Value %
<S> <C> <C> <C> <C> <C> <C> <C>
40 & less 250 51 178 62 126 73 109
41 243 52 171 63 124 74 107
42 236 53 164 64 122 75-90 105
43 229 54 157 65 120 91 104
44 222 55 150 66 119 92 103
45 215 56 146 67 118 93 102
46 209 57 142 68 117 94-99 101
47 203 58 138 69 116 100 100
48 197 59 134 70 115
49 191 60 130 71 113
50 185 61 128 72 111
</TABLE>
GUARANTEED DEATH BENEFIT
Each Certificate has a guaranteed Death Benefit equal to the
Initial Death Benefit. In the absence of Indebtedness, this
guaranteed Death Benefit will be in effect until the Maturity
Date. The guaranteed Death Benefit is reduced proportionately for
partial withdrawals (see page 11). We will reduce the guaranteed
Death Benefit by any Indebtedness.
On any Monthly Date when the Surrender Value is not sufficient to
cover the Monthly Deduction and the Certificate has no
Indebtedness, We will waive that insufficiency and waive all
future Monthly Deductions with respect to that Certificate until
its Surrender Value is sufficient to cover the Monthly
Deductions.
If the Certificate has Indebtedness and the Surrender Value is
not sufficient to pay the Monthly Deduction or Loan Interest, the
Certificate will enter the Grace Period. To keep the coverage
under the Certificate in force, an amount at least as large as
(A) plus (B) plus (C) must be remitted, where:
(A) is the amount by which the Monthly Deduction is
insufficient;
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(B) is the next three Monthly Deductions; and
(C) is the net loan interest for the next 3 months (net loan
interest is Certificate loan interest charged less interest
credited on the loan balance).
This remittance will be considered a loan repayment, unless
otherwise specified in writing. If the amount necessary to keep
coverage under this Group Contract and Certificate in force
exceeds the outstanding Indebtedness, only the Indebtedness is
due. Once the Indebtedness has been repaid, all future Monthly
Deductions will be waived until the Surrender Value is sufficient
to cover the Monthly Deductions.
INTEREST ON DEATH BENEFIT
We will pay interest on any Death Benefit payable in one sum. The
interest rate will never be less than 3-1/2% per year from the
date of death to the date of payment, or the rate required by
applicable state law, if greater.
MATURITY MATURITY BENEFIT
BENEFIT We will pay a Maturity Benefit if an Insured is living and
coverage under the Certificate and this Group Contract is in
force on the Maturity Date. The Maturity Date is the Certificate
anniversary on or following the Insured's 100th birthday. The
Maturity Benefit of the Certificate is equal to the Surrender
Value.
PAYMENTS INITIAL PAYMENT
The Initial Payment for each Certificate is payable on or before
delivery of the Certificate. The Initial Payment is shown on the
Certificate Information page and is payable on or before delivery
of the Certificate. The payment is payable at Our Service Center
or to an authorized agent. A copy of the Owner's application,
signed by Us or Our authorized agent, is the receipt for the
Initial Payment.
SUBSEQUENT PAYMENTS
We will accept additional payments if:
o the payment is required to keep coverage under this Group
Contract in force; or
o the payment is at least $1,000 and the payment will not
result in the disqualification of coverage under this Group
Contract as a life insurance under the Internal Revenue Code
as it now exists or may later be amended.
If We accept an additional payment, evidence of insurability
satisfactory to Us will be required if an increase in the Death
Benefit occurs as a result of such payment.
PAYMENT ALLOCATION
An Initial Payment for each Certificate of coverage will be
allocated to the Fixed Account on the date We receive the
payment.
The Account Value of the Fixed Account will then be allocated to
the sub-accounts, in whole percentages, according to the payment
allocation specified in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of the Certificate.
GRACE PERIOD
If there is any Indebtedness under a Certificate and the
Surrender Value is insufficient to pay the Monthly Deduction or
Loan Interest, a Grace Period of 61 days will be permitted for a
payment sufficient to continue coverage under the Certificate. We
will send a notice to the last known address of the Owner
requesting the amount due. If the required amount is not received
within 61 days, coverage will terminate without value. If the
Insured dies during a Grace Period, the Death Benefit will be
reduced by any Monthly Deductions or Loan Interest due but not
paid.
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<PAGE>
REINSTATEMENT
A Certificate may be reinstated within five years of the end of
the Grace Period and prior to the Maturity Date if We receive:
o Written Request to reinstate the Certificate;
o evidence of insurability satisfactory to Us; and
o a payment equal to at least three Monthly Deductions
following the effective date of reinstatement.
If the Indebtedness is not repaid, such Indebtedness will also be
reinstated.
LIFE LIFE INSURANCE QUALIFICATION
INSURANCE Coverage under this Group Contract is intended to qualify for
QUALI- treatment as a life insurance contract under the Internal Revenue
FICATION Code as it now exists or may later be amended. We reserve the
right to amend this Group Contract and any Certificate issued
under this Group Contract to comply with future changes in the
Code and its Regulations. Any amendments will be made by an
agreement approved by the proper regulatory authorities. We will
promptly provide the Contractholder and the Owner with a copy of
any amendment.
We reserve the right to refuse premium payments and to return
those premium payments, in whole or in part, if accepting them
would disqualify coverage under this Group Contract from
favorable tax treatment under the Code. A premium payment will
not be refused if the payment will prevent coverage from
terminating.
GENERAL ENTIRE CONTRACT
CONTRACT The entire contract consists of :
PROVISIONS
o this Group Contract and any amendments, agreements or
endorsements attached;
o the application for this Group Contract, a copy of which is
attached to this Group Contract; and
o individual applications for coverage under this Group
Contract by the Owner's of Certificates.
All statements made by the Contractholder, by the Owner of a
Certificate, or by an Insured are representations and not
warranties. No statement made by or on behalf of an Insured will
be used by us to rescind the coverage under this Group Contract,
or defend a claim under it, unless a copy of the instrument
containing such statement has been furnished to an Insured, if
living, otherwise to the Beneficiary of the coverage being
contested.
Any additional agreements which may be included as part of this
Group Contract are shown on the Contract Information page. These
agreements are attached to and made a part of this Group
Contract.
WAIVER
Only an officer of the Company can waive or change any provision
of this Group Contract, and only by means of a written
instrument. No agent may change or waive any provision of this
Group Contract or a Certificate issued under this Group Contract.
We may modify the terms and conditions of this Group Contract to
conform to any new law or regulation affecting this Group
Contract or a Certificate issued under this Group Contract. Any
change to this Group Contract or any Certificate agreed to
between the Contractholder and us will not prejudice the rights
of any individual covered under the Group Contract on the
effective date of the change.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, any Proceeds
will be adjusted to that amount
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<PAGE>
which the payments paid would have purchased at the correct age
and sex. Age refers to the Insured's age last birthday on the
Certificate Date.
ASSIGNMENT
This Group Contract may not be assigned.
An Owner may assign a Certificate. We will not be on notice of
any assignment until a duplicate of the original assignment is
filed at our Home Office. We assume no responsibility for the
validity or effect of any assignment, and may rely solely on the
assignee's statement of interest.
CONTRACT AND CERTIFICATE ANNIVERSARIES
Contract years and anniversaries will be computed from the
Contract Date. Certificate years and anniversaries will be
computed from the Certificate Date.
INDIVIDUAL CERTIFICATES OF INSURANCE
We will issue to each Owner an individual Certificate stating the
essential features of the Insured's coverage under this Group
Contract.
COMPLIANCE WITH LAW
If any provision of this Group Contract is in conflict with any
applicable law, it is hereby amended to comply with the minimum
requirements of such law.
FACTS RELATING TO COVERAGE
At any reasonable time we will have the right to inspect any
records of the Contractholder which relate to this Group
Contract.
CLERICAL ERRORS
A clerical error will not end insurance otherwise in force, nor
continue it after it would otherwise have ended.
ACTION OF TRUSTEES
If the Contractholder is a Trust, we will not be bound by any
provisions of such trust agreement. We will not be responsible
for any failure of any trustee to perform his duties as a trustee
nor for the application or disposition of any money paid to such
trustee if coverage under the Group Contract was transferred to
another insurance carrier. Payment to such trustee will fully
discharge us for the amount so paid.
OWNER AND OWNER
BENEFICIARY The Owner is as named in the application on the Certificate Date,
and may be changed from time to time. Unless otherwise provided,
the ownership rights of an individual who dies before the Insured
will belong to the surviving joint owner, or if no joint owner,
to the executors or administrators of that individual's estate.
The ownership rights of a corporation, partnership or fiduciary
will belong to its successors or assigns.
During an Insured's lifetime, the rights and privileges stated in
this Group Contract may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date of Issue, and may be changed from time to time. The interest
of any Beneficiary who dies before an Insured will terminate at
the death of that Beneficiary.
If no Beneficiary designation is in effect at the Insured's
death, or if there is no designated Beneficiary then living, the
Owner will be the Beneficiary. However, if the Insured was the
6
<PAGE>
Owner, the executors or administrators of the Insured's estate
will be the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
The Owner may change the Owner or any Beneficiary by Written
Request during the Insured's lifetime. The change will take
effect as of the date the request is signed after We acknowledge
receipt in writing, whether or not the Owner or the Insured is
living at the time of acknowledgment. The change will be subject
to any assignment, and to any payment made or action taken by Us
before acknowledgment.
INCONTEST- INCONTESTABILITY AFTER TWO YEARS
ABILITY In the absence of fraud, an Insured's coverage under this Group
AND SUICIDE Contract will be incontestable after it has been in force during
the Insured's lifetime;
o with respect to the Initial Death Benefit, for two years
from the Certificate Date; and
o with respect to each increase in the Initial Death Benefit,
for two years from the effective date of that increase.
SUICIDE WITHIN TWO YEARS
If the Insured dies by suicide within two years from the
Certificate Date, while sane or insane, the amount payable under
this Group Contract will be limited to the greater of the Account
Value less Indebtedness or the minimum value required by the
state where this Group Contract was issued for delivery.
CERTIFICATE ACCOUNT VALUE
VALUES The Account Value of a Certificate on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value equals:
o the sum of the value of the Accumulation Units in the
sub-accounts; plus
o the Account Value in the Fixed Account; plus
o the value of the Loan Account, if any; minus
o the Monthly Deduction.
On each Valuation Day, other than a Monthly Date, the Account
Value equals:
o the sum of the value of the Accumulation Units in the
sub-accounts; plus
o the Account Value in the Fixed Account; plus
o the value of the Loan Account, if any.
CASH VALUE
A Withdrawal Charge will be subtracted from the Account Value to
determine the Cash Value. The Withdrawal Charges are shown on the
Interest and Charges page.
SURRENDER VALUE
The Surrender Value is equal to the Cash Value, minus the
Certificate Fee, and minus any Indebtedness.
ACCOUNT VALUE IN FIXED ACCOUNT
The Account Value in the Fixed Account on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value in the Fixed Account is
equal to:
o the Account Value in the Fixed Account on the preceding
Monthly Date with one month's
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<PAGE>
interest; plus
o the Account Values transferred to the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o the Account Values transferred from the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus all
withdrawals from the Fixed Account since the preceding
Monthly Date plus interest from the date of the withdrawal
to the Monthly Date; minus
o the portion of the Monthly Deduction allocated to the
Account Value in the Fixed Account, to cover the Certificate
month following the Monthly Date.
On any date other than a Monthly Date, the Account Value will be
calculated on a consistent basis.
SUB-ACCOUNT VALUES
Amounts allocated to sub-accounts are applied to provide
Accumulation Units in each sub-account. An Accumulation Unit is
used to calculate the value of a sub-account. The number of
Accumulation Units credited to each sub-account is determined by
dividing the amount allocated to a sub-account by the dollar
value of one Accumulation Unit for such sub-account. The number
of the Accumulation Units is not affected by any subsequent
change in the value of the units. The Accumulation Unit values in
each sub-account may increase or decrease daily.
SUB-ACCOUNT ACCUMULATION UNIT VALUE
The Accumulation Unit value for each sub-account will vary to
reflect the investment experience of the applicable sub-account
and will be determined on each Valuation Day by multiplying the
Accumulation Unit value of the particular sub-account on the
preceding Valuation Day by a net investment factor for that
sub-account for the Valuation Period then ended. The net
investment factor for each sub-account is equal to the net asset
value per share of the corresponding investment at the end of the
Valuation Period (plus the per share amount of any dividend or
capital gain distributions paid by that investment in the
Valuation Period then ended) divided by the net asset value per
share of the corresponding investment at the beginning of the
Valuation Period, less the Separate Account Expense Charge.
While We are not currently making a provision for current taxes,
any new taxes or increase in taxes attributable to the operations
of the Separate Account, We reserve the right to deduct such a
charge from the Accumulation Unit value.
SUB-ACCOUNT ACCUMULATION VALUE
The accumulation value in any sub-account equals:
o the number of Accumulation Units in that sub-account on the
Valuation Day;
o multiplied by that sub-account's Accumulation Unit value on
the Valuation Day.
EMERGENCY PROCEDURE
With the exception of weekends or holidays, if a national stock
exchange is closed, or trading is restricted due to an existing
emergency as defined by the Securities and Exchange Commission
(SEC) so that We cannot value the sub-accounts, or as otherwise
ordered by the SEC, We may postpone all procedures which require
valuation of the sub-accounts until valuation is possible. Any
provision of this Group Contract which specifies a Valuation Day
will be superseded by the emergency procedure.
COST OF INSURANCE
The Cost of Insurance for a Certificate is determined on the
Monthly Date and is computed as follows:
o Divide the Death Benefit on the first day of the Certificate
month by 1 plus the Guaranteed Monthly Equivalent Interest
Rate shown on the Interest and Charges page;
8
<PAGE>
o Reduce the result by the Account Value on that day before
computing the Monthly Deduction for the Cost of Insurance;
and
o Multiply the difference by the Cost of Insurance Rate for
that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is the rate applied to the insurance
under this Group Contract to determine the Cost of Insurance. It
is based on the Attained Age, sex and rating classification of
the Insured. The Cost of Insurance Rate will not be greater than
the guaranteed rates shown in the Table of Guaranteed Monthly
Maximum Cost of Insurance Rates (see pages 19 and 20).
MONTHLY DEDUCTION
A Monthly Deduction is made for the Cost of Insurance,
Certificate Fee, the Expense Charge on the Fixed Account and the
cost of any Additional Benefit Agreements. The Monthly Deduction
for a Certificate month will be calculated by adding:
o the Certificate Fee, if due;
o the Expense Charge on the Fixed Account;
o the Cost of Insurance for the Certificate month; and
o the cost for the Certificate month of any Additional Benefit
Agreements.
The Expense Charge on the Fixed Account will be deducted from the
Fixed Account balance. The remainder of the Monthly Deduction for
a Certificate month will be allocated among the Fixed Account and
the sub-accounts of the Separate Account in proportion to the
Account Value in each account. When determining these
proportions, the Account Values are used net of any Indebtedness
at the beginning of the month. The Monthly Deduction for each
date that falls on a Certificate anniversary also includes the
Certificate Fee.
CERTIFICATE FEE
On each Certificate anniversary, the Certificate Fee shown on the
Interest and Charges page will be deducted from the Fixed Account
and the sub-accounts in proportion to the Account Value in each
account. The Certificate Fee is also deducted upon full surrender
of the contract.
FIXED ACCOUNT EXPENSE CHARGE
On each Monthly Date, an expense charge equal to the monthly
equivalent of the annual rate as shown on the Interest and
Charges page is deducted from the Fixed Account.
INTEREST RATES
The Guaranteed Interest Rate for the Fixed Account is shown on
the Interest and Charges page. Interest rates are expressed as
effective annual rates. The rate is compounded daily and is used
to calculate Account Values of the Fixed Account. We may credit
interest in excess of the Guaranteed Interest Rate. Such excess
interest will be at Our sole discretion.
The Account Value allocated to the Fixed Account will be
guaranteed and the rate of interest will be guaranteed for at
least the balance of the Certificate year. We determine interest
rates in accordance with market conditions and other factors. We
may change the rate guaranteed on new allocations at any time.
This may cause the guaranteed interest rate on Account Values at
the beginning of a Certificate year to differ from the guaranteed
rate on values transferred in at a later date. Once We guarantee
an interest rate for an amount in the Fixed Account, We will not
change it until the end of the current guarantee period.
Interest on Indebtedness will be credited on each Certificate
anniversary at the Guaranteed Interest Rate for the Fixed
Account, as shown on the Interest and Charges page.
BASIS OF VALUES
The method used in computing Account Values and reserves in the
Separate Account is in accordance with actuarial procedures that
recognize the variable nature of the Separate Account.
9
<PAGE>
A detailed statement of the method of computing values has been
filed with the Insurance Department of the state in which this
Group Contract was issued for delivery. All Certificate values
are equal to or in excess of the minimum values required and all
comply with the laws of that state.
SEPARATE SEPARATE ACCOUNT
ACCOUNT The assets of the Separate Account will be used to provide values
PROVISIONS and benefits under this Group Contract and any similar policies.
The assets of the Separate Account are owned by Us and cannot be
charged with liabilities which may arise from any other business
the Company may conduct. The assets of the Separate Account are
not part of Our general account. We may transfer to Our general
account any assets of the Separate Account which exceed the
reserves and other contract liabilities of the account. Unless
otherwise permitted by law, the investment policy of the Separate
Account will not be changed without the express or deemed
approval of the state where this Group Contract was issued for
delivery.
INVESTMENT ALLOCATIONS
The Separate Account is divided into several sub-accounts. We use
amounts allocated to a sub-account to buy shares or units of the
investment option shown in the prospectus for that sub-account.
The Initial Payment under a Certificate is initially allocated to
the Fixed Account. Subsequently, the payment will be allocated as
the Owner requested in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of the Certificate.
SUBSTITUTION
We may substitute another underlying investment without consent.
Substitution would occur if We determine that the use of such
underlying investment is no longer possible or if We determine it
is no longer appropriate for the purposes of the Group Contract.
No substitution will be made without notice to the Owner and
without the prior approval of the SEC and the state where this
Group Contract was issued for delivery, if required. Should a
substitution, addition or deletion occur, the Owner will be
allowed to select from the then current sub-accounts and
substitution may be made with respect to both existing payments
and the investment of future payments.
TRANSFERS
The Owner may transfer Account Values among the sub-accounts or
from the sub-accounts into the Fixed Account, upon request. The
value transferred from any sub-account must be at least $250 or
the entire balance, if less. The Account Value remaining in a
sub-account after any transfer must be at least $500. If the
balance remaining in a sub-account as a result of a transfer is
less than $500, we may require the Owner to transfer the entire
balance.
Transfers may be subject to a transfer charge. This charge will
not exceed $25.
Transfers from the Fixed Account to the sub-accounts must occur
within 60 days after each Certificate anniversary. The largest
amount that may be transferred out in each Certificate year is
the greater of the amount transferred in the prior Certificate
year or 20% of the balance in the Fixed Account. A transfer of
all of the Account Value from the Separate Account to the Fixed
Account will not be subject to a transfer charge.
We may modify or terminate the transfer privilege at any time.
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<PAGE>
SEPARATE ACCOUNT EXPENSE CHARGE
On each Valuation Day, an expense charge equal to the daily
equivalent of the annual rate as shown on the Interest and
Charges page is deducted proportionately from the sub-accounts.
REPORTS ANNUAL REPORT
At least once each year, We will send each Owner a report which
shows:
o the current Death Benefit;
o the current Account Value;
o the current Cash Value;
o the Payments paid;
o investment gain/loss;
o any Indebtedness;
o the Cost of Insurance;
o the Expense Charge;
o the current Surrender Value; and
o any other information required by the state in which this
Group Contract was issued for delivery.
ILLUSTRATION OF BENEFITS
During any Certificate year, We will provide the Owner with one
illustration of hypothetical future Account Values and Death
Benefits at any time upon Written Request. We may charge a
reasonable fee for any subsequent illustrations during the same
Certificate year. However, the fee will not be greater than $25.
CERTIFICATE LOANS
LOANS Each Certificate has a Loan Value which is equal to 90% of the
Cash Value (see page 7) as of the date of the loan. Loans must be
at least $250. An Owner may borrow the Loan Value by assigning
this Certificate to Us as security for the loan. The assignment
form must be satisfactory to Us. Loans may be made at any time
while coverage under this Group Contract is in force. We may
defer the granting of a loan for up to 6 months.
The Owner may decide the proportions in which to allocate the
Certificate loan among the sub-accounts of the Separate Account.
If the Owner does not specify the allocation, then the loan will
be allocated among the sub-accounts of the Separate Account and
the Fixed Account in proportion to the Account Value in each
account. The Account Value equal to the portion of the
Certificate loan allocated to a sub-account and the Fixed Account
will be transferred from that sub-account and the Fixed Account
to the Loan Account and the Account Value in that sub-account and
the Fixed Account will be reduced by the amount transferred. If
loan interest is not paid when due, an amount of Account Value
equal to the loan interest will also be transferred.
If on any Certificate anniversary, the Certificate's Indebtedness
exceeds the Account Value in the Loan Account, We will transfer
Account Value equal to the excess Indebtedness from the Fixed
Account and the sub-accounts of the Separate Account to the Loan
Account as security for the excess debt in the same manner as the
original loan.
PREFERRED LOAN
The amount available for a Preferred Loan is the earnings of the
Certificate since its inception.
Earnings equals (A) minus (B) minus (C) minus (D) plus (E); where
(A) is the Account Value;
(B) is total payments made;
(C) is the preferred loan balance;
(D) is accrued loan interest; and
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<PAGE>
(E) is all prior partial withdrawals in excess of earnings.
LOAN INTEREST
Interest on Certificate loans equals the Guaranteed Interest Rate
For the Fixed Account, as shown on the Interest and Charges page,
plus 2%. Interest on Preferred Loans equals the Guaranteed
Interest Rate For the Fixed Account, as shown on the Interest and
Charges page. Interest will accrue daily from the date of the
loan, and is due on each Certificate anniversary. Unpaid interest
will be added to existing Indebtedness, and will accrue interest
at the same rate.
REPAYMENT
While coverage under this Group Contract is in force during an
Insured's lifetime, any loan may be repaid in whole or in part.
When a loan repayment is made, the Account Value in the Loan
Account will be reduced by the loan repayment, and this amount
will be allocated proportionately among the Fixed Account and
sub-accounts of the Separate Account.
WITHDRAWAL WITHDRAWAL
The Owner may withdraw from a Certificate its full Surrender
Value upon Written Request at any time during the lifetime of the
Insured. Upon withdrawal of the full Surrender Value, coverage of
the Insured under this Group Contract will terminate.
The Owner may also make a partial withdrawal from a Certificate.
Partial withdrawals must be at least $250. For any partial
withdrawal after the first in any Certificate year, We may charge
a transaction fee of the lesser of $25 or 2% of the amount of the
partial withdrawal. The Owner may select the sub-accounts from
which to deduct the amount of the partial withdrawal. If the
Owner does not indicate where the funds will be deducted from,
the amount of the partial withdrawal will be deducted on a pro
rata basis from the sub-accounts and the Fixed Account. The
Initial Death Benefit is reduced on the date of the partial
withdrawal in the same proportion that the Account Value was
reduced. If a partial withdrawal less any applicable Withdrawal
Charge, as described below, reduces the Account Value to below
Our current minimum, then the withdrawal request will be treated
as a request to withdraw the full Surrender Value.
We may defer the payment of the withdrawal from the Fixed Account
for up to 6 months.
WITHDRAWAL CHARGE
Unless waived by Us, a Withdrawal Charge will be deducted from
the Account Value in the event of a withdrawal.
For a full withdrawal, the Withdrawal Charge is calculated by
multiplying (B) by (C) and subtracting the product from (A),
where:
(A) is the Initial Payment multiplied by the applicable
percentage rate from the Table of Withdrawal Charges;
(B) is each previous withdrawal charge collected; and
(C) is the Withdrawal Charge percentage in effect at the time of
a full withdrawal divided by the Withdrawal Charge
percentage at the time each withdrawal was made.
For a partial withdrawal, the Withdrawal Charge is calculated by
multiplying the applicable percentage rate from the Table of
Withdrawal Charges by the amount of the partial withdrawal. The
total of the Withdrawal Charges in a Certificate year may not be
greater than the applicable percentage rate from the Table of
Withdrawal Charges multiplied by the portion of the Initial
Payment not previously withdrawn as of the beginning of the
Certificate year.
WAIVER OF WITHDRAWAL CHARGE
We will waive the Withdrawal Charge on that portion of a
withdrawal not exceeding the greater of:
o 10% of the Account Value less any prior partial withdrawals
and Preferred Loans taken
12
<PAGE>
during the Certificate year; or
o the earnings of the Certificate since its inception (see
page 11).
We will also waive the Withdrawal Charge in the event of a
Qualifying Medical Stay. To qualify for this waiver:
o the Insured must have a Qualifying Medical Stay which begins
after the first Certificate year and lasts at least 45 days
during any continuous 60 day period; or
o the Insured's spouse must have a Qualifying Medical Stay
which begins after the first Certificate year and lasts at
least 45 days during any continuous 60 day period; and
o The Owner must mail a Written Request for this waiver,
together with proof, satisfactory to Us, of the stay, within
180 days of initial eligibility.
If the Insured's spouse had a Qualifying Medical Stay within 45
days prior to the Certificate Date, a waiver of the Withdrawal
Charge will not be considered for the Insured's spouse, until the
later of:
o 6 months from the date of the last Qualifying Medical Stay;
or
o the first Certificate anniversary.
Qualifying Medical Stay means: 1) confinement in a Qualifying
Institution; and 2) treatment by a Qualifying Medical
Professional.
Qualifying Institution means a licensed hospital or licensed
skilled or intermediate care nursing facility at which: 1)
medical treatment is available on a daily basis; and 2) daily
medical records are kept on each patient. It does not include: 1)
a facility whose purpose is to provide accommodations, board or
personal care services to individuals who do not need medical or
nursing care; or 2) a place mainly for rest.
A Qualifying Medical Professional is a legally qualified
practitioner of the healing arts who is: 1) acting within the
scope of his or her license; 2) not a resident of the Insured's
household; and 3) not a member of the Owner's immediate family
(children, grandchildren, parents, grandparents, siblings and
their spouses).
Treatment means the rendering of medical care or advice related
to a specific medical condition. Treatment includes diagnosis and
subsequent care. It does not include routine monitoring unless
medically necessary.
TERMINATION TERMINATION OF THE GROUP CONTRACT
This Group Contract will terminate without the right of
reinstatement on the date the coverage ends for the last
remaining Insured covered under this Group Contract.
DISCONTINUANCE OF THE GROUP CONTRACT
This Group Contract will be discontinued if:
o the Contractholder gives us 30 days written notice
requesting that the Group Contract be discontinued; or
o we give the Contractholder 30 days written notice prior to
the date we discontinue the Group Contract; or;
o the coverage on Insureds under this Group Contract is being
transferred to another insurance carrier and the
Contractholder has given us at least 90 days written notice
of discontinuance.
No additional persons will be accepted for insurance after the
date of discontinuance.
13
<PAGE>
If this Group Contract is discontinued, the party who initiated
the discontinuance will send a notice to each Owner of record, at
the Owner's last known address, at least 15 days prior to the
date of discontinuance.
CONTINUATION OF INSUREDS' COVERAGE AFTER DISCONTINUANCE
If this Group Contract is discontinued, any insurance then in
effect will remain in force under the Certificate, provided it is
not cancelled or surrendered by the Owner.
TERMINATION OF AN INSURED'S COVERAGE
An Insured's coverage under the Group Contract will terminate
when one of the following events occur:
o an Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value; or
o the date an Insured's coverage is surrendered for its
Surrender Value; or o the date the Group Contract terminates
or is discontinued, except as provided in the Continuation
of Insureds' Coverage After Discontinuance provision.
14
<PAGE>
ACCELERATED THE RECEIPT OF AN ACCELERATED DEATH BENEFIT MAY BE TAXABLE.
DEATH OWNERS SHOULD CONSULT THEIR PERSONAL TAX OR LEGAL ADVISOR BEFORE
BENEFIT APPLYING FOR THIS BENEFIT.
PROVISIONS
THE DEATH BENEFIT, ACCOUNT VALUE AND LOAN VALUE WILL BE REDUCED
IF AN ACCELERATED DEATH BENEFIT IS PAID.
ACCELERATED DEATH BENEFIT
If, while coverage under this Group Contract is in force, We
receive proof, satisfactory to Us, that the Insured either:
(1) has a Terminal Condition; or
(2) is Chronically Ill;
We will pay a portion of a Certificate's Death Benefit to the
Owner as an Accelerated Death Benefit.
The balance of the Death Benefit is payable upon the Insured's
Death. Only one Accelerated Death Benefit payment is payable
under each Certificate.
DEFINITION OF TERMINAL CONDITION
Terminal Condition means a medical condition which is expected to
result in the Insured's death within 24 months from the date of
the medical certification submitted to Us in connection with the
application for the Accelerated Death Benefit and from which
there is no reasonable prospect of recovery. Such Terminal
Condition must be certified by a physician who meets the
definition of a physician under Section 101(g) of the Internal
Revenue Code.
DEFINITION OF CHRONICALLY ILL
Chronically Ill means any Insured who has been certified by a
licensed health care practitioner within the last 12 months as:
(1) being unable to perform, without substantial assistance from
another individual, at least two activities of daily living
for a period of at least 90 days due to a loss of functional
capacity; or
(2) requiring substantial supervision to protect such individual
from threats to health and safety due to severe cognitive
impairment.
Such licensed health care practitioner must meet the definition
of a licensed health care practitioner under Section 7702B(c) of
the Internal Revenue Code.
ACTIVITIES OF DAILY LIVING
The activities of daily living prescribed in item (1) above are:
o eating
o toileting
o transferring
o bathing
o dressing
o continence.
AMOUNT OF ACCELERATED DEATH BENEFIT
We first calculate the Benefit Base, which equals the Death
Benefit as defined in the DEATH BENEFIT section of this Group
Contract (before subtracting any Indebtedness).
We then calculate the Maximum Available Accelerated Death Benefit
by multiplying the Benefit Base by 90%.
The Owner may elect all or a portion of this Maximum Available
Accelerated Death Benefit. However, the amount elected may not be
less than $10,000, nor greater than $250,000.
15
<PAGE>
Additionally, the Initial Death Benefit for a Certificate
remaining in force must be no less than $10,000.
The Owner will receive less than the amount elected because We:
(1) discount the amount received because it is an early payment;
(2) deduct a processing fee not to exceed $100; and
(3) repay and reduce any Indebtedness by the percentage of Death
Benefit accelerated.
In discounting the amount elected, We will assume that the Death
Benefit would have been paid 24 months after the date the
Accelerated Death Benefit is paid. The discount rate will equal
the greater of:
(1) the current yield on 90 day treasury bills; or
(2) the current maximum statutory adjustable Certificate loan
interest rate based on the greater of:
(a) Moody's Corporate Bond Yield Averages-Monthly Average
Corporates-published by Moody's Investors Services, Inc., or
any successor thereto for the calendar month ending two
months before the date of application for an accelerated
payment; and (b) the Group Contract's Guaranteed Annual
Interest Rate for the Fixed Account rate plus 1%.
No Withdrawal Charge will apply when the Owner receives an
Accelerated Death Benefit.
TERMINAL CONDITION OPTION
This option provides that the Accelerated Death Benefit will be
paid in equal monthly installments for 12 months. For each $1,000
of Accelerated Death Benefit, each payment will be at least
$84.65. This assumes an annual interest rate of 3.5%.
If the Insured dies before all the payments have been made, We
will pay the Beneficiary in one sum. The one sum payment will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If the Owner does not want monthly payments, We will pay the
Accelerated Death Benefit in one sum, upon written request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision.
CHRONICALLY ILL PAYMENT OPTION
This option provides level monthly payments for the number of
years shown in the table that follows.
For each $1,000 of Accelerated Death Benefit, each payment will
be at least the minimum amount shown in the table. The table uses
an annual interest rate of 3.5%; We may use a higher rate.
<TABLE>
<CAPTION>
ATTAINED PAYMENT MINIMUM MONTHLY
AGE OF PERIOD IN PAYMENT FOR EACH
INSURED YEARS $1,000 OF DISCOUNTED BENEFIT
<S> <C> <C>
64 and under 10 $9.83
65-67 8 $11.90
68-70 7 $13.38
71-73 6 $15.35
74-77 5 $18.12
78-81 4 $22.27
82-86 3 $29.19
87 and over 2 $43.05
</TABLE>
If the Insured dies before all the payments have been made, We
will pay the beneficiary in one sum. The one sum We pay will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
16
<PAGE>
If We agree, the Owner may choose a longer payment period than
that shown in the table; if the Owner so chooses, monthly
payments will be reduced so that the present value of the
payments is the same. We will use an interest rate of at least
3.5%.
We reserve the right to set a maximum monthly benefit that We
will pay under this option. If We do so, it will be at least
$5,000.
If the Owner does not want monthly payments, We will pay the
Accelerated Death Benefit in one sum, upon written request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision with the exception of the
period over which the payment will be discounted. The lump sum
payment will be discounted over a period not less than the
Payment Period in Years section of this provision. If the Insured
dies before the end of the discount period, we will recalculate
the Accelerated Benefit based upon the number of years between
the end of the discount period and the date of death. The
Beneficiary will be paid the difference between this recalculated
amount and the amount that was received, minus the processing
fee.
EFFECT ON THE CERTIFICATE
When We pay the Accelerated Death Benefit, We will calculate a
percentage which equals:
(1) the amount the Owner elects to receive (before any
reductions); divided by
(2) the Benefit Base.
We will reduce by that percentage:
(1) the Initial Death Benefit;
(2) the Account Value; and
(3) any Indebtedness.
Any future Monthly Deductions, Cost of Insurance charges, or
Withdrawal Charges will be based on the reduced amount of
insurance.
Once We approve the Owner's claim, We will send a new Certificate
Information page with these changes. The subsequent payment of a
Death Benefit or Maturity Benefit under a Certificate will
constitute full settlement of the obligations of this Group
Contract and of any Certificate issued under this Group Contract.
CONDITIONS
The Owner's right to receive the Accelerated Death Benefit is
subject to the following conditions:
(1) We must receive evidence, satisfactory to Us, of the
Insured's eligibility for this Benefit. Evidence
satisfactory to Us, may include, but is not limited to:
o the records of the Insured's attending physician,
including a prognosis of the Insured;
o all pertinent facts concerning the Insured's health;
and
o a medical examination of the Insured conducted by a
physician chosen by Us and at Our expense. If there is
a difference of opinion as to the prognosis of the
Insured, the opinion of a licensed physician,
acceptable to both Us and the Insured, will control.
(2) The Owner must choose the option in writing in a form that
meets Our needs.
(3) If the Owner has assigned all or a portion of a Certificate,
the Owner must also give Us a signed consent form from the
assignee.
(4) All beneficiaries must consent in writing to the payment of
the Accelerated Death Benefit on the date the Benefit is
requested.
(5) The Owner must send Us the Certificate.
EXCEPTIONS
This Benefit will not be paid if:
(1) the Insured is required by a governmental agency to claim
this Benefit in order to apply for, receive, or continue a
government benefit or entitlement;
17
<PAGE>
(2) the Insured is required by law to use this Benefit to meet
the claims of creditors, whether in bankruptcy or otherwise;
(3) all or part of the Certificate's Death Benefit must be paid
to the Insured's children or spouse or former spouse as part
of a divorce decree, separate maintenance or property
settlement contract; or
(4) the Insured is married and lives in a community property
state, unless the Insured's spouse has given Us signed
written consent.
PAYMENT OF PAYMENT
PROCEEDS The Proceeds of a Certificate issued under this Group Contract
will be subject first to the interest of an assignee, to whom
payment will be made in one sum. We will pay any remaining
Proceeds to the Owner before the Insured's death, and to the
Beneficiary after the Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the Insured's death. Unless otherwise
provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
DELAY OF PAYMENT
We will pay Surrender Values, withdrawals and Certificate loans
allocated to the Separate Account within seven days after We
receive the Owner's Written Request. We will pay death Proceeds
allocated to the Separate Account within seven days, only after
We receive the Owner's Written Request and receive proof,
satisfactory to Us, of the Insured's death. Payment may be
delayed if:
o the New York Stock Exchange is closed on other than
customary weekend and holiday closings or trading on the New
York Stock Exchange is restricted as determined by the SEC;
or
o an emergency exists, as determined by the SEC, as a result
of which disposal of securities is not reasonably
practicable to determine the value of the sub-accounts; or
o the SEC, by order, permits postponement for the protection
of Owners.
PAYMENT OF PAYMENT OF PROCEEDS OPTIONS
PROCEEDS The Proceeds may be applied under one of the following Options.
OPTIONS An Option must be selected by Written Request. The Owner may
select an Option during the Insured's lifetime. If the Owner has
not selected an Option before the Insured's death, the
Beneficiary may choose one. We will not permit surrenders or
partial withdrawals after payments under a proceeds option
involving life contingencies commence.
THE OPTIONS
1. Interest. We will pay interest monthly on Proceeds left on
deposit with Us. We will declare the interest rate each year. It
will never be less than 3-1/2% a year.
2. Fixed Amount. We will pay equal monthly installments, first
payment immediately, until the Proceeds and the interest have
been exhausted. Interest will be credited on unpaid balances at
the rate which We will declare each year. It will never be less
than 3-1/2%, compounded annually.
3. Fixed Period. We will pay equal monthly installments, first
payment immediately, for not more than 25 years. The minimum
amount of each installment may be determined from the OPTION 3
TABLE on page 18. This Table is based on a guaranteed interest
rate of 3-1/2%, compounded annually.
4. Life Income. We will pay equal monthly installments, first
payment immediately, for the lifetime of the payee with or
without a guaranteed period. The minimum amount of each
installment may be determined from the OPTION 4 TABLE on page 18.
This Table is based
18
<PAGE>
on a guaranteed interest rate of 3-1/2%, compounded annually. The
guaranteed period selected may be: (1) 10 years; (2) 15 years; or
(3) 20 years.
5. Other Payment. We will pay the Proceeds in any other manner
that may be mutually agreed upon.
AVAILABILITY
No Option may be selected unless the amount to be applied is more
than $2,000 and will provide an installment payment of at least
$20. Unless We consent, these Options will not be available if
the payee is an assignee, administrator, executor, trustee,
association, partnership or corporation.
ADDITIONAL INTEREST
At our discretion, additional interest may be declared annually
on all Payment Options. This interest will lengthen the period
under Option 2, and increase the installment amounts under
Options 3 and 4.
19
<PAGE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
Number Monthly Number Monthly Number Monthly Number Monthly Number Monthly
of Years Payment of Years Payment of Years Payment of Years Payment of Years Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $84.65 6 $15.35 11 $9.09 16 $6.76 21 $5.56
- -------------------------------------------------------------------------------------------------------------------
2 43.05 7 13.38 12 8.46 17 6.47 22 5.39
- -------------------------------------------------------------------------------------------------------------------
3 29.19 8 11.90 13 7.94 18 6.20 23 5.24
- -------------------------------------------------------------------------------------------------------------------
4 22.27 9 10.75 14 7.49 19 5.97 24 5.09
- -------------------------------------------------------------------------------------------------------------------
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 4 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
MALE FEMALE
- -------------------------------------------------------------------------------------------------------------------
No Guaranteed Guaranteed Guaranteed No Guaranteed Guaranteed Guaranteed
Guaranteed Period Period Period Guaranteed Period Period Period
Age Period 10 Years 15 Years 20 Years Age Period 10 Years 15 Years 20 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.45 $4.41 $4.36 $4.29 50 $4.11 $4.09 $4.07 $4.04
51 4.52 4.47 4.42 4.34 51 4.16 4.15 4.12 4.09
52 4.59 4.55 4.48 4.40 52 4.22 4.20 4.18 4.14
53 4.67 4.62 4.55 4.45 53 4.29 4.27 4.24 4.19
54 4.76 4.70 4.62 4.51 54 4.36 4.33 4.30 4.24
55 4.85 4.78 4.70 4.57 55 4.43 4.40 4.36 4.30
56 4.94 4.87 4.77 4.63 56 4.50 4.47 4.42 4.36
57 5.04 4.96 4.85 4.70 57 4.58 4.54 4.49 4.42
58 5.15 5.06 4.93 4.76 58 4.67 4.62 4.57 4.48
59 5.26 5.16 5.02 5.82 59 4.76 4.71 4.64 4.55
60 5.39 5.26 5.11 4.89 60 4.85 4.80 4.72 4.61
61 5.52 5.38 5.20 4.95 61 4.95 4.89 4.81 4.68
62 5.66 5.50 5.29 5.01 62 5.06 4.99 4.89 4.75
63 5.80 5.62 5.39 5.08 63 5.18 5.10 4.98 4.82
64 5.96 5.75 5.49 5.14 64 5.30 5.21 5.08 4.89
65 6.14 5.89 5.58 5.20 65 5.43 5.32 5.18 4.96
66 6.32 6.03 5.68 5.26 66 5.57 5.45 5.28 5.03
67 6.51 6.18 5.78 5.31 67 5.72 5.58 5.38 5.10
68 6.72 6.33 5.88 5.37 68 5.89 5.72 5.49 5.17
69 6.94 6.49 5.98 5.42 69 6.06 5.86 5.60 5.23
70 7.18 6.65 6.08 5.46 70 6.25 6.01 5.71 5.30
71 7.44 6.82 6.18 5.50 71 6.45 6.18 5.82 5.36
72 7.71 6.99 6.27 5.54 72 6.67 6.34 5.93 5.41
73 7.99 7.16 6.36 5.58 73 6.91 6.52 6.04 5.46
74 8.30 7.33 6.44 5.61 74 7.17 6.70 6.15 5.51
75 8.63 7.51 6.52 5.63 75 7.45 6.89 6.26 5.55
76 8.99 7.68 6.60 5.66 76 7.75 7.08 6.36 5.59
77 9.37 7.86 6.67 5.68 77 8.08 7.28 6.45 5.62
78 9.77 8.03 6.73 5.69 78 8.43 7.48 6.54 5.65
79 10.21 8.19 6.79 5.71 79 8.81 7.68 6.62 5.67
80 10.67 8.36 6.84 5.72 80 9.22 7.88 6.70 5.69
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
NON-TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.1442 0.1259 70 3.0703 1.8585
1 0.0859 0.0701 36 0.1517 0.1342 71 3.4033 2.0584
2 0.0826 0.0667 37 0.1617 0.1442 72 3.7600 2.3037
3 0.0809 0.0651 38 0.1726 0.1551 73 4.1934 2.5976
4 0.0776 0.0642 39 0.1843 0.1667 74 4.6701 2.9361
5 0.0734 0.6254 40 0.1984 0.1809 75 5.1801 3.3143
6 0.0692 0.0609 41 0.2134 0.1959 76 5.7192 3.7239
7 0.0651 0.0592 42 0.2293 0.2109 77 6.2835 4.1631
8 0.0626 0.0584 43 0.2468 0.2259 78 6.8762 4.6390
9 0.0617 0.0576 44 0.2660 0.2409 79 7.5161 5.1666
10 0.0626 0.0567 45 0.2876 0.2576 80 8.2238 5.7673
11 0.0676 0.0584 46 0.3110 0.2751 81 9.0181 6.4590
12 0.0767 0.0609 47 0.3360 0.2943 82 9.9157 7.2573
13 0.0892 0.0642 48 0.3635 0.3143 83 10.9129 8.1594
14 0.1034 0.0684 49 0.3935 0.3368 84 11.9904 9.1556
15 0.1134 0.0717 50 0.4277 0.3618 85 13.1242 10.2354
16 0.1234 0.0751 51 0.4669 0.3894 86 14.3000 11.3917
17 0.1309 0.0776 52 0.5120 0.4211 87 15.5000 12.6232
18 0.1359 0.0801 53 0.5637 0.4561 88 16.7191 13.9315
19 0.1392 0.0826 54 0.6213 0.4920 89 17.9749 15.3273
20 0.1401 0.0842 55 0.6855 0.5303 90 19.2858 16.8225
21 0.1384 0.0859 56 0.7556 0.5687 91 20.6825 18.4527
22 0.1359 0.0867 57 0.8299 0.6063 92 22.2180 20.2807
23 0.1326 0.0884 58 0.9125 0.6438 93 24.0437 22.4383
24 0.1292 0.0901 59 1.0052 0.6864 94 26.5035 25.2231
25 0.1251 0.0917 60 1.1088 0.7364 95 30.2074 29.2496
26 0.1226 0.0942 61 1.2240 0.7982 96 36.3581 35.7221
27 0.1209 0.0959 62 1.3569 0.8750 97 47.2118 46.8683
28 0.1201 0.0984 63 1.5073 0.9693 98 66.2071 66.0943
29 0.1201 0.1017 64 1.6745 1.0754 99 82.5000 81.6667
30 0.1209 0.1042 65 1.8577 1.1898
31 0.1234 0.1076 66 2.0559 1.3084
32 0.1267 0.1109 67 2.2685 1.4296
33 0.1317 0.1151 68 2.4996 1.5550
34 0.1376 0.1201 69 2.7560 1.6946
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.2268 0.1676 70 4.7492 2.4376
1 0.0859 0.0701 36 0.2434 0.1817 71 5.1624 2.6722
2 0.0826 0.0667 37 0.2643 0.1984 72 5.6299 2.9596
3 0.0809 0.0651 38 0.2876 0.2176 73 6.1485 3.3017
4 0.0776 0.0642 39 0.3143 0.2384 74 6.7174 3.6920
5 0.0734 0.0626 40 0.3452 0.2635 75 7.3258 4.1186
6 0.0692 0.0609 41 0.3785 0.2901 76 7.9486 4.5725
7 0.0651 0.0592 42 0.4152 0.3168 77 8.5746 5.0471
8 0.0626 0.0584 43 0.4553 0.3435 78 9.2082 5.5490
9 0.0617 0.0576 44 0.4995 0.3702 79 9.8715 6.0962
10 0.0626 0.0567 45 0.5462 0.3985 80 10.5868 6.7098
11 0.0676 0.0584 46 0.5946 0.4277 81 11.3746 7.4070
12 0.0767 0.0609 47 0.6471 0.4578 82 12.2491 8.2009
13 0.0892 0.0642 48 0.7039 0.4903 83 13.1961 9.1191
14 0.1034 0.0684 49 0.7656 0.5262 84 14.1843 10.1164
15 0.1467 0.0801 50 0.8341 0.5645 85 15.1804 11.1778
16 0.1634 0.0842 51 0.9117 0.6054 86 16.1604 12.2952
17 0.1751 0.0884 52 0.9994 0.6521 87 17.1682 13.4579
18 0.1843 0.0926 53 1.0988 0.7039 88 18.2203 14.6722
19 0.1901 0.0951 54 1.2073 0.7565 89 19.2685 15.9376
20 0.1934 0.0976 55 1.3235 0.8107 90 20.3284 17.3441
21 0.1934 0.0992 56 1.4463 0.8641 91 21.4331 18.8626
22 0.1901 0.1017 57 1.5759 0.9142 92 22.7172 20.5523
23 0.1868 0.1042 58 1.7121 0.9635 93 24.3689 22.5437
24 0.1817 0.1067 59 1.8585 1.0161 94 26.6300 25.2231
25 0.1759 0.1092 60 2.0216 1.0787 95 30.2074 29.2496
26 0.1726 0.1134 61 2.2057 1.1572 96 36.3581 35.7221
27 0.1709 0.1167 62 2.4134 1.2583 97 47.2118 46.8683
28 0.1709 0.1209 63 2.6454 1.3811 98 66.2071 66.0943
29 0.1734 0.1259 64 2.8993 1.5182 99 82.5000 81.6667
30 0.1776 0.1317 65 3.1684 1.6628
31 0.1834 0.1367 66 3.4502 1.8100
32 0.1909 0.1426 67 3.7423 1.9522
33 0.2009 0.1501 68 4.0489 2.0961
34 0.2126 0.1584 69 4.3817 2.2526
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
22
<PAGE>
INTEREST AND CHARGES
Interest Rates
Guaranteed Annual Interest Rate For the Fixed Account [3.50%]
Guaranteed Monthly Equivalent Interest Rate [0.28709%]
Contract Charges
Certificate Fee [$30.00] per year
Cost of Insurance as defined on page 8.
Fixed Account Expense Charge [0.48%] per year
Separate Account Expense Charge [1.65%] per year
Withdrawal Charge on Withdrawal as defined on page 11.
<TABLE>
<CAPTION>
Table of Withdrawal Charges
This table applies to the Initial Payment in the event of a
Withdrawal in the first [7] Certificate years.
Certificate Percentage Certificate Percentage
Year Year
<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 and thereafter 0.00%]
</TABLE>
Mortality Table
1980 Commissioners Standard Ordinary Age Last Birthday Smoker or Non-smoker
A Certificate may end before the Maturity Date if the payments are not
sufficient to continue the coverage issued under this Group Contract to that
date. If current values change, this will also affect the benefits.
23
<PAGE>
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
CONTRACT DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT.
The Death Benefit is payable if the Insured dies while this Group Contract is in
force and before the Certificate's Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Certificate's
Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Contract Charges.
This Group Contract is not eligible for Dividends.
24
<PAGE>
CERTIFICATE INFORMATION
Each Certificate will be issued with the following information.
First Insured [John Doe]
Certificate Number [NV-12345678]
Issue Age/Sex [65] [Male]
Certificate Date [January 1, 1999]
Rating Class [Standard] [Non-Tobacco]
Second Insured [Jane Doe]
Initial Death Benefit [$60,252.00]
Issue Age/Sex] [65] [Female]
Initial Payment [$30,000.00]
Rating Class [Standard] [Non-Tobacco]
Initial Fixed Account
Guaranteed Interest Rate [4.00%]
Additional Agreements
[Last Survivor Death Benefit Agreement]
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Home Office: 175 Berkeley Street, P.O. Box 140, Boston, Massachusetts 02117-0140.
Service Center: 100 Liberty Way, Dover, New Hampshire 03820-5808
</TABLE>
READ THIS INSURANCE CERTIFICATE CAREFULLY
RIGHT TO RETURN
This is a legal contract between You and the Company. If You are not satisfied,
You may return it to Us or Your agent [20] days of its receipt and any payment
will be refunded, less the amount of any partial withdrawals.
Liberty Life Assurance Company of Boston, a stock Company has issued a Modified
Single Payment Variable Life Insurance contract to the Contractholder. We will
pay the benefits provided by the Group Contract, subject to its terms and
conditions, in consideration of Your application for coverage under the Group
Contract and the receipt of Your Initial Payment. The CERTIFICATE GUIDE on the
inside of the front cover shows where the major Certificate provisions can be
found.
This Certificate is evidence of your coverage under the Group Contract. It
contains a summary of the Group Contract. If there is a conflict between this
Certificate and the Group Contract, the provisions of the Group Contract will
govern.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
CERTIFICATE ARE BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, THE
FIXED ACCOUNT EARNINGS AND CERTIFICATE CHARGES. SEPARATE ACCOUNT VALUES ARE
VARIABLE AND MAY INCREASE OR DECREASE. THESE VALUES ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. THE DEATH BENEFIT IS DESCRIBED ON PAGE 3.
Signed for the Company.
/s/ Barry S. Gilvar /s/ Edmund F. Kelly
------------------- -------------------
SECRETARY PRESIDENT
CERTIFICATE DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CERTIFICATE.
The Death Benefit is payable if the Insured dies while this Certificate is in
force and before the Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Certificate charges.
This Certificate is not eligible for Dividends.
<PAGE>
Page
CERTIFICATE ASSIGNMENT......................................................5
GUIDE INTEREST AND CHARGES...........................................21
CERTIFICATE LOANS..............................................11
CERTIFICATE VALUES..............................................6
DEATH BENEFIT...................................................3
DEFINITIONS.....................................................2
GENERAL CERTIFICATE PROVISIONS..................................5
GRACE PERIOD....................................................4
INCONTESTABILITY AND SUICIDE....................................6
MATURITY BENEFIT................................................4
OWNER AND BENEFICIARY...........................................6
PAYMENT OF PROCEEDS............................................15
PAYMENT OF PROCEEDS OPTIONS....................................15
REINSTATEMENT...................................................4
SEPARATE ACCOUNT PROVISIONS.....................................9
PAYMENTS........................................................4
TABLE OF GUARANTEED MONTHLY MAXIMUM
COST OF INSURANCE RATES.....................................19,20
TABLE OF WITHDRAWAL CHARGES....................................21
WITHDRAWAL.....................................................11
ANY ADDITIONAL AGREEMENTS, ENDORSEMENTS
AND A COPY OF THE APPLICATION APPEAR
AFTER PAGE.....................................................21
DEFINITIONS This is what We mean when We use the following words in Your
Certificate:
Accumulation Unit. An accounting unit of measurement which We use
to calculate the value of a sub-account.
Attained Age. The Insured's age on his or her last birthday.
Certificate Date. The date when insurance coverage becomes
effective.
Indebtedness. Any unpaid Certificate loan and unpaid loan
interest.
Loan Account. An account established for amounts transferred from
the sub-accounts or the Fixed Account as security for outstanding
Indebtedness.
Monthly Date. The same day in each month as the Certificate Date.
The day of the month on which the Monthly Deduction is taken from
Your Account Value.
Net Death Benefit. The Death Benefit, less any Indebtedness.
Proceeds. All or part of the amount payable under any provision
of this Certificate.
Written Request. A notice in writing, satisfactory to Us, placed
on file at Our Service Center.
Valuation Day. The day when a sub-account is valued. This occurs
every day We are open and the New York Stock Exchange is open for
trading.
Valuation Period. The time period between the close of business
on successive Valuation Days.
We, Our, Us, The Company. Liberty Life Assurance Company of
Boston.
You, Your, Owner. The Owner of this Certificate, who may be
someone other than the Insured.
2
<PAGE>
DEATH THE BENEFIT
BENEFIT If the Insured dies while this Certificate is in force, we will
pay a Death Benefit to the Beneficiary. The Death Benefit will be
the greater of:
o the Initial Death Benefit shown on the Certificate
Information page; or
o a percentage, shown below, of the Account Value.
The Initial Death Benefit is reduced proportionately for partial
withdrawals (see page 11). We will reduce the Death Benefit by
any Indebtedness. The Death Benefit will be determined on the
date We receive proof, satisfactory to Us, of the Insured's
death. The applicable percentage is based upon the Insured's
Attained Age.
<TABLE>
<CAPTION>
Attained Account Attained Account Attained Account Attained Account
Age Value % Age Value % Age Value % Age Value %
<S> <C> <C> <C> <C> <C> <C> <C>
40 & less 250 51 178 62 126 73 109
41 243 52 171 63 124 74 107
42 236 53 164 64 122 75-90 105
43 229 54 157 65 120 91 104
44 222 55 150 66 119 92 103
45 215 56 146 67 118 93 102
46 209 57 142 68 117 94-99 101
47 203 58 138 69 116 100 100
48 197 59 134 70 115
49 191 60 130 71 113
50 185 61 128 72 111
</TABLE>
GUARANTEED DEATH BENEFIT
The Certificate has a guaranteed Death Benefit equal to the
Initial Death Benefit. In the absence of Indebtedness, this
guaranteed Death Benefit will be in effect until the Maturity
Date. The guaranteed Death Benefit is reduced proportionately for
partial withdrawals (see page 11). We will reduce the guaranteed
Death Benefit by any Indebtedness.
On any Monthly Date when the Surrender Value is not sufficient to
cover the Monthly Deduction and the Certificate has no
Indebtedness, We will waive that insufficiency and waive all
future Monthly Deductions until the Surrender Value is sufficient
to cover the Monthly Deductions.
If the Certificate has Indebtedness and the Surrender Value is
not sufficient to pay the Monthly Deduction or Loan Interest, the
Certificate will enter the Grace Period. To keep the Certificate
in force, an amount at least as large as (A) plus (B) plus (C)
must be remitted, where:
(A) is the amount by which the Monthly Deduction is
insufficient;
(B) is the next three Monthly Deductions; and
(C) is the net loan interest for the next 3 months (net
loan interest is Certificate loan interest charged less
interest credited on the loan balance).
This remittance will be considered a loan repayment, unless
otherwise specified in writing. If the
3
<PAGE>
amount necessary to keep the Certificate in force exceeds the
outstanding Indebtedness, only the Indebtedness is due. Once the
Indebtedness has been repaid, all future Monthly Deductions will
be waived until the Surrender Value is sufficient to cover the
Monthly Deductions.
INTEREST ON DEATH BENEFIT
We will pay interest on any Death Benefit payable in one sum. The
interest rate will never be less than 3-1/2% per year from the
date of death to the date of payment, or the rate required by
applicable state law, if greater.
MATURITY MATURITY BENEFIT
BENEFIT We will pay a Maturity Benefit to You if the Insured is living
and coverage under the Group Contract is in force on the Maturity
Date, which is the Certificate anniversary on or following the
Insured's 100th birthday. The amount of the Maturity Benefit is
equal to the Surrender Value.
PAYMENTS INITIAL PAYMENT
The Initial Payment is shown on the Certificate Information page
and is payable on or before delivery of the Certificate. The
payment is payable at Our Service Center or to an authorized
agent. A copy of Your application, signed by Us or Our authorized
agent, is Your receipt for Your Initial Payment.
SUBSEQUENT PAYMENTS
We will accept additional payments if:
o the payment is required to keep the Certificate in force; or
o the payment is at least $1,000 and the payment will not
result in the disqualification of coverage under the Group
Contract as life insurance under the Internal Revenue Code
as it now exists or may later be amended.
If We accept an additional payment, evidence of insurability
satisfactory to Us will be required if an increase in the Death
Benefit occurs as a result of such payment.
PAYMENT ALLOCATION
The Initial Payment will be allocated to the Fixed Account on the
date We receive the payment.
The Account Value of the Fixed Account will then be allocated to
the sub-accounts, in whole percentages, according to the payment
allocation specified in the application. We may delay such
allocation until after the expiration of the Right to Return
period stated on the front page of Your Certificate.
GRACE PERIOD
If the Certificate has Indebtedness and the Surrender Value is
insufficient to pay the Monthly Deduction or Loan Interest, a
Grace Period of 61 days will be permitted for a payment
sufficient to continue the Certificate in force. We will send a
notice to You at Your last known address requesting the amount
due. If the required amount is not received within 61 days, the
Certificate will terminate without value. If the Insured dies
during a Grace Period, the Death Benefit will be reduced by any
Monthly Deductions or Loan Interest due but not paid.
REINSTATEMENT
This Certificate may be reinstated within five years of the end
of the Grace Period and prior to the Maturity Date if We receive:
o Your Written Request to reinstate the Certificate;
o evidence of insurability satisfactory to Us; and
o a payment equal to at least three Monthly Deductions
following the effective date of reinstatement.
If the Indebtedness is not repaid, such Indebtedness will also be
reinstated.
4
<PAGE>
LIFE LIFE INSURANCE QUALIFICATION
INSURANCE Coverage under the Group Contract is intended to qualify for
QUALI- treatment as life insurance under the Internal Revenue Code as it
FICATION now exists or may later be amended. We reserve the right to amend
the Group Contract and this Certificate to comply with future
changes in the Code and its Regulations. Any amendments will be
made by an agreement approved by the proper regulatory
authorities. We will promptly provide You with a copy of any
amendment.
We reserve the right to refuse premium payments and to return
those premium payments, in whole or in part, if accepting them
would disqualify coverage under the Group Contract from favorable
tax treatment under the Code. A premium payment will not be
refused if the payment will prevent the Certificate from
terminating.
GENERAL YOUR CERTIFICATE
CERTIFICATE Your Certificate is issued in consideration of your application
PROVISIONS for coverage under the Group Contract and the Initial Payment.
This Certificate contains a summary of the terms of the Group
Contract. All statements made by the Contractholder, or by an
Owner, or an Insured are representations and not warranties. No
statement made by or on behalf of an Insured will be used by us
to rescind the coverage under the Group Contract, or defend a
claim under it, unless a copy of the instrument containing such
statement has been furnished to an Insured, if living, otherwise
to the Beneficiary of the coverage being contested.
Any additional amendments to the Certificate, summarizing changes
to the Group Contract are shown on the Certificate Information
page. These amendments are attached to and made a part of this
Certificate.
WAIVER
Only an officer of the Company can waive or change any provision
of the Group Contract or a Certificate issued under the Group
Contract, and only by means of a written instrument.
No agent may change or waive any provision of the Group Contract
or a Certificate issued under the Group Contract.
We may modify the terms and conditions of the Group Contract to
conform to any new law or regulation affecting the Group Contract
or a Certificate issued under the Group Contract. Any change to
the Group Contract or any Certificate agreed to between the
Contractholder and us will not prejudice the rights of any
individual covered under the Group Contract on the effective date
of the change.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, any Proceeds
will be adjusted to that amount which the payments paid would
have purchased at the correct age and sex. Age refers to the
Insured's age last birthday on the Certificate Date.
ASSIGNMENT
Your Certificate may be assigned. We will not be on notice of any
assignment until a duplicate of the original assignment is filed
at Our Service Center. We assume no responsibility for the
validity or effect of any assignment, and may rely solely on the
assignee's statement of interest.
CERTIFICATE ANNIVERSARY
Certificate years and anniversaries will be computed from the
Certificate Date.
COMPLIANCE WITH LAW
If any provision of this Certificate is in conflict with any
applicable law, it is hereby amended to comply with the minimum
requirements of such law.
5
<PAGE>
OWNER AND OWNER
BENEFICIARY The Owner is as named in the application on the Certificate Date,
and may be changed from time to time. Unless otherwise provided,
the ownership rights of an individual who dies before the Insured
will belong to the surviving joint owner, or if no joint owner,
to the executors or administrators of that individual's estate.
The ownership rights of a corporation, partnership or fiduciary
will belong to its successors or assigns.
During the Insured's lifetime, the rights and privileges stated
in this Certificate may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date, and may be changed from time to time. The interest of any
Beneficiary who dies before the Insured will terminate at the
death of that Beneficiary.
If no Beneficiary designation is in effect at the Insured's
death, or if there is no designated Beneficiary then living, You
will be the Beneficiary. However, if the Insured was the Owner,
the executors or administrators of the Insured's estate will be
the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
You may change the Owner or any Beneficiary by Written Request
during the Insured's lifetime. The change will take effect as of
the date the request is signed after We acknowledge receipt in
writing, whether or not You or the Insured is living at the time
of acknowledgment. The change will be subject to any assignment,
and to any payment made or action taken by Us before
acknowledgment.
INCONTEST- INCONTESTABILITY AFTER TWO YEARS
ABILITY AND In the absence of fraud, an Insured's coverage under the Group
SUICIDE Contract will be incontestable after it has been in force during
the Insured's lifetime;
o with respect to the Initial Death Benefit, for two years
from the Certificate Date; and
o with respect to each increase in the Initial Death Benefit,
for two years from the effective date of that increase.
SUICIDE WITHIN TWO YEARS
If the Insured dies by suicide within two years from the
Certificate Date, while sane or insane, the amount payable under
the Group Contract will be limited to the greater of the Account
Value less Indebtedness or the minimum value required by the
state where this Certificate was issued for delivery.
CERTIFICATE ACCOUNT VALUE
VALUES Your Account Value on the Certificate Date is equal to the
Initial Payment less the Monthly Deduction for the first
Certificate month.
On each Monthly Date, Your Account Value equals:
o the sum of the value of Your Accumulation Units in the
sub-accounts; plus
o Your Account Value in the Fixed Account; plus
o the value of Your Loan Account, if any; minus
o the Monthly Deduction.
On each Valuation Day, other than a Monthly Date, Your Account
Value equals:
o the sum of the value of Your Accumulation Units in the
sub-accounts; plus
o Your Account Value in the Fixed Account; plus
o the value of Your Loan Account, if any.
6
<PAGE>
CASH VALUE
A Withdrawal Charge will be subtracted from the Account Value to
determine the Cash Value. The Withdrawal Charges are shown on the
Interest and Charges page.
SURRENDER VALUE
Your Surrender Value is equal to Your Cash Value, minus the
Certificate Fee, and minus any Indebtedness.
ACCOUNT VALUE IN FIXED ACCOUNT
The Account Value in the Fixed Account on the Certificate Date is
equal to the Initial Payment less the Monthly Deduction for the
first Certificate month.
On each Monthly Date, the Account Value in the Fixed Account is
equal to:
o the Account Value in the Fixed Account on the preceding
Monthly Date with one month's interest; plus
o the Account Values transferred to the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o the Account Values transferred from the Fixed Account since
the preceding Monthly Date and interest from the date the
Account Value is transferred to the Monthly Date; minus
o all withdrawals from the Fixed Account since the preceding
Monthly Date plus interest from the date of the withdrawal
to the Monthly Date; minus
o the portion of the Monthly Deduction allocated to the
Account Value in the Fixed Account, to cover the Certificate
month following the Monthly Date.
On any date other than a Monthly Date, the Account Value will be
calculated on a consistent basis.
SUB-ACCOUNT VALUES
Amounts allocated to sub-accounts are applied to provide
Accumulation Units in each sub-account. An Accumulation Unit is
used to calculate the value of a sub-account. The number of
Accumulation Units credited to each sub-account is determined by
dividing the amount allocated to a sub-account by the dollar
value of one Accumulation Unit for such sub-account. The number
of Your Accumulation Units is not affected by any subsequent
change in the value of the units. The Accumulation Unit values in
each sub-account may increase or decrease daily.
SUB-ACCOUNT ACCUMULATION UNIT VALUE
The Accumulation Unit value for each sub-account will vary to
reflect the investment experience of the applicable sub-account
and will be determined on each Valuation Day by multiplying the
Accumulation Unit value of the particular sub-account on the
preceding Valuation Day by a net investment factor for that
sub-account for the Valuation Period then ended. The net
investment factor for each sub-account is equal to the net asset
value per share of the corresponding investment at the end of the
Valuation Period (plus the per share amount of any dividend or
capital gain distributions paid by that investment in the
Valuation Period then ended) divided by the net asset value per
share of the corresponding investment at the beginning of the
Valuation Period, less the Separate Account Expense Charge.
While We are not currently making a provision for current taxes,
any new taxes or increase in taxes attributable to the operations
of the Separate Account, We reserve the right to deduct such a
charge from the Accumulation Unit value.
SUB-ACCOUNT ACCUMULATION VALUE
Your accumulation value in any sub-account equals:
o the number of Your Accumulation Units in that sub-account on
the Valuation Day;
o multiplied by that sub-account's Accumulation Unit value on
the Valuation Day.
7
<PAGE>
EMERGENCY PROCEDURE
With the exception of weekends or holidays, if a national stock
exchange is closed, or trading is restricted due to an existing
emergency as defined by the Securities and Exchange Commission
(SEC) so that We cannot value the sub-accounts, or as otherwise
ordered by the SEC, We may postpone all procedures which require
valuation of the sub-accounts until valuation is possible. Any
provision of this Certificate which specifies a Valuation Day
will be superseded by the emergency procedure.
COST OF INSURANCE
The Cost of Insurance is determined on the Monthly Date and is
computed as follows:
o Divide the Death Benefit on the first day of the Certificate
month by 1 plus the Guaranteed Monthly Equivalent Interest
Rate shown on the Interest and Charges page;
o Reduce the result by the Account Value on that day before
computing the Monthly Deduction for the Cost of Insurance;
and
o Multiply the difference by the Cost of Insurance Rate for
that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is the rate applied to the insurance
under this Certificate to determine the Cost of Insurance. It is
based on the Attained Age, sex and rating classification of the
Insured. The Cost of Insurance Rate will not be greater than the
guaranteed rates shown in the Table of Guaranteed Monthly Maximum
Cost of Insurance Rates (see pages 18 and 19).
MONTHLY DEDUCTION
A Monthly Deduction is made for the Cost of Insurance,
Certificate Fee, the Expense Charge on the Fixed Account and the
cost of any Additional Benefit Agreements. The Monthly Deduction
for a Certificate month will be calculated by adding:
o the Certificate Fee, if due;
o the Expense Charge on the Fixed Account;
o the Cost of Insurance for the Certificate month; and
o the cost for the Certificate month of any Additional
Benefits.
The Expense Charge on the Fixed Account will be deducted from
Your Fixed Account balance. The remainder of the Monthly
Deduction for a Certificate month will be allocated among the
Fixed Account and the sub-accounts of the Separate Account in
proportion to the Account Value in each account. When determining
these proportions, the Account Values are used net of any
Indebtedness at the beginning of the month. The Monthly Deduction
for each date that falls on a Certificate anniversary also
includes the Certificate Fee.
CERTIFICATE FEE
On each Certificate anniversary, the Certificate Fee shown on the
Interest and Charges page will be deducted from the Fixed Account
and the sub-accounts in proportion to the Account Value in each
account. The Certificate Fee is also deducted upon full surrender
of the Certificate.
FIXED ACCOUNT EXPENSE CHARGE
On each Monthly Date, an expense charge equal to the monthly
equivalent of the annual rate as shown on the Interest and
Charges page is deducted from the Fixed Account.
INTEREST RATES
The Guaranteed Interest Rate for the Fixed Account is shown on
the Interest and Charges page. Interest rates are expressed as
effective annual rates. The rate is compounded daily and is used
to calculate Account Values of the Fixed Account. We may credit
interest in excess of the Guaranteed Interest Rate. Such excess
interest will be at Our sole discretion.
8
<PAGE>
The Account Value allocated to the Fixed Account will be
guaranteed and the rate of interest will be guaranteed for at
least the balance of the Certificate year. We determine interest
rates in accordance with market conditions and other factors. We
may change the rate guaranteed on new allocations at any time.
This may cause the guaranteed interest rate on Account Values at
the beginning of a Certificate year to differ from the guaranteed
rate on values transferred in at a later date. Once We guarantee
an interest rate for an amount in the Fixed Account, We will not
change it until the end of the current guarantee period.
Interest on Indebtedness will be credited on each Certificate
anniversary at the Guaranteed Interest Rate for the Fixed
Account, as shown on the Interest and Charges page.
BASIS OF VALUES
The method used in computing Account Values and reserves in the
Separate Account is in accordance with actuarial procedures that
recognize the variable nature of the Separate Account. A detailed
statement of the method of computing values has been filed with
the Insurance Department of the state in which the Group Contract
was issued for delivery. All Certificate values are equal to or
in excess of the minimum values required and all comply with the
laws of that state.
SEPARATE SEPARATE ACCOUNT
ACCOUNT The assets of the Separate Account will be used to provide values
PROVISIONS and benefits under this Certificate and any similar policies. The
assets of the Separate Account are owned by Us and cannot be
charged with liabilities which may arise from any other business
the Company may conduct. The assets of the Separate Account are
not part of Our general account. We may transfer to Our general
account any assets of the Separate Account which exceed the
reserves and other Certificate liabilities of the account. Unless
otherwise permitted by law, the investment policy of the Separate
Account will not be changed without the express or deemed
approval of the state where this Certificate was issued for
delivery.
9
<PAGE>
INVESTMENT ALLOCATIONS
The Separate Account is divided into several sub-accounts. We use
amounts allocated to a sub-account to buy shares or units of the
investment option shown in the prospectus for that sub-account.
The Initial Payment is initially allocated to the Fixed Account.
Subsequently, the payment will be allocated as You requested in
the application. We may delay such allocation until after the
expiration of the Right to Return period stated on the front page
of Your Certificate.
SUBSTITUTION
We may substitute another underlying investment without Your
consent. Substitution would occur if We determine that the use of
such underlying investment is no longer possible or if We
determine it is no longer appropriate for the purposes of the
Certificate. No substitution will be made without notice to You
and without the prior approval of the SEC and the state where
this Certificate was issued for delivery, if required. Should a
substitution, addition or deletion occur, You will be allowed to
select from the then current sub-accounts and substitution may be
made with respect to both existing payments and the investment of
future payments.
TRANSFERS
You may transfer Account Values among the sub-accounts or from
the sub-accounts into the Fixed Account, upon request. The value
transferred from any sub-account must be at least $250 or the
entire balance, if less. The Account Value remaining in a
sub-account after any transfer must be at least $500. If the
balance remaining in a sub-account as a result of a transfer is
less than $500, we may require You to transfer the entire
balance.
Transfers may be subject to a transfer charge. This charge will
not exceed $25.
Transfers from the Fixed Account to the sub-accounts must occur
within 60 days after each Certificate anniversary. The largest
amount that may be transferred out in each Certificate year is
the greater of the amount transferred in the prior Certificate
year or 20% of the balance in the Fixed Account. A transfer of
all of the Account Value from the Separate Account to the Fixed
Account will not be subject to a transfer charge.
We may modify or terminate the transfer privilege at any time.
SEPARATE ACCOUNT EXPENSE CHARGE
On each Valuation Day, an expense charge equal to the daily
equivalent of the annual rate as shown on the Interest and
Charges page is deducted proportionately from the sub-accounts.
REPORTS ANNUAL REPORT
At least once each year, We will send You a report which shows:
o the current Death Benefit;
o the current Account Value;
o the current Cash Value;
o the Payments paid;
o investment gain/loss;
o any Indebtedness;
o the Cost of Insurance;
o the Expense Charge;
o the current Surrender Value; and
o any other information required by the state in which the
Group Contract was issued for delivery.
ILLUSTRATION OF BENEFITS
During any Certificate year, We will provide You with one
illustration of hypothetical future
10
<PAGE>
Account Values and Death Benefits at any time upon Written
Request. We may charge a reasonable fee for any subsequent
illustrations during the same Certificate year. However, the fee
will not be greater than $25.
CERTIFICATE LOANS
LOANS Your Certificate has a Loan Value which is equal to 90% of the
Cash Value (see page 6) as of the date of the loan. Loans must be
at least $250. You may borrow the Loan Value by assigning this
Certificate to Us as security for the loan. The assignment form
must be satisfactory to Us. Loans may be made at any time while
an Insured is covered under the Group Contract. We may defer the
granting of a loan for up to 6 months.
You may decide the proportions in which to allocate the
Certificate loan among the sub-accounts of the Separate Account.
If You do not specify the allocation, then the Certificate loan
will be allocated among the sub-accounts of the Separate Account
and the Fixed Account in proportion to the Account Value in each
account. The Account Value equal to the portion of the
Certificate loan allocated to a sub-account and the Fixed Account
will be transferred from that sub-account and the Fixed Account
to the Loan Account and the Account Value in that sub-account and
the Fixed Account will be reduced by the amount transferred. If
loan interest is not paid when due, an amount of Account Value
equal to the loan interest will also be transferred.
If on any Certificate anniversary, the Certificate's Indebtedness
exceeds the Account Value in the Loan Account, We will transfer
Account Value equal to the excess Indebtedness from the Fixed
Account and the sub-accounts of the Separate Account to the Loan
Account as security for the excess debt in the same manner as the
original loan.
PREFERRED LOAN
The amount available for a Preferred Loan is the earnings of the
Certificate since its inception.
Earnings equals (A) minus (B) minus (C) minus (D) plus (E); where
(A) is the Account Value;
(B) is total payments made;
(C) is the preferred loan balance;
(D) is accrued loan interest; and
(E) is all prior partial withdrawals in excess of earnings.
LOAN INTEREST
Interest on Certificate loans equals the Guaranteed Interest Rate
For the Fixed Account, as shown on the Interest and Charges page,
plus 2%. Interest on Preferred Loans equals the Guaranteed
Interest Rate For the Fixed Account, as shown on the Interest and
Charges page. Interest will accrue daily from the date of the
loan, and is due on each Certificate anniversary. Unpaid interest
will be added to existing Indebtedness, and will accrue interest
at the same rate.
REPAYMENT
While this Certificate is in force during the Insured's lifetime,
any loan may be repaid in whole or in part. When a loan repayment
is made, the Account Value in the Loan Account will be reduced by
the loan repayment, and this amount will be allocated
proportionately among the Fixed Account and sub-accounts of the
Separate Account.
WITHDRAWAL WITHDRAWAL
You may withdraw from this Certificate its full Surrender Value
upon Written Request at any time during the lifetime of the
Insured and while an Insured is covered under the Group Contract.
Upon withdrawal of the full Surrender Value, this Certificate
will terminate.
You may also make a partial withdrawal under this Certificate.
Partial withdrawals must be at least $250. For any partial
withdrawal after the first in any Certificate year, We may charge
a transaction fee of the lesser of $25 or 2% of the amount of the
partial withdrawal. You may select the sub-accounts from which to
deduct the amount of the partial withdrawal. If You do not
11
<PAGE>
indicate where the funds will be deducted from, the amount of the
partial withdrawal will be deducted on a pro rata basis from the
sub-accounts and the Fixed Account. The Initial Death Benefit is
reduced on the date of the partial withdrawal in the same
proportion that the Account Value was reduced. If a partial
withdrawal less any applicable Withdrawal Charge, as described
below, reduces the Account Value to below Our current minimum,
then the withdrawal request will be treated as a request to
withdraw the full Surrender Value.
We may defer the payment of Your withdrawal from the Fixed
Account for up to 6 months.
WITHDRAWAL CHARGE
Unless waived by Us, a Withdrawal Charge will be deducted from
the Account Value in the event of a withdrawal.
For a full withdrawal, the Withdrawal Charge is calculated by
multiplying (B) by (C) and subtracting the product from (A),
where:
(A) is the Initial Payment multiplied by the applicable
percentage rate from the Table of Withdrawal Charges;
(B) is each previous withdrawal charge collected; and
(C) is the Withdrawal Charge percentage in effect at the time of
a full withdrawal divided by the Withdrawal Charge
percentage at the time each withdrawal was made.
For a partial withdrawal, the Withdrawal Charge is calculated by
multiplying the applicable percentage rate from the Table of
Withdrawal Charges by the amount of the partial withdrawal. The
total of the Withdrawal Charges in a Certificate year may not be
greater than the applicable percentage rate from the Table of
Withdrawal Charges multiplied by the portion of the Initial
Payment not previously withdrawn as of the beginning of the
Certificate year.
WAIVER OF WITHDRAWAL CHARGE
We will waive the Withdrawal Charge on that portion of a
withdrawal not exceeding the greater of:
o 10% of the Account Value less any prior partial withdrawals
and Preferred Loans taken during the Certificate year; or
o the earnings of the Certificate since its inception (see
page 10).
We will also waive the Withdrawal Charge in the event of a
Qualifying Medical Stay. To qualify for this waiver:
o the Insured must have a Qualifying Medical Stay which begins
after the first Certificate year and lasts at least 45 days
during any continuous 60 day period; or
o the Insured's spouse must have a Qualifying Medical Stay
which begins after the first Certificate year and lasts at
least 45 days during any continuous 60 day period; and
o You must mail Your Written Request for this waiver, together
with proof, satisfactory to Us, of the stay, within 180 days
of initial eligibility.
If the Insured's spouse had a Qualifying Medical Stay within 45
days prior to the Certificate Date, a waiver of the Withdrawal
Charge will not be considered for the Insured's spouse, until the
later of:
o 6 months from the date of the last Qualifying Medical Stay;
or
o the first Certificate anniversary.
Qualifying Medical Stay means: 1) confinement in a Qualifying
Institution; and 2) treatment by a Qualifying Medical
Professional.
Qualifying Institution means a licensed hospital or licensed
skilled or intermediate care nursing
12
<PAGE>
facility at which: 1) medical treatment is available on a daily
basis; and 2) daily medical records are kept on each patient. It
does not include: 1) a facility whose purpose is to provide
accommodations, board or personal care services to individuals
who do not need medical or nursing care; or 2) a place mainly for
rest.
A Qualifying Medical Professional is a legally qualified
practitioner of the healing arts who is: 1) acting within the
scope of his or her license; 2) not a resident of Your household;
and 3) not a member of Your immediate family (children,
grandchildren, parents, grandparents, siblings and their
spouses).
Treatment means the rendering of medical care or advice related
to a specific medical condition. Treatment includes diagnosis and
subsequent care. It does not include routine monitoring unless
medically necessary.
ACCELERATED THE RECEIPT OF AN ACCELERATED DEATH BENEFIT MAY BE TAXABLE. YOU
DEATH SHOULD CONSULT YOUR PERSONAL TAX OR LEGAL ADVISOR BEFORE APPLYING
BENEFIT FOR THIS BENEFIT.
PROVISIONS
THE DEATH BENEFIT, ACCOUNT VALUE AND LOAN VALUE WILL BE REDUCED
IF AN ACCELERATED DEATH BENEFIT IS PAID.
ACCELERATED DEATH BENEFIT
If, while this Certificate is in force, We receive proof,
satisfactory to Us, that the Insured either:
(1) has a Terminal Condition; or
(2) is Chronically Ill;
We will pay a portion of the Certificate's Death Benefit to You
as an Accelerated Death Benefit.
The balance of the Death Benefit is payable upon the Insured's
Death. Only one Accelerated Death Benefit payment is payable
under this Certificate.
DEFINITION OF TERMINAL CONDITION
Terminal Condition means a medical condition which is expected to
result in the Insured's death within 24 months from the date of
the medical certification submitted to Us in connection with the
application for the Accelerated Death Benefit and from which
there is no reasonable prospect of recovery. Such Terminal
Condition must be certified by a physician who meets the
definition of a physician under Section 101(g) of the Internal
Revenue Code.
DEFINITION OF CHRONICALLY ILL
Chronically Ill means any Insured who has been certified by a
licensed health care practitioner within the last 12 months as:
(1) being unable to perform, without substantial assistance from
another individual, at least two activities of daily living
for a period of at least 90 days due to a loss of functional
capacity; or
(2) requiring substantial supervision to protect such individual
from threats to health and safety due to severe cognitive
impairment.
Such licensed health care practitioner must meet the definition
of a licensed health care practitioner under Section 7702B(c) of
the Internal Revenue Code.
ACTIVITIES OF DAILY LIVING
The activities of daily living prescribed in item (1) above are:
o eating
o toileting
o transferring
o bathing
o dressing
o continence
13
<PAGE>
AMOUNT OF ACCELERATED DEATH BENEFIT
We first calculate the Benefit Base, which equals the Death
Benefit as defined in the DEATH BENEFIT section of the
Certificate (before subtracting any Indebtedness).
We then calculate the Maximum Available Accelerated Death Benefit
by multiplying the Benefit Base by 90%.
You may elect all or a portion of this Maximum Available
Accelerated Death Benefit. However, the amount elected may not be
less than $10,000, nor greater than $250,000. Additionally, the
Initial Death Benefit for the Certificate remaining in force must
be no less than $10,000.
You will receive less than the amount You elect because We:
(1) discount the amount You receive because it is an early
payment;
(2) deduct a processing fee, not to exceed $100; and
(3) repay and reduce any Indebtedness by the percentage of Death
Benefit accelerated.
In discounting the amount You elect, We will assume that the
Death Benefit would have been paid 24 months after the date the
Accelerated Death Benefit is paid. The discount rate will equal
the greater of:
(1) the current yield on 90 day treasury bills; or
(2) the current maximum statutory adjustable Certificate loan
interest rate based on the greater of:
(a) Moody's Corporate Bond Yield Averages-Monthly Average
Corporates-published by Moody's Investors Services, Inc., or
any successor thereto for the calendar month ending two
months before the date of application for an accelerated
payment; and (b) the Certificate's Guaranteed Annual
Interest Rate for the Fixed Account rate plus 1%.
No Withdrawal Charge will apply when You receive an Accelerated
Death Benefit.
TERMINAL CONDITION OPTION
This option provides that the Accelerated Death Benefit will be
paid to You in equal monthly installments for 12 months. For each
$1,000 of Accelerated Death Benefit, each payment will be at
least $84.65. This assumes an annual interest rate of 3.5%.
If the Insured dies before all the payments have been made, We
will pay the Beneficiary in one sum. The one sum payment will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If You do not want monthly payments, We will pay You the
Accelerated Death Benefit in one sum, upon Written Request. Such
payment will be calculated described in the Amount of Accelerated
Death Benefit provision.
CHRONICALLY ILL PAYMENT OPTION
This option provides level monthly payments for the number of
years shown in the table that follows. For each $1,000 of
Accelerated Death Benefit, each payment will be at least the
minimum amount shown in the table. The table uses an annual
interest rate of 3.5%; We may use a higher rate.
<TABLE>
<CAPTION>
ATTAINED PAYMENT MINIMUM MONTHLY
AGE OF PERIOD IN PAYMENT FOR EACH
INSURED YEARS $1,000 OF DISCOUNTED BENEFIT
<S> <C> <C>
64 and under 10 $9.83
65-67 8 $11.90
68-70 7 $13.38
71-73 6 $15.35
74-77 5 $18.12
78-81 4 $22.27
82-86 3 $29.19
87 and over 2 $43.05
</TABLE>
14
<PAGE>
If the Insured dies before all the payments have been made, We
will pay the beneficiary in one sum. The one sum We pay will be
the present value of the payments that remain. We will compute
the value based on the interest rate We used to determine those
payments.
If We agree, You may choose a longer payment period than that
shown in the table; if You do, monthly payments will be reduced
so that the present value of the payments is the same. We will
use an interest rate of at least 3.5%.
We reserve the right to set a maximum monthly benefit that We
will pay under this option. If We do so, it will be at least
$5,000.
If You do not want monthly payments, We will pay You the
Accelerated Death Benefit in one sum, upon Written Request. Such
payment will be calculated as described in the Amount of
Accelerated Death Benefit provision with the exception of the
period over which the payment will be discounted. The lump sum
payment will be discounted over a period not less than the
Payment Period in Years section of this provision. If the Insured
dies before the end of the discount period, we will recalculate
the Accelerated Benefit based upon the number of years between
the end of the discount period and the date of death. The
Beneficiary will be paid the difference between this recalculated
amount and the amount that was received, minus the processing
fee.
EFFECT ON THIS CERTIFICATE
When We pay the Accelerated Death Benefit, We will calculate a
percentage which equals:
(1) the amount You elect to receive (before any reductions);
divided by
(2) the Benefit Base.
We will reduce by that percentage:
(1) the Initial Death Benefit;
(2) the Account Value; and
(3) any Indebtedness.
Any future Monthly Deductions, Cost of Insurance charges, or
Withdrawal Charges will be based on the reduced amount of
insurance.
Once We approve Your claim, We will send You a new Certificate
Information page with these changes. The subsequent payment of a
Death Benefit or Maturity Benefit of this Certificate will
constitute full settlement of the obligations of the Group
Contract and of this Certificate.
CONDITIONS
Your right to receive the Accelerated Death Benefit is subject to
the following conditions:
(1) We must receive evidence, satisfactory to Us, of the
Insured's eligibility for this Benefit. Evidence
satisfactory to Us, may include, but is not limited to:
o the records of the Insured's attending physician,
including a prognosis of the Insured;
o all pertinent facts concerning the Insured's health;
and
o a medical examination of the Insured conducted by a
physician chosen by Us and at Our expense. If there is
a difference of opinion as to the prognosis of the
Insured, the opinion of a licensed physician,
acceptable to both Us and the Insured, will control.
(2) You must choose the option in writing in a form that meets
Our needs.
(3) If You have assigned all or a portion of this Certificate,
You must also give Us a signed consent form from the
assignee.
(4) All beneficiaries must consent in writing to the payment of
the Accelerated Death Benefit on the date the Benefit is
requested.
(5) You must send Us the Certificate.
15
<PAGE>
EXCEPTIONS
This Benefit will not be paid if:
(1) the Insured is required by a governmental agency to claim
this Benefit in order to apply for, receive, or continue a
government benefit or entitlement;
(2) the Insured is required by law to use this Benefit to meet
the claims of creditors, whether in bankruptcy or otherwise;
(3) all or part of the Certificate's Death Benefit must be paid
to the Insured's children or spouse or former spouse as part
of a divorce decree, separate maintenance or property
settlement Certificate; or
(4) the Insured is married and lives in a community property
state, unless the Insured's spouse has given Us signed
written consent.
TERMINATION TERMINATION OF AN INSURED'S COVERAGE
An Insured's coverage under the Group Contract will terminate
when one of the following events occur:
o an Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value;
o the date an Insured's coverage is surrendered for its
Surrender Value;
o the date the Group Contract terminates or is discontinued,
except as provided in the Continuation of Insureds' Coverage
After Discontinuance provision.
CONTINUATION OF INSUREDS' COVERAGE AFTER DISCONTINUANCE
If the Group Contract is discontinued, any insurance then in
effect will remain in force under this Certificate, provided it
is not cancelled or surrendered by the Owner.
PAYMENT OF PAYMENT
PROCEEDS The Proceeds of this Certificate will be subject first to the
interest of an assignee, to whom payment will be made in one sum.
We will pay any remaining Proceeds to You before the Insured's
death, and to the Beneficiary after the Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the Insured's death. Unless otherwise
provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
DELAY OF PAYMENT
We will pay Surrender Values, withdrawals and Certificate loans
allocated to the Separate Account within seven days after We
receive Your Written Request. We will pay death Proceeds
allocated to the Separate Account within seven days, only after
We receive Your Written Request and receive proof, satisfactory
to Us, of the Insured's death. Payment may be delayed if:
o the New York Stock Exchange is closed on other than
customary weekend and holiday closings or trading on the New
York Stock Exchange is restricted as determined by the SEC;
or
o an emergency exists, as determined by the SEC, as a result
of which disposal of securities is not reasonably
practicable to determine the value of the sub-accounts; or
o the SEC, by order, permits postponement for the protection
of Certificate owners.
PAYMENT OF PAYMENT OF PROCEEDS OPTIONS
PROCEEDS The Proceeds may be applied under one of the following Options.
OPTIONS An Option must be selected by Written Request. You may select an
Option during the Insured's lifetime. If You have not selected an
Option before the Insured's death, the Beneficiary may choose
one. We will not permit surrenders or partial withdrawals after
payments under a proceeds option involving life
16
<PAGE>
contingencies commence.
THE OPTIONS
1. Interest. We will pay interest monthly on Proceeds left on
deposit with Us. We will declare the interest rate each year. It
will never be less than 3-1/2% a year.
2. Fixed Amount. We will pay equal monthly installments, first
payment immediately, until the Proceeds and the interest have
been exhausted. Interest will be credited on unpaid balances at
the rate which We will declare each year. It will never be less
than 3-1/2%, compounded annually.
3. Fixed Period. We will pay equal monthly installments, first
payment immediately, for not more than 25 years. The minimum
amount of each installment may be determined from the OPTION 3
TABLE on page 17. This Table is based on a guaranteed interest
rate of 3-1/2%, compounded annually.
4. Life Income. We will pay equal monthly installments, first
payment immediately, for the lifetime of the payee with or
without a guaranteed period. The minimum amount of each
installment may be determined from the OPTION 4 TABLE on page 17.
This Table is based on a guaranteed interest rate of 3-1/2%,
compounded annually. The guaranteed period selected may be: (1)
10 years; (2) 15 years; or (3) 20 years.
5. Other Payment. We will pay the Proceeds in any other manner
that may be mutually agreed upon.
AVAILABILITY
No Option may be selected unless the amount to be applied is more
than $2,000 and will provide an installment payment of at least
$20. Unless We consent, these Options will not be available if
the payee is an assignee, administrator, executor, trustee,
association, partnership or corporation.
ADDITIONAL INTEREST
At our discretion, additional interest may be declared annually
on all Payment Options. This interest will lengthen the period
under Option 2, and increase the installment amounts under
Options 3 and 4.
17
<PAGE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
Number Monthly Number Monthly Number Monthly Number Monthly Number Monthly
of Years Payment of Years Payment of Years Payment of Years Payment of Years Payment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $84.65 6 $15.35 11 $9.09 16 $6.76 21 $5.56
- -------------------------------------------------------------------------------------------------------------------
2 43.05 7 13.38 12 8.46 17 6.47 22 5.39
- -------------------------------------------------------------------------------------------------------------------
3 29.19 8 11.90 13 7.94 18 6.20 23 5.24
- -------------------------------------------------------------------------------------------------------------------
4 22.27 9 10.75 14 7.49 19 5.97 24 5.09
- -------------------------------------------------------------------------------------------------------------------
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 4 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
- -------------------------------------------------------------------------------------------------------------------
MALE FEMALE
- -------------------------------------------------------------------------------------------------------------------
No Guaranteed Guaranteed Guaranteed No Guaranteed Guaranteed Guaranteed
Guaranteed Period Period Period Guaranteed Period Period Period
Age Period 10 Years 15 Years 20 Years Age Period 10 Years 15 Years 20 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.45 $4.41 $4.36 $4.29 50 $4.11 $4.09 $4.07 $4.04
51 4.52 4.47 4.42 4.34 51 4.16 4.15 4.12 4.09
52 4.59 4.55 4.48 4.40 52 4.22 4.20 4.18 4.14
53 4.67 4.62 4.55 4.45 53 4.29 4.27 4.24 4.19
54 4.76 4.70 4.62 4.51 54 4.36 4.33 4.30 4.24
55 4.85 4.78 4.70 4.57 55 4.43 4.40 4.36 4.30
56 4.94 4.87 4.77 4.63 56 4.50 4.47 4.42 4.36
57 5.04 4.96 4.85 4.70 57 4.58 4.54 4.49 4.42
58 5.15 5.06 4.93 4.76 58 4.67 4.62 4.57 4.48
59 5.26 5.16 5.02 5.82 59 4.76 4.71 4.64 4.55
60 5.39 5.26 5.11 4.89 60 4.85 4.80 4.72 4.61
61 5.52 5.38 5.20 4.95 61 4.95 4.89 4.81 4.68
62 5.66 5.50 5.29 5.01 62 5.06 4.99 4.89 4.75
63 5.80 5.62 5.39 5.08 63 5.18 5.10 4.98 4.82
64 5.96 5.75 5.49 5.14 64 5.30 5.21 5.08 4.89
65 6.14 5.89 5.58 5.20 65 5.43 5.32 5.18 4.96
66 6.32 6.03 5.68 5.26 66 5.57 5.45 5.28 5.03
67 6.51 6.18 5.78 5.31 67 5.72 5.58 5.38 5.10
68 6.72 6.33 5.88 5.37 68 5.89 5.72 5.49 5.17
69 6.94 6.49 5.98 5.42 69 6.06 5.86 5.60 5.23
70 7.18 6.65 6.08 5.46 70 6.25 6.01 5.71 5.30
71 7.44 6.82 6.18 5.50 71 6.45 6.18 5.82 5.36
72 7.71 6.99 6.27 5.54 72 6.67 6.34 5.93 5.41
73 7.99 7.16 6.36 5.58 73 6.91 6.52 6.04 5.46
74 8.30 7.33 6.44 5.61 74 7.17 6.70 6.15 5.51
75 8.63 7.51 6.52 5.63 75 7.45 6.89 6.26 5.55
76 8.99 7.68 6.60 5.66 76 7.75 7.08 6.36 5.59
77 9.37 7.86 6.67 5.68 77 8.08 7.28 6.45 5.62
78 9.77 8.03 6.73 5.69 78 8.43 7.48 6.54 5.65
79 10.21 8.19 6.79 5.71 79 8.81 7.68 6.62 5.67
80 10.67 8.36 6.84 5.72 80 9.22 7.88 6.70 5.69
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
NON-TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.1442 0.1259 70 3.0703 1.8585
1 0.0859 0.0701 36 0.1517 0.1342 71 3.4033 2.0584
2 0.0826 0.0667 37 0.1617 0.1442 72 3.7600 2.3037
3 0.0809 0.0651 38 0.1726 0.1551 73 4.1934 2.5976
4 0.0776 0.0642 39 0.1843 0.1667 74 4.6701 2.9361
5 0.0734 0.6254 40 0.1984 0.1809 75 5.1801 3.3143
6 0.0692 0.0609 41 0.2134 0.1959 76 5.7192 3.7239
7 0.0651 0.0592 42 0.2293 0.2109 77 6.2835 4.1631
8 0.0626 0.0584 43 0.2468 0.2259 78 6.8762 4.6390
9 0.0617 0.0576 44 0.2660 0.2409 79 7.5161 5.1666
10 0.0626 0.0567 45 0.2876 0.2576 80 8.2238 5.7673
11 0.0676 0.0584 46 0.3110 0.2751 81 9.0181 6.4590
12 0.0767 0.0609 47 0.3360 0.2943 82 9.9157 7.2573
13 0.0892 0.0642 48 0.3635 0.3143 83 10.9129 8.1594
14 0.1034 0.0684 49 0.3935 0.3368 84 11.9904 9.1556
15 0.1134 0.0717 50 0.4277 0.3618 85 13.1242 10.2354
16 0.1234 0.0751 51 0.4669 0.3894 86 14.3000 11.3917
17 0.1309 0.0776 52 0.5120 0.4211 87 15.5000 12.6232
18 0.1359 0.0801 53 0.5637 0.4561 88 16.7191 13.9315
19 0.1392 0.0826 54 0.6213 0.4920 89 17.9749 15.3273
20 0.1401 0.0842 55 0.6855 0.5303 90 19.2858 16.8225
21 0.1384 0.0859 56 0.7556 0.5687 91 20.6825 18.4527
22 0.1359 0.0867 57 0.8299 0.6063 92 22.2180 20.2807
23 0.1326 0.0884 58 0.9125 0.6438 93 24.0437 22.4383
24 0.1292 0.0901 59 1.0052 0.6864 94 26.5035 25.2231
25 0.1251 0.0917 60 1.1088 0.7364 95 30.2074 29.2496
26 0.1226 0.0942 61 1.2240 0.7982 96 36.3581 35.7221
27 0.1209 0.0959 62 1.3569 0.8750 97 47.2118 46.8683
28 0.1201 0.0984 63 1.5073 0.9693 98 66.2071 66.0943
29 0.1201 0.1017 64 1.6745 1.0754 99 82.5000 81.6667
30 0.1209 0.1042 65 1.8577 1.1898
31 0.1234 0.1076 66 2.0559 1.3084
32 0.1267 0.1109 67 2.2685 1.4296
33 0.1317 0.1151 68 2.4996 1.5550
34 0.1376 0.1201 69 2.7560 1.6946
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
19
<PAGE>
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MONTHLY MAXIMUM COST OF INSURANCE RATES
PER $1,000 OF INSURANCE NET AMOUNT AT RISK
TOBACCO
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.2193 0.1567 35 0.2268 0.1676 70 4.7492 2.4376
1 0.0859 0.0701 36 0.2434 0.1817 71 5.1624 2.6722
2 0.0826 0.0667 37 0.2643 0.1984 72 5.6299 2.9596
3 0.0809 0.0651 38 0.2876 0.2176 73 6.1485 3.3017
4 0.0776 0.0642 39 0.3143 0.2384 74 6.7174 3.6920
5 0.0734 0.0626 40 0.3452 0.2635 75 7.3258 4.1186
6 0.0692 0.0609 41 0.3785 0.2901 76 7.9486 4.5725
7 0.0651 0.0592 42 0.4152 0.3168 77 8.5746 5.0471
8 0.0626 0.0584 43 0.4553 0.3435 78 9.2082 5.5490
9 0.0617 0.0576 44 0.4995 0.3702 79 9.8715 6.0962
10 0.0626 0.0567 45 0.5462 0.3985 80 10.5868 6.7098
11 0.0676 0.0584 46 0.5946 0.4277 81 11.3746 7.4070
12 0.0767 0.0609 47 0.6471 0.4578 82 12.2491 8.2009
13 0.0892 0.0642 48 0.7039 0.4903 83 13.1961 9.1191
14 0.1034 0.0684 49 0.7656 0.5262 84 14.1843 10.1164
15 0.1467 0.0801 50 0.8341 0.5645 85 15.1804 11.1778
16 0.1634 0.0842 51 0.9117 0.6054 86 16.1604 12.2952
17 0.1751 0.0884 52 0.9994 0.6521 87 17.1682 13.4579
18 0.1843 0.0926 53 1.0988 0.7039 88 18.2203 14.6722
19 0.1901 0.0951 54 1.2073 0.7565 89 19.2685 15.9376
20 0.1934 0.0976 55 1.3235 0.8107 90 20.3284 17.3441
21 0.1934 0.0992 56 1.4463 0.8641 91 21.4331 18.8626
22 0.1901 0.1017 57 1.5759 0.9142 92 22.7172 20.5523
23 0.1868 0.1042 58 1.7121 0.9635 93 24.3689 22.5437
24 0.1817 0.1067 59 1.8585 1.0161 94 26.6300 25.2231
25 0.1759 0.1092 60 2.0216 1.0787 95 30.2074 29.2496
26 0.1726 0.1134 61 2.2057 1.1572 96 36.3581 35.7221
27 0.1709 0.1167 62 2.4134 1.2583 97 47.2118 46.8683
28 0.1709 0.1209 63 2.6454 1.3811 98 66.2071 66.0943
29 0.1734 0.1259 64 2.8993 1.5182 99 82.5000 81.6667
30 0.1776 0.1317 65 3.1684 1.6628
31 0.1834 0.1367 66 3.4502 1.8100
32 0.1909 0.1426 67 3.7423 1.9522
33 0.2009 0.1501 68 4.0489 2.0961
34 0.2126 0.1584 69 4.3817 2.2526
</TABLE>
Class A Guaranteed Monthly Maximum Insurance Rates are equal to 250% of the
Guaranteed Maximum Insurance Rates for the Standard Class.
20
<PAGE>
INTEREST AND CHARGES
Interest Rates
Guaranteed Annual Interest Rate For the Fixed Account [3.50%]
Guaranteed Monthly Equivalent Interest Rate [0.28709%]
Certificate Charges
Certificate Fee [$30.00] per year
Cost of Insurance as defined on page 8.
Fixed Account Expense Charge [0.48%] per year
Separate Account Expense Charge [1.65%] per year
Withdrawal Charge on Withdrawal as defined on page 11.
<TABLE>
<CAPTION>
Table of Withdrawal Charges
This table applies to the Initial Payment in the event of a
Withdrawal in the first [7] Certificate years.
Certificate Percentage Certificate Percentage
Year Year
<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 and thereafter 0.00%]
</TABLE>
Mortality Table
1980 Commissioners Standard Ordinary Age Last Birthday Smoker or Non-smoker
The Certificate may end before the Maturity Date if the payments are not
sufficient to continue the Certificate to that date. If current values change,
this will also affect the benefits.
21
<PAGE>
[Logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
CERTIFICATE DESCRIPTION
This is a GROUP MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CERTIFICATE.
The Death Benefit is payable if the Insured dies while this Certificate is in
force and before the Maturity Date.
A Maturity Benefit is payable if the Insured is living on the Maturity Date.
Death Benefit and Account Value may vary with investment and earnings experience
and Certificate charges.
This Certificate is not eligible for Dividends.
22
<PAGE>
CERTIFICATE INFORMATION
First Insured [John Doe]
Certificate Number [NV-12345678]
Issue Age/Sex [65] [Male]
Certificate Date [January 1, 1999]
Rating Class [Standard] [Non-Tobacco]
Second Insured [Jane Doe]
Initial Death Benefit [$60,252.00]
Issue Age/Sex] [65] [Female]
Initial Payment [$30,000.00]
Rating Class [Standard] [Non-Tobacco]
Initial Fixed Account
Guaranteed Interest Rate [4.00%]
Additional Agreements
[Last Survivor Death Benefit Agreement]
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
LAST SURVIVOR This is a Joint and Last Survivor Benefit Agreement which
DEATH BENEFIT modifies coverage under this Group Contract. If this Agreement is
AGREEMENT made part of the Group Contract, coverage is extended to two
Insureds under each Certificate. The Insured individuals are
those named in the application for each Certificate. The Death
Benefit under a Certificate covered by this Agreement is payable
if the surviving Insured dies before the Maturity Date and while
coverage is in force under the Group Contract to which this
Agreement is attached. The surviving Insured is the Insured who
is living upon the death of the other Insured. No Death Benefit
is payable upon the death of the first Insured to die.
This Agreement amends the following provisions of the Group
Contract:
DEFINITIONS
The Attained Age is an Insured's age on his or her last birthday.
THE BENEFIT
In determining the Death Benefit, the applicable percentage of
the Account Value is based upon the Attained Age of the younger
Insured.
MATURITY BENEFIT
The Maturity Date provision will be based upon the Attained Age
of the younger Insured.
REINSTATEMENT
The Owner may reinstate coverage under the Group Contract subject
to the Reinstatement provision provided that: both Insureds are
alive; or one Insured is alive and the termination of coverage
without value occurred after the death of the first Insured.
MISSTATEMENT OF AGE OR SEX, ASSIGNMENT
The Misstatement of Age or Sex and Assignment provisions apply to
either Insured.
OWNER
During the lifetime of both Insureds, the rights and privileges
stated in the Certificate may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date, and may be changed from time to time. The interest of any
Beneficiary who dies before the surviving Insured will terminate
at the death of that Beneficiary.
If no Beneficiary designation is in effect at the surviving
Insured's death, or if there is no designated Beneficiary then
living, the Owner will be the Beneficiary. However, if the
surviving Insured was the Owner, the executors or administrators
of the Insured's estate will be the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
The Owner may change the Owner or any Beneficiary by Written
Request during the lifetime of either Insured. The change will
take effect as of the date the request is signed after We
acknowledge receipt in writing, whether or not the Owner or an
Insured are living at the time of acknowledgment. The change will
be subject to any assignment, and to any payment made or action
taken by Us before acknowledgment.
<PAGE>
INCONTESTABILITY AFTER TWO YEARS
The Incontestability After Two Years provision of the Group
Contract applies to both Insureds.
Before the end of the second year from the Certificate Date, We
will send a notice to the Owner requesting notification of the
death of any Insured. Failure to notify Us of the death of either
Insured will not avoid a contest of the Group Contract.
SUICIDE WITHIN TWO YEARS
The Suicide Within Two Years provision of the Group Contract
applies to either Insured.
COST OF INSURANCE RATE
The Cost of Insurance Rate is based on the Attained Age, sex and
rating classification of both Insureds. Pages 19 and page 20 of
the Group Contract, which contain the Guaranteed Monthly Maximum
Cost of Insurance Rates, are hereby deleted and replaced with the
following:
The Guaranteed Monthly Maximum Cost of Insurance Rates are based
on the exact age and rating class of each Insured using the
Frasier Method and the 1980 Commissioners Standard Ordinary
Mortality Table, age last birthday, or a smoker/non-smoker basis.
Each Certificate will be issued with a page showing the
Guaranteed Monthly Maximum Cost of Insurance Rates for the
specific age combination of the Insureds.
ACCELERATED DEATH BENEFIT
After the death of the first Insured, the Death Benefit may be
accelerated, subject to the conditions of the Accelerated Death
Benefit provision.
PAYMENT OF PROCEEDS
The Proceeds of a Certificate issued under the Group Contract
will be subject first to the interest of an assignee, to whom
payment will be made in one sum. We will pay any remaining
Proceeds to the Owner before the surviving Insured's death, and
to the Beneficiary after the surviving Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the death of both Insureds. Unless
otherwise provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
TERMINATION OF AN INSURED'S COVERAGE
Coverage under this Agreement will terminate when one of the
following events occur:
o the surviving Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value;
o the date an Insured's coverage is surrendered for its
Surrender Value; or
o the date the Group Contract terminates or is discontinued,
except as provided in the Continuation of Insureds' Coverage
After Discontinuance provision.
THIS AGREEMENT AND THE CONTRACT
This Agreement is made a part of the Group Contract if We have
listed it on the Contract Information page.
2
<PAGE>
EFFECTIVE DATE OF COVERAGE
Coverage under this Agreement takes effect on the Certificate
Date shown on the Certificate Information page.
/s/ Edmund F. Kelly
--------------------
PRESIDENT
3
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
LAST SURVIVOR This is a Joint and Last Survivor Benefit Certificate Agreement
DEATH BENEFIT which summarizes changes in coverage under the Group Contact. The
AGREEMENT provisions summarized herein modify those in Your Certificate of
coverage. If this Agreement is attached to Your Certificate,
coverage is extended to two Insureds. The Insured individuals are
those shown on the Certificate Information page. The Death
Benefit under a Certificate is payable if the surviving Insured
dies while coverage under the Group Contract is in force and
before the Maturity Date. The surviving Insured is the Insured
who is living upon the death of the other Insured under this
Certificate. No Death Benefit is payable upon the death of the
first Insured to die.
DEFINITIONS
The Attained Age is an Insured's age on his or her last birthday.
THE BENEFIT
In determining the Death Benefit, the applicable percentage of
the Account Value is based upon the Attained Age of the younger
Insured.
MATURITY BENEFIT
The Maturity Date provision will be based upon the Attained Age
of the younger Insured.
REINSTATEMENT
You may reinstate the coverage under the Group Contract subject
to the Reinstatement provision provided that: both Insureds are
alive; or one Insured is alive and the termination of coverage
without value occurred after the death of the first Insured.
MISSTATEMENT OF AGE OR SEX, ASSIGNMENT
The Misstatement of Age or Sex and Assignment provisions apply to
either Insured.
OWNER
During the lifetime of both Insureds, the rights and privileges
stated in the Certificate may be exercised only by You, the
owner.
BENEFICIARY
The Beneficiary is as named in the application on the Certificate
Date, and may be changed from time to time. The interest of any
Beneficiary who dies before the surviving Insured will terminate
at the death of that Beneficiary.
If no Beneficiary designation is in effect at the surviving
Insured's death, or if there is no designated Beneficiary then
living, the You will be the Beneficiary. However, if the
surviving Insured was the Owner, the executors or administrators
of the Insured's estate will be the Beneficiary.
CHANGE OF OWNERSHIP OR BENEFICIARY
You may change the Owner or any Beneficiary by Written Request
during the lifetime of either Insured. The change will take
effect as of the date the request is signed after We acknowledge
receipt in writing, whether or not the Owner or an Insured are
living at the time of acknowledgment. The change will be subject
to any assignment, and to any payment made or action taken by Us
before acknowledgment.
INCONTESTABILITY AFTER TWO YEARS
The Incontestability After Two Years provision applies to both
Insureds.
<PAGE>
Before the end of the second year from the Certificate Date, We
will send a notice to You requesting notification of the death of
any Insured. Failure to notify Us of the death of either Insured
will not avoid a contest of the Group Contract.
SUICIDE WITHIN TWO YEARS
The Suicide Within Two Years provision applies to either Insured.
COST OF INSURANCE RATE
The Cost of Insurance Rate is based on the Attained Age, sex and
rating classification of both Insureds. Pages 18 and page 19 of
this Certificate, which contain the Guaranteed Monthly Maximum
Cost of Insurance Rates, are hereby deleted and replaced with the
following:
The Guaranteed Monthly Maximum Cost of Insurance Rates are based
on the exact age and rating classification of each Insured using
the Frasier Method and the 1980 Commissioners Standard Ordinary
Mortality Table, age last birthday, on a smoker/non-smoker basis.
A Table of the Guaranteed Monthly Maximum Cost of Insurance Rates
applicable to the Insureds named in Your application has been
printed on the Certificate Information page.
ACCELERATED DEATH BENEFIT
After the death of the first Insured, the Death Benefit may be
accelerated, subject to the conditions of the Accelerated Death
Benefit provision.
PAYMENT OF PROCEEDS
The Proceeds of this Certificate will be subject first to the
interest of an assignee, to whom payment will be made in one sum.
We will pay any remaining Proceeds to You before the surviving
Insured's death, and to the Beneficiary after the surviving
Insured's death.
Payment to the Beneficiary will be made only if We receive proof,
satisfactory to Us, of the death of both Insureds. Unless
otherwise provided, payment will be made in equal shares to those
Beneficiaries entitled to receive the Proceeds.
TERMINATION OF AN INSURED'S COVERAGE
Coverage under the Group Contract will terminate when one of the
following events occur:
o the surviving Insured dies;
o an Insured's coverage matures;
o the date an Insured's coverage ends without value;
o the date an Insured's coverage is surrendered for its
Surrender Value; or
o the date the Group Contract terminates or is discontinued,
except as provided in the Continuation of Insureds' Coverage
After Discontinuance provision.
THIS AGREEMENT AND THE CERTIFICATE
This Agreement is made a part of your Certificate if We have
listed it on the Certificate Information page.
EFFECTIVE DATE
This Agreement takes effect on the Certificate Date shown on the
Certificate Information page.
/s/ Edmund F. Kelly
-------------------
PRESIDENT
2
Exhibit 1.8.(a)(1)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
LIBERTY LIFE DISTRIBUTORS LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C> <C>
Section 1. Available Funds.................................................................2
1.1 Availability..............................................................2
1.2 Addition, Deletion or Modification of Funds...............................2
1.3 No Sales to the General Public............................................2
Section 2. Processing Transactions.........................................................3
2.1 Timely Pricing and Orders.................................................3
2.2 Timely Payments...........................................................3
2.3 Applicable Price..........................................................4
2.4 Dividends and Distributions...............................................4
2.5 Book Entry................................................................4
Section 3. Costs and Expenses..............................................................4
3.1 General...................................................................4
3.2 Parties To Cooperate......................................................5
Section 4. Legal Compliance................................................................5
4.1 Tax Laws..................................................................5
4.2 Insurance and Certain Other Laws..........................................7
4.3 Securities Laws...........................................................8
4.4 Notice of Certain Proceedings and Other Circumstances.....................9
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.................9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY................10
Section 5. Mixed and Shared Funding.......................................................11
5.1 General..................................................................11
5.2 Disinterested Directors..................................................12
5.3 Monitoring for Material Irreconcilable Conflicts.........................12
5.4 Conflict Remedies........................................................13
5.5 Notice to LIFE COMPANY...................................................14
5.6 Information Requested by Board of Directors..............................14
5.7 Compliance with SEC Rules................................................14
5.8 Other Requirements.......................................................15
Section 6. Termination....................................................................15
6.1 Events of Termination....................................................15
6.2 Notice Requirement for Termination.......................................16
6.3 Funds To Remain Available................................................16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C> <C>
6.4 Survival of Warranties and Indemnifications..............................17
6.5 Continuance of Agreement for Certain Purposes............................17
Section 7. Parties To Cooperate Respecting Termination....................................17
Section 8. Assignment.....................................................................17
Section 9. Notices........................................................................17
Section 10. Voting Procedures.............................................................18
Section 11. Foreign Tax Credits...........................................................19
Section 12. Indemnification...............................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER..........................19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM..........................21
12.3 Effect of Notice.........................................................24
12.4 Successors...............................................................24
Section 13. Applicable Law................................................................24
Section 14. Execution in Counterparts.....................................................24
Section 15. Severability..................................................................24
Section 16. Rights Cumulative.............................................................24
Section 17. Headings......................................................................24
Section 18. Confidentiality...............................................................25
Section 19. Trademarks and Fund Names.....................................................25
Section 20. Parties to Cooperate..........................................................26
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________,
1999 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM"),
Liberty Life Assurance Company of Boston, a Massachusetts life insurance company
("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Liberty Life
Distributors LLC, an affiliate of LIFE COMPANY and the principal underwriter of
the Contracts ("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series
("Series"), shares ("Shares") of each of which are registered under the
Securities Act of 1933, as amended (the "1933 Act") and are currently sold to
one or more separate accounts of life insurance companies to fund benefits under
variable annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, for purposes of state insurance law, LIFE COMPANY will be the
issuer of certain variable annuity contracts and variable life insurance
contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto
may amend from time to time, which Contracts (hereinafter collectively, the
"Contracts"), if required by applicable law, will be registered under the 1933
Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
--------------------------
1.1 Availability.
------------
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds.
-------------------------------------------
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public.
------------------------------
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
2
<PAGE>
Section 2. Processing Transactions
----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
for all participating Funds per Account in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY. Materiality and
reprocessing cost reimbursement shall be determined in accordance with standards
established by the Parties as provided in Schedule B, attached hereto and
incorporated herein.
2.2 Timely Payments.
---------------
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
3
<PAGE>
2.3 Applicable Price.
----------------
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All Share purchases and redemptions by LIFE COMPANY that do not
result from Contract transactions will be effected at the net asset values of
the appropriate Funds next computed after receipt by AVIF or its designated
agent of the order therefor, and such orders will be irrevocable.
2.4 Dividends and Distributions.
---------------------------
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 Book Entry.
----------
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
Section 3. Costs and Expenses
-----------------------------
3.1 General.
-------
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
4
<PAGE>
3.2 Parties To Cooperate.
--------------------
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
Section 4. Legal Compliance
---------------------------
4.1 Tax Laws.
--------
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will
qualify and maintain qualification of each Fund as a RIC. AVIF will notify LIFE
COMPANY immediately upon having a reasonable basis for believing that a Fund has
ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will comply and maintain each Fund's
compliance with the diversification requirements set forth in Section 817(h) of
the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will
notify LIFE COMPANY immediately upon having a reasonable basis for believing
that a Fund has ceased to so comply or that a Fund might not so comply in the
future. In the event of a breach of this Section 4.1(b) by AVIF, it will take
all reasonable steps to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively
"Participants"), that any Fund has failed to comply with the diversification
requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes
aware of any facts that could give rise to any claim against AVIF or its
affiliates as a result of such a failure or alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions
of Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or
alleged failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to
the Commissioner of the IRS that such failure was
inadvertent;
5
<PAGE>
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative
or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE
COMPANY will retain control of the conduct of such
conferences discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection
with any of the foregoing proceedings or contests
(including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations
Section 1.817- 5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of
Section 18, at least ten (10) business days or such shorter
period to which the Parties hereto agree prior to the day on
which such proposed materials are to be submitted, and (b)
shall not be submitted by LIFE COMPANY to any such person
without the express written consent of AVIF which shall not
be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim against
AVIF or its affiliates (a) compromise or settle any claim,
(b) accept any adjustment on audit, or (c) forego any
allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which
shall not be unreasonably withheld, provided that LIFE
COMPANY shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial
decision unless AVIF or its affiliates shall have provided
an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result
of such failure or alleged failure if LIFE COMPANY fails to
comply with any of the foregoing
6
<PAGE>
clauses (i) through (vii), and such failure could be shown
to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment; LIFE
COMPANY will notify AVIF immediately upon having a reasonable basis for
believing that any of the Contracts have ceased to be so treated or that they
might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will continue to meet such definitional
requirements, and it will notify AVIF immediately upon having a reasonable basis
for believing that such requirements have ceased to be met or that they might
not be met in the future.
4.2 Insurance and Certain Other Laws.
--------------------------------
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts and has full corporate power, authority and
legal right to execute, deliver and perform its duties and comply with its
obligations under this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under Massachusetts
General Law Chapter 175 Section 132G and the regulations thereunder, and (iii)
the Contracts comply in all material respects with all other applicable federal
and state laws and regulations.
7
<PAGE>
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
---------------
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Massachussetts law, (iii) each Account is and will remain registered under the
1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
8
<PAGE>
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 Notice of Certain Proceedings and Other Circumstances.
------------------------------------------------------
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.
----------------------------------------------------------
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-
9
<PAGE>
action letters, and all amendments to any of the above, that relate to each
Account or the Contracts, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any
of its affiliates is named, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon. No
such material shall be used if AVIF or its designated agent objects to such use
within five (5) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates AIM as the entity to receive such sales literature, until such time
as AVIF appoints another designated agent by giving notice to LIFE COMPANY in
the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY represents and warrants that it has implemented
procedures reasonably designed to ensure that any information, including
information concerning AVIF and its affiliates, that is intended for use only by
brokers or agents selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is so used. LIFE
COMPANY agrees that neither AVIF nor any of its affiliates shall be liable for
any losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF To Provide Documents; Information About LIFE COMPANY.
---------------------------------------------------------
10
<PAGE>
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AIM represents and warrants that it has implemented procedures
reasonably designed to ensure that any information including information
concerning LIFE COMPANY and its affiliates, that is intended for use only by
brokers or agents selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is so used. AIM
agrees that neither LIFE COMPANY nor any of its affiliates shall be liable for
any losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
11
<PAGE>
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
Section 5. Mixed and Shared Funding
-----------------------------------
5.1 General.
-------
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 Disinterested Directors.
------------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 Monitoring for Material Irreconcilable Conflicts.
-------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware.
12
<PAGE>
The concept of a "material irreconcilable conflict" is not defined by the 1940
Act or the rules thereunder, but the Parties recognize that such a conflict may
arise for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 Conflict Remedies.
------------------
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets
in a different investment medium,
13
<PAGE>
including another Fund of AVIF, or submitting the question
whether such segregation should be implemented to a vote of
all affected Participants and, as appropriate, segregating
the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or
offering to the affected Participants the option of making
such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the
1940 Act or a new separate account that is operated as a
management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to LIFE COMPANY.
-----------------------
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
14
<PAGE>
5.6 Information Requested by Board of Directors.
--------------------------------------------
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 Compliance with SEC Rules.
--------------------------
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 Other Requirements.
-------------------
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
Section 6. Termination
----------------------
6.1 Events of Termination.
----------------------
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
15
<PAGE>
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 Notice Requirement for Termination.
-----------------------------------
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
16
<PAGE>
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 Funds To Remain Available.
--------------------------
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 Survival of Warranties and Indemnifications.
--------------------------------------------
All warranties, indemnifications and the provisions of Section 18
hereof, shall survive the termination of this Agreement.
6.5 Continuance of Agreement for Certain Purposes.
----------------------------------------------
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
Section 7. Parties To Cooperate Respecting Termination
------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other
17
<PAGE>
mutual fund shares for those of the affected Fund, or otherwise terminating
participation by the Contracts in such Fund.
Section 8. Assignment
---------------------
This Agreement may not be assigned by any Party, except with the
written consent of each other Party. Any breach of this provision shall
constitute a material breach of this Agreement.
Section 9. Notices
------------------
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile numbers, or such other persons,
addresses or facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
AIM Variable Insurance Funds, Inc.
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
100 Liberty Way
Dover, New Hampshire 03820
Facsimile: 603-743-3867
Attn: Morton E. Spitzer
EVP and COO Individual
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
175 Berkeley Street
Boston, Massachusetts 02117
Facsimile: 617-350-8864
Attn: William J. O'Connell
LIBERTY LIFE DISTRIBUTORS LLC
18
<PAGE>
100 Liberty Way
Dover, New Hampshire 03820
Facsimile: 603-743-3867
Attn: President
Section 10. Voting Procedures
-----------------------------
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the SEC may promulgate with respect thereto.
Section 11. Foreign Tax Credits
-------------------------------
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
---------------------------
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER.
------------------------------------------------
19
<PAGE>
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or
advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY or UNDERWRITER by or
on behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or otherwise
for use in connection with the sale of Contracts or Shares
(or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates and on which
such persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER
or their respective affiliates or persons under their
control (including, without limitation, their employees
and "persons associated with a member," as that term is
defined in paragraph (q) of Article I of the NASD's
By-Laws), in connection with the sale or distribution of
the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required
to be stated therein
20
<PAGE>
or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
and in conformity with information furnished to AVIF, AIM
or their affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the
services and furnish the materials required of them under
the terms of this Agreement, or any material breach of any
representation and/or warranty made by LIFE COMPANY or
UNDERWRITER in this Agreement or arise out of or result
from any other material breach of this Agreement by LIFE
COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by
LIFE COMPANY to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than by
reason of any Fund's failure to comply with Subchapter M
or Section 817(h) of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
or AIM shall have notified LIFE COMPANY and UNDERWRITER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY and
UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER
from any liability which they may have to the Indemnified Party against whom
such action is brought otherwise than on account of this Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified
Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof,
the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and
shall bear the fees and expenses of any additional counsel retained by it, and
neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
22
<PAGE>
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM.
------------------------------------------------
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
AVIF's 1933 Act registration statement, AVIF Prospectus or
sales literature or advertising of AVIF (or any amendment
or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on
behalf of LIFE COMPANY, UNDERWRITER or their respective
affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or
advertising or otherwise for use in connection with the
sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use
therein by or on behalf of AVIF, AIM or their affiliates
and on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF, AIM or
their affiliates or persons under their control
(including, without limitation, their employees and
"persons associated with a member" as that term is defined
in Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares;
or
22
<PAGE>
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon
and in conformity with information furnished to LIFE
COMPANY, UNDERWRITER or their respective affiliates by or
on behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the
materials required of it under the terms of this
Agreement, or any material breach of any representation
and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this
Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or
23
<PAGE>
AIM in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the action shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify AVIF or
AIM of any such action shall not relieve AVIF or AIM from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this Section 12.2. Except as otherwise provided herein, in
case any such action is brought against an Indemnified Party, AVIF and/or AIM
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified
Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified
Party will cooperate fully with AVIF and AIM and shall bear the fees and
expenses of any additional counsel retained by it, and AVIF and AIM will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 Effect of Notice.
-----------------
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 Successors.
-----------
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
24
<PAGE>
Section 13. Applicable Law
--------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
-------------------------------------
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
Section 15. Severability
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
-----------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Headings
--------------------
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
Section 18. Confidentiality
---------------------------
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
25
<PAGE>
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties may be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
Section 19. Trademarks and Fund Names
-------------------------------------
(a) Except as may otherwise be provided in a License Agreement among A
I M Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY
nor UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither
AVIF, its investment adviser, its principal underwriter, or any affiliates
thereof shall use any trademark, trade name, service mark or logo of LIFE
COMPANY, UNDERWRITER or any of their affiliates, or any variation of any such
trademark, trade name, service mark or logo, without LIFE COMPANY's or
UNDERWRITER's prior written consent, the granting of which shall be at LIFE
COMPANY's or UNDERWRITER's sole option.
Section 20. Parties to Cooperate
--------------------------------
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and
26
<PAGE>
records (including copies thereof) in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
-----------------------------
27
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: ________________________ By: _____________________________
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: ________________________ By: _____________________________
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON, on behalf of itself
and its separate accounts
Attest: ________________________ By: _____________________________
Name: ________________________ Name: _____________________________
Title: ________________________ Title: _____________________________
LIBERTY LIFE DISTRIBUTORS LLC
Attest: ________________________ By: _____________________________
Name: ________________________ Name: _____________________________
Title: ________________________ Title: _____________________________
28
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. International Equity Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
o LLAC Variable Account
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
o Modified Single Payment Variable Universal Life Insurance Policy
o Flexible Premium Variable Life Insurance Contract
29
<PAGE>
SCHEDULE B
AIM's Pricing Error Policies
Determination of Materiality
- ----------------------------
In the event that AIM discovers an error in the calculation of the Fund's net
asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is considered
immaterial and no adjustments are made.
If the amount of the error is $.01 per share or more, then the following
thresholds are applied:
a. If the amount of the difference in the erroneous net asset value and
the correct net asset value is less than .5% of the correct net asset
value, AIM will reimburse the affected Fund to the extent of any loss
resulting from the error. No other adjustments shall be made.
b. If the amount of the difference in the erroneous net asset value and
the correct net asset value is .5% of the correct net asset value or
greater, then AIM will determine the impact of the error to the
affected Fund and shall reimburse such Fund (and/or LIFE COMPANY, as
appropriate, such as in the event that the error was not discovered
until after LIFE COMPANY processed transactions using the erroneous net
asset value) to the extent of any loss resulting from the error. To the
extent that an overstatement of net asset value per share is detected
quickly and LIFE COMPANY has not mailed redemption checks to
Participants, LIFE COMPANY and AIM agree to examine the extent of the
error to determine the feasibility of reprocessing such redemption
transaction (for purposes of reimbursing the Fund to the extent of any
such overpayment).
Reprocessing Cost Reimbursement
- -------------------------------
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's
reprocessing costs in an amount not to exceed $3.00 per contract affected by $10
or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at
least five (5) days prior to any such meeting of the Board of Directors of AVIF
to consider such proposed changes.
30
<PAGE>
Schedule C
EXPENSE ALLOCATIONS
<TABLE>
<CAPTION>
========================================================================================================
Life Company AVIF / AIM
- --------------------------------------------------------------------------------------------------------
<S> <C>
preparing and filing the Account's preparing and filing the Fund's registration
registration statement statement
- --------------------------------------------------------------------------------------------------------
text composition for Account prospectuses text composition for Fund prospectuses and
and supplements supplements
- --------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and
supplements (Account) supplements (Fund)
- --------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and a camera ready Fund prospectus
supplements
- --------------------------------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing Fund SAIs
- --------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund SAIs to policy
policy owners upon request by policy owners owners upon request by policy owners
- --------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account
and Fund) and supplements (Account and Fund) to
policy owners of record as required by Federal
Securities Laws and to prospective purchasers
- --------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, text composition of annual and semi-annual
and distributing annual and semi-annual reports (Fund)
reports for Account (Fund and Account as,
applicable)
- --------------------------------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing, mailing,
distributing, and tabulation of proxy distributing and tabulation of proxy
statements and voting instruction solicitation statements and voting instruction solicitation
materials to policy owners with respect to materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
- --------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales
material and advertising relating to the Funds,
insofar as such materials relate to the Contracts
and filing such materials with and obtaining
approval from, the SEC, the NASD, any state
insurance regulatory authority, and any other
appropriate regulatory authority, to the extent
required
========================================================================================================
</TABLE>
31
Exhibit 1.8.(a)(2)
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
Liberty Life Assurance Company of Boston ("INSURER") and A I M
ADVISORS, INC. ("AIM") (collectively, the "Parties") mutually agree to the
arrangements set forth in this Administrative Services Agreement (the
"Agreement") dated as of ___________, 1999.
WHEREAS, AIM is the investment adviser to AIM Variable Insurance Funds,
Inc. (the "Fund"); and
WHEREAS, AIM has entered into an amended Master Administrative Services
Agreement, dated May 1, 1998, with the Fund ("Master Agreement") pursuant to
which it has agreed to provide, or arrange to provide, certain administrative
services, including such services as may be requested by the Fund's Board of
Directors from time to time; and
WHEREAS, INSURER issues variable life insurance policies and/or
variable annuity contracts (collectively, the "Contracts"); and
WHEREAS, INSURER has entered into a participation agreement, dated
___________ __, 1999 ("Participation Agreement") with the Fund, pursuant to
which the Fund has agreed to make shares of certain of its portfolios
("Portfolios") available for purchase by one or more of INSURER's separate
accounts or divisions thereof (each, a "Separate Account"), in connection with
the allocation by Contract owners of purchase payments to corresponding
investment options offered under the Contracts; and
WHEREAS, INSURER and AIM expect that the Fund, and its Portfolios, can
derive substantial savings in administrative expenses by virtue of having one or
more Separate Accounts of INSURER each as a single shareholder of record of
Portfolio shares, rather than having numerous public shareholders of such
shares; and
WHEREAS, INSURER and AIM expect that the Fund, and its Portfolios, can
derive such substantial savings because INSURER performs the administrative
services listed on Schedule A hereto for the Fund in connection with the
Contracts issued by INSURER; and
WHEREAS, INSURER has no contractual or other legal obligation to
perform such administrative services, other than pursuant to this Agreement and
the Participation Agreement; and
WHEREAS, INSURER desires to be compensated for providing such
administrative services; and
1
<PAGE>
WHEREAS, AIM desires that the Fund benefit from the lower
administrative expenses resulting from the administrative services performed by
INSURER; and
WHEREAS, AIM desires to retain the administrative services of INSURER
and to compensate INSURER for providing such administrative services;
NOW, THEREFORE, the Parties agree as follows:
Section 1. Administrative Services; Payments Therefor.
------------------------------------------
(a) INSURER shall provide the administrative services set out in
Schedule A hereto and made a part hereof, as the same may be amended from time
to time. For such services, AIM agrees to pay to INSURER a quarterly fee
("Quarterly Fee") equal to a percentage of the average daily net assets of the
Fund attributable to the Contracts issued by INSURER ("INSURER Fund Assets") at
the following annual rates:
<TABLE>
<CAPTION>
Annual Rate Total Average Quarterly Net Assets for All Portfolios
----------- -----------------------------------------------------
<S> <C>
0.__% Less than $100 million
0.__% $100 million or more
</TABLE>
(b) AIM shall calculate the Quarterly Fee at the end of each calendar
quarter and will make such payment to INSURER, without demand or notice by
INSURER, within 30 days thereafter, in a manner mutually agreed upon by the
Parties from time to time.
(c) From time to time, the Parties shall review the Quarterly Fee to
determine whether it exceeds or is reasonably expected to exceed the incurred
and anticipated costs, over time, of INSURER. The Parties agree to negotiate in
good faith a reduction to the Quarterly Fee as necessary to eliminate any such
excess or as necessary to reflect a reduction in the fee paid by the Fund to AIM
pursuant to the Master Agreement.
Section 2. Nature of Payments.
------------------
The Parties to this Agreement recognize and agree that AIM's payments
hereunder are for administrative services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution of
Contracts or of Portfolio shares, and are not otherwise related to investment
advisory or distribution services or expenses. INSURER represents and warrants
that the fees to be paid by AIM for services to be rendered by INSURER pursuant
to the terms of this Agreement are to compensate the INSURER for providing
administrative services to the Fund, and are not designed to reimburse or
compensate INSURER for providing administrative services with respect to the
Contracts or any Separate Account.
2
<PAGE>
Section 3. Term and Termination.
--------------------
Any Party may terminate this Agreement, without penalty, on 60 days
written notice to the other Party. Unless so terminated, this Agreement shall
continue in effect for so long as AIM or its successor(s) in interest, or any
affiliate thereof, continues to perform in a similar capacity for the Fund, and
for so long as INSURER provides the services contemplated hereunder with respect
to Contracts under which values or monies are allocated to a Portfolio.
Section 4. Amendment.
---------
This Agreement may be amended upon mutual agreement of the Parties in
writing.
Section 5. Notices.
-------
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
100 Liberty Way
Dover, New Hampshire 03820 Facsimile:
Attn: Morton E. Spitzer
EVP and COO Individual
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON
175 Berkley Street
Boston, Massachusetts 02117
Facsimile:
Attn: William J. O'Connell
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attention: Nancy L. Martin, Esquire
3
<PAGE>
Section 6. Miscellaneous.
-------------
(a) Successors and Assigns. This Agreement shall be binding upon the
Parties and their transferees, successors and assigns. The benefits of and the
right to enforce this Agreement shall accrue to the Parties and their
transferees, successors and assigns.
(b) Assignment. Neither this Agreement nor any of the rights,
obligations or liabilities of any Party hereto shall be assigned without the
written consent of the other Party.
(c) Intended Beneficiaries. Nothing in this Agreement shall be
construed to give any person or entity other than the Parties, as well as the
Fund, any legal or equitable claim, right or remedy. Rather, this Agreement is
intended to be for the sole and exclusive benefit of the Parties, as well as the
Fund.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall together constitute
one and the same instrument.
(e) Applicable Law. This Agreement shall be interpreted, construed, and
enforced in accordance with the laws of the State of Delaware without reference
to the conflict of law principles thereof.
(f) Severability. If any portion of this Agreement shall be found to be
invalid or unenforceable by a court or tribunal or regulatory agency of
competent jurisdiction, the remainder shall not be affected thereby, but shall
have the same force and effect as if the invalid or unenforceable portion had
not been inserted.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date of first above written.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
By: __________________________________
Title: ___________________________________
A I M ADVISORS, INC.
By: __________________________________
Title: ___________________________________
4
<PAGE>
SCHEDULE A
----------
ADMINISTRATIVE SERVICES FOR
---------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
----------------------------------
INSURER shall provide certain administrative services respecting the
operations of the Fund, as set forth below. This Schedule, which may be amended
from time to time as mutually agreed upon by INSURER and AIM, constitutes an
integral part of the Agreement to which it is attached. Capitalized terms used
herein shall, unless otherwise noted, have the same meaning as the defined terms
in the Agreement to which this Schedule relates.
A. Records of Portfolio Share Transactions; Miscellaneous Records
--------------------------------------------------------------
1. INSURER shall maintain master accounts with the Fund, on behalf of
each Portfolio, which accounts shall bear the name of INSURER as the record
owner of Portfolio shares on behalf of each Separate Account investing in the
Portfolio.
2. INSURER shall maintain a daily journal setting out the number of
shares of each Portfolio purchased, redeemed or exchanged by INSURER that are
attributable to Contract owners each day, as well as the net purchase or
redemption orders for Portfolio shares submitted each day, to assist AIM, the
Fund and/or the Fund's transfer agent in tracking and recording Portfolio share
transactions, and to facilitate the computation of each Portfolio's net asset
value per share. INSURER shall promptly provide AIM, the Fund, and the Fund's
transfer agent with a copy of such journal entries or information appearing
thereon in such format as may be reasonably requested from time to time. INSURER
shall provide such other assistance to AIM, the Fund, and the Fund's transfer
agent as may be necessary to cause various Portfolio share transactions effected
by INSURER that are attributed to Contract owners to be properly reflected on
the books and records of the Fund.
3. In addition to the foregoing records, and without limitation,
INSURER shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing administrative services
hereunder.
B. Order Placement and Payment
---------------------------
1. INSURER shall determine the net amount to be transmitted to the
Separate Accounts as a result of redemptions of each Portfolio's shares based on
redemption requests by INSURER that are attributable to Contract owners and
shall disburse or credit to the Separate Accounts all proceeds of redemptions of
Portfolio shares. INSURER shall notify the Fund of the cash required to meet
redemption payments.
2. INSURER shall determine the net amount to be transmitted to the Fund
as a result of purchases of Portfolio shares based on purchase payments and
transfers by INSURER that are attributable to Contract owners and that are
allocated to the Separate Accounts investing in each Portfolio. INSURER shall
transmit net purchase payments to the Fund's custodian.
5
<PAGE>
C. Accounting Services
-------------------
INSURER shall perform miscellaneous accounting services as may be
reasonably requested from time to time by AIM, which services shall relate to
the business contemplated by the Participation Agreement between INSURER and the
Fund, as amended from time to time. Such services shall include, without
limitation, periodic reconciliation and balancing of INSURER's books and records
with those of the Fund with respect to such matters as cash accounts, Portfolio
share purchase and redemption orders placed with the Fund, dividend and
distribution payments by the Fund, and such other accounting matters that may
arise from time to time in connection with the operations of the Fund as related
to the business contemplated by the Participation Agreement.
D. Reports
-------
INSURER acknowledges that AIM may, from time to time, be called upon by
the Fund's Board of Directors ("Board"), to provide various types of information
pertaining to the operations of the Fund and related matters, and that AIM also
may, from time to time, decide to provide such information to the Board in its
own discretion. Accordingly, INSURER agrees to provide AIM with such assistance
as AIM may reasonably request so that AIM can report such information to the
Fund's Board in a timely manner. INSURER acknowledges that such information and
assistance shall be in addition to the information and assistance required of
INSURER pursuant to the Fund's mixed and shared funding SEC exemptive order,
described in the Participation Agreement.
INSURER further agrees to provide AIM with such assistance as AIM may
reasonably request with respect to the preparation and submission of reports and
other documents pertaining to the Fund to appropriate regulatory bodies and
third party reporting services.
E. Fund-related Contract Owner Services
------------------------------------
INSURER agrees to print and distribute, in a timely manner, prospectuses,
statements of additional information, supplements thereto, periodic reports,
proxy materials and any other materials of the Fund required by law or otherwise
to be given to its shareholders, including, without limitation, Contract owners
investing in Portfolio shares. INSURER further agrees to provide telephonic
support for Contract owners, including, without limitation, advice with respect
to inquiries about the Fund and each Portfolio thereof (not including
information about performance or related to sales), communicating with Contract
owners about Fund (and Separate Account) performance, and assisting with proxy
solicitations, specifically with respect to soliciting voting instructions from
Contract owners.
F. Miscellaneous Services
----------------------
INSURER shall provide such other administrative support to the Fund as mutually
agreed between INSURER and AIM or the Fund from time to time. INSURER shall,
from time to time, relieve the Fund of other usual or incidental administration
services of the type ordinarily borne by mutual funds that offer shares to
individual members of the general public.
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the ____ day of April, 1999, between
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, a life insurance company organized
under the laws of the Commonwealth of Massachusetts ("Insurance Company"), and
each of 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) (each, a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control
of the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement
<PAGE>
of the parties hereto, the shares of which are available to serve as the
underlying investment medium for the aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean each of the separate accounts specified in
Exhibit B, as such Exhibit may be amended from time to time by agreement
of the parties hereto, that has been established by Insurance Company in
accordance with the laws of the Commonwealth of Massachusetts.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a
Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Massachusetts General Laws Chapter 175, - section 132G for the purpose
of offering to the public certain individual and group variable annuity
and life insurance contracts; (c) it has registered the Separate Account
as a unit investment trust under the Act to serve as the segregated
investment account for the Contracts; and (d) the Separate Account is
eligible to invest in shares of each Participating Fund without such
investment disqualifying any Participating Fund as an investment medium
for insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions imposed by state insurance law and applicable to
the Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without
-2-
<PAGE>
regard to other income, gains or losses from assets allocated to any
other accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account are and will be kept
separate from Insurance Company's General Account and any other separate
accounts Insurance Company may have, and will not be charged with
liabilities from any business that Insurance Company may conduct or the
liabilities of any companies affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating
Fund to operate and offer its shares as an underlying investment medium
for Participating Companies.
2.5 Each Participating Fund agrees to use its best efforts to provide
information about the Participating Fund to Insurance Company, upon
Insurance Company's reasonable prior written notice, which is required
by applicable state insurance laws or regulations to enable Insurance
Company to issue and sell the Contracts in compliance in all material
respects with applicable state laws.
2.6 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every
effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify Insurance
Company immediately upon having a reasonable basis for believing that it
has ceased to so qualify or that it might not so qualify in the future.
2.7 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate, under
applicable provisions of the Code, and that it will make every effort to
maintain such treatment and that it will notify each Participating Fund
and Dreyfus immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not
be so treated in the future. Insurance Company agrees that any
prospectus offering a Contract that is a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
2.8 Each Participating Fund represents and warrants that its assets shall be
managed and invested in a manner that complies with the requirements of
Section 817(h) of the Code.
2.9 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.10 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the
-3-
<PAGE>
money and/or securities of the Participating Fund are and shall continue
to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Participating Fund in an amount not less
than that required by Rule 17g-1 under the Act. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
coverage required to be maintained by the Participating Fund. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.12 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
2.13 Each Participating Fund agrees that if its shares are purchased by an
unregistered separateaccount (an "Unregistered Account"), the insurance
company that established the Unregistered Account will represent and
warrant in writing to the Participating Fund that:
a. the principal underwritdealer under the Securities Exchange Act
of 1934, as oker- amended;
b. shares of the Participasecurities held by the Unregistered
Account; andnvestment
c. insurance company, on bshares of the Participating Fund held by
the Unregistered Account in the same proportion as the vote of
all other holders of such shares, and (2) refrain from
substituting another security for such shares unless the
Commission has approved such substitution in the manner provided
in Section 26 of the Act.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company
and the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good
-4-
<PAGE>
faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary and in the best interests of the
Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund
will be sold only to (a) Participating Companies and their separate
accounts or (b) "qualified pension or retirement plans" as determined
under Section 817(h)(4) of the Code. Except as otherwise set forth in
this Section 3.3, no shares of any Participating Fund will be sold to
the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing
net asset value, dividend and capital gain information on a per-share
basis to Insurance Company by 6:00 p.m. Eastern time on each Business
Day. Any material errors in the calculation of net asset value, dividend
and capital gain information shall be reported immediately by the
Participating Fund upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset value per
share. If any Participating Fund provides materially incorrect share net
asset value information, Insurance Company shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the
correct net asset value per share. Each party to this Agreement shall
have the right to rely on information or confirmations provided by the
other party (or by that party's designee), and shall not be liable in
the event that an error results from any incorrect information or
confirmations supplied by the other party (or by that party's designee).
If an error is made in reliance upon incorrect information or
confirmations, any amount required to make an account of a
Contractholder whole shall be borne by the party who provided the
incorrect information or confirmation.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit
values of the Separate Account for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of each Participating Fund's shares that will be purchased
or redeemed at that day's closing net asset value per share. The net
purchase or redemption orders will be transmitted to each Participating
Fund by Insurance Company by 11:00 a.m. Eastern time on the Business Day
next following Insurance Company's receipt of that information. Subject
to Sections 3.6 and 3.8, all purchase and redemption orders for
Insurance Company's General Accounts shall be effected at the net asset
value per share of each Participating Fund next calculated after receipt
of the order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund
-5-
<PAGE>
shares, the conditions specified in Section 3.8, as applicable, are
satisfied. A redemption or purchase request that does not satisfy the
conditions specified above and in Section 3.8, as applicable, will be
effected at the net asset value per share computed on the Business Day
immediately preceding the next following Business Day upon which such
conditions have been satisfied in accordance with the requirements of
this Section and Section 3.8. Insurance Company represents and warrants
that all orders submitted by the Insurance Company for execution on the
effective trade date shall represent purchase or redemption orders
received from Contractholders prior to the close of trading on the New
York Stock Exchange on the effective trade date.
3.7 Insurance Company will use its best efforts to notify each applicable
Participating Fund in advance of any purchase or redemption order valued
at or greater than $1 million.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 2:00 p.m. Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. If Insurance Company's order requests the purchase of
shares of more than one Participating Fund, Insurance Company shall
combine such order and transmit one net payment to a designated
custodial account as long as, simultaneously with such payment,
Insurance Company provides Dreyfus with the written details of such
order, including the amount of such order per Participating Fund. Each
applicable Participating Fund will execute purchase orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by a Participating Fund after 2:00 p.m. Eastern
time on such Business Day, Insurance Company shall promptly, upon each
applicable Participating Fund's request, reimburse the respective
Participating Fund for any charges, costs, fees, interest or other
expenses incurred by the Participating Fund in connection with any
advances to, or borrowings or overdrafts by, the Participating Fund, or
any similar expenses incurred by the Participating Fund, as a result of
portfolio transactions effected by the Participating Fund based upon
such purchase request. If Insurance Company's order requests the
redemption of any Participating Fund's shares valued at or greater than
$1 million, the Participating Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will
-6-
<PAGE>
record shares ordered from a Participating Fund in an appropriate title
for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital
gain, if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date; provided, however, that Insurance Company reserves the right, upon
prior written notice to the Participating Fund, to receive all such
dividends and capital gains in cash. Each Participating Fund shall, on
the day after the ex-dividend date or, if not a Business Day, on the
first Business Day thereafter, notify Insurance Company of the number of
shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Paeach month for all of Insurance Company's accounts by the
fifteenth (15th) of Businessof the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices,
periodic reports and other printed materials (which the Participating
Fund customarily provides to its shareholders) in quantities as
Insurance Company may reasonably request for distribution to each
Contractholder and Participant. If requested by Insurance Company, a
Participating Fund or its designee shall provide such documentation
(including a "camera ready" copy of the Prospectuses as set in type or,
at the request of Insurance Company, as a diskette in the form sent to
the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once a year (or more frequently if the
Prospectuses are supplemented or amended) to have the prospectus for the
Contracts and the Prospectuses printed together in one document.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Participating Fund or
its shares, contemporaneously with the filing of such document with the
Commission or other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other
-7-
<PAGE>
promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
to the Contracts or the Separate Account, contemporaneously with the
filing of such document with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be included
in the determination of the Participating Fund's daily net asset value
per share.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's
Prospectus, or marketing materials for prospective Insurance
Company Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to time.
b. Distribution expenses of any Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc., and, in particular, has reviewed the conditions to the
relief set forth in each related Notice. As set forth therein, if
Dreyfus Variable Investment Fund, Dreyfus Life and Annuity Index Fund,
Inc., or The Dreyfus Socially Responsible Growth Fund, Inc. is a
Participating Fund, Insurance Company agrees, as applicable, to report
any potential or existing conflicts promptly to the respective Board of
Dreyfus
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Variable Investment Fund, Dreyfus Life and Annuity Index Fund, Inc.
and/or The Dreyfus Socially Responsible Growth Fund, Inc., and, in
particular, whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting each applicable
Board in carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a view
to the interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include, but
shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under, or
otherwise affect the operation of, Article V.
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ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be responsible for assuring that
voting the Participating Fund shares for the Separate Account is
conducted in a manner consistent with other Participating Companies.
Insurance Company reserves the right to vote Participating Fund shares
held in a Separate Account without regard to the instructions from
Contractholders or Participants to the extent permitted by law.
7.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) under the Act are
amended, or if Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the Act or the rules thereunder with respect to mixed
and shared funding on terms and conditions materially different from any
exemptions granted in the orders referred to in Section 6.1 hereof, then
the Participating Funds, and/or the Participating Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent required by the Commission.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
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b. Other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating
Fund, its investment adviser or the administrator is named, at least
fifteen Business Days prior to its use. No such material shall be used
unless the Participating Fund or its designee approves such material.
Such approval (if given) must be in writing and shall be presumed not
given if not received within ten Business Days after receipt of such
material. Each applicable Participating Fund or its designee, as the
case may be, shall use all reasonable efforts to respond within ten days
of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished,
to Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company
approves such material. Such approval (if given) must be in writing and
shall be presumed not given if not received within ten Business Days
after receipt of such material. Insurance Company shall use all
reasonable efforts to respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning Insurance
Company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from
time to time, or in published reports for the Separate Account that are
in the public domain or approved
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<PAGE>
by Insurance Company for distribution to Contractholders or
Participants, or in sales literature or other promotional material
approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any
other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted) for
which the Indemnified Parties may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect to thereof) (i) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in information furnished by Insurance Company for use in the
registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund or with respect to
the Separate Account or Contracts, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or representations
contained in the Prospectus and sales literature or advertisements of
the respective Participating Fund) of Insurance Company or its agents,
with respect to the sale and distribution of Contracts for which the
respective Participating Fund's shares are an underlying investment;
(iii) arise out of the wrongful conduct of Insurance Company or persons
under its control with respect to the sale or distribution of the
Contracts or the respective Participating Fund's shares; (iv) arise out
of Insurance Company's incorrect calculation and/or untimely reporting
of
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net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result of
any failure by Insurance Company to provide the services and furnish the
materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the respective Participating Fund specifically for
use therein. This indemnity agreement will be in addition to any
liability which Insurance Company may otherwise have. Insurance Company
shall not be liable under this indemnification provision with respect to
any losses, claims, damages or liabilities to which an Indemnified Party
would otherwise be subject to the extent that any such loss, claim,
damage or liability arises out of or results from such Indemnified
Party's willful misfeasance, bad faith or gross negligence in the
performance of such Indemnified Party's duties or such Indemnified
Party's reckless disregard of its obligations or duties under this
Agreement.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the
meaning of the 1933 Act against any losses, claims, damages or
liabilities to which Insurance Company or any such director, officer,
employee, agent or controlling person may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (1) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements of the respective Participating Fund; (2)
arise out of or are based upon the omission to state in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund any material fact required to be stated
therein or necessary to make the statements therein not misleading; (3)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or Prospectus or sales literature or advertisements with respect to the
Separate Account or the Contracts and such statements were based on
information provided to Insurance Company by the respective
Participating Fund; (4) arise out of any breach by the respective
Participating Fund of a material term of this Agreement or as a result
of any failure by the respective Participating Fund to provide the
services and furnish the materials or to make any payments provided for
in this Agreement; or (5) arise out of or are based upon the respective
Participating Fund's failure to comply with the requirements set forth
in Subchapter M of the Code or Section 817(h) of the Code and the rules
and regulations thereunder. Participating Fund will reimburse any legal
or other expenses reasonably incurred by Insurance Company or any such
director, officer, employee, agent or controlling person in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the respective Participating Fund
will
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<PAGE>
not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such registration
statement, Prospectus, sales literature or advertisements in conformity
with written information furnished to the respective Participating Fund
by Insurance Company specifically for use therein. This indemnity
agreement will be in addition to any liability which the respective
Participating Fund may otherwise have. A Participating Fund shall not be
liable under this indemnification provision with respect to any losses,
claims, damages or liabilities to which Insurance Company would
otherwise be subject to the extent that any such loss, claim, damage or
liability arises out of or results from Insurance Company's willful
misfeasance, bad faith or gross negligence in the performance of its
duties or Insurance Company's reckless disregard of its obligations or
duties under this Agreement.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of
the daily net asset value, dividend rate or capital gain distribution
rate; (2) incorrect reporting of the daily net asset value, dividend
rate or capital gain distribution rate; and (3) untimely reporting of
the net asset value, dividend rate or capital gain distribution rate;
provided that the respective Participating Fund shall have no obligation
to indemnify and hold harmless Insurance Company if the incorrect
calculation or incorrect or untimely reporting was the result of
incorrect information furnished by Insurance Company or information
furnished untimely by Insurance Company or otherwise as a result of or
relating to a breach of this Agreement by Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect to the indemnified
party and is performing its obligations under this Article, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include
both the
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indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this
Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund
under Section 851 of the Code arising from purchases or redemptions by
Insurance Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company
or the Participating Fund at any time from the date hereof upon
180 days' notice, unless a shorter time is agreed to by the
respective Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company,
if shares of that Participating Fund are not reasonably available
to meet the requirements of the Contracts as determined by
Insurance Company. Prompt notice of election to terminate shall
be furnished by Insurance Company, said termination to be
effective ten days after receipt of notice unless the
Participating Fund makes available a sufficient number of shares
to meet the requirements of the Contracts within said ten-day
period;
c. As to a Participating Fund, at the option of Insurance Company,
upon the institution of formal proceedings against that
Participating Fund by the Commission, National Association of
Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in
Insurance Company's reasonable judgment, materially impair that
Participating Fund's ability to meet and perform the
Participating Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt of
notice;
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d. As to a Participating Fund, at the option of each Participating
Fund, upon the institution of formal proceedings against
Insurance Company by the Commission, National Association of
Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the
Participating Fund's reasonable judgment, materially impair
Insurance Company's ability to meet and perform Insurance
Company's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by such Participating
Fund with said termination to be effective upon receipt of
notice;
e. As to a Participating Fund, at the option of that Participating
Fund, if the Participating Fund shall determine, in its sole
judgment reasonably exercised in good faith, that Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus,
such Participating Fund shall notify Insurance Company in writing
of such determination and its intent to terminate this Agreement,
and after considering the actions taken by Insurance Company and
any other changes in circumstances since the giving of such
notice, such determination of the Participating Fund shall
continue to apply on the sixtieth (60th) day following the giving
of such notice, which sixtieth day shall be the effective date of
termination;
f. As to a Participating Fund, at the option of Insurance Company,
if the Insurance Company shall determine, in its sole judgment
reasonably exercised in good faith, that the Participating Fund
has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity is likely to have a material adverse impact upon the
business and operation of Insurance Company, Insurance Company
shall notify the Participating Fund in writing of such
determination and its intent to terminate this Agreement, and
after considering the actions taken by the Participating Fund and
any other changes in circumstances since the giving of such
notice, such determination of Insurance Company shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
g. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or
its successors unless Insurance Company specifically approves the
selection of a new Participating Fund investment adviser. Such
Participating Fund shall promptly furnish notice of such
termination to Insurance Company;
h. As to a Participating Fund, in the event that Participating
Fund's shares are not registered, issued or sold in accordance
with applicable federal law, or such law precludes the use of
such shares as the underlying investment medium of Contracts
issued or to be issued by Insurance Company. Termination shall be
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effective immediately as to that Participating Fund only upon
such occurrence without notice;
i. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the
best interests of shareholders of that Participating Fund to
continue to operate pursuant to this Agreement. Termination
pursuant to this Subsection (h) shall be effective upon notice by
such Participating Fund to Insurance Company of such termination;
j. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
k. At the option of any party to this Agreement, upon another
party's breach of any material provision of this Agreement;
l. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
m. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e,
10.2g or 10.2l herein shall not affect the operation of Article V
of this Agreement. Any termination of this Agreement shall not
affect the operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement by Insurance Company
pursuant to Section 10.2 hereof, each Participating Fund and Dreyfus
may, at the option of Insurance Company, continue to make available
additional shares of that Participating Fund for as long as Insurance
Company desires pursuant to the terms and conditions of this Agreement
as provided below for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Notwithstanding any termination of this Agreement by a
Participating Fund pursuant to Section 10.2 hereof, the Participating
Fund and Dreyfus may, at the option of the Participating Fund, continue
to make available additional shares of the Participating Fund for as
long as the Participating Fund desires pursuant to the terms and
conditions of this Agreement as provided below for Existing Contracts.
Specifically, without limitation, if Insurance Company or a
Participating Fund, as the case may be, so elects to make additional
Participating Fund shares available, the owners of the Existing
Contracts or Insurance Company, whichever shall have legal authority to
do so, shall be permitted to reallocate investments in that
Participating Fund, redeem investments in that Participating Fund and/or
invest in that Participating Fund upon the making of additional purchase
payments under the Existing Contracts. In the event of a termination of
this Agreement by Insurance Company pursuant to Section 10.2 hereof,
Insurance Company, as promptly as is practicable under the
circumstances, shall notify the Participating Fund and Dreyfus whether
Insurance Company desires to continue to make the Participating Fund's
shares
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available after such termination. In the event of a termination
of this Agreement by a Participating Fund pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund desire to continue to make
that Participating Fund's shares available after such termination. If
such Participating Fund shares continue to be made available after any
such termination, the provisions of this Agreement shall remain in
effect and thereafter either of that Participating Fund or Insurance
Company may terminate this Agreement as to that Participating Fund, as
so continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable under
the circumstances but, if given by the Participating Fund, need not be
for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
10.5 Notwithstanding any termination of this Agreement, each party's
obligations under Section 13.1 shall survive and not be affected by any
termination of this Agreement.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the
addition or deletion of any Participating Fund as specified in Exhibit
A, shall be made by agreement in writing between Insurance Company and
each respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, Massachusetts 02117
Attn: Morton E. Spitzer, Executive Vice
President and Chief Operating Officer
--Individual
with a copy to: Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, Massachusetts 02117
Attn: William J. O'Connell, Vice President
and Counsel
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
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Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
MISCELLANEOUS XIII
13.1 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information without the
express written consent of the affected party until such time as such
information may come into the public domain. Without limiting the
foregoing, no party hereto shall disclose any information that another
party has designated as proprietary.
13.2 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
LAW XIV
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement to be duly executed and attested as of the date first above written.
LIBERTY LIFE ASSURANCE COMPANY
OF BOSTON
By:________________________________
Attest:_____________________
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By:_________________________________
Attest:_____________________
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By:_________________________________
Attest:_____________________
DREYFUS VARIABLE INVESTMENT FUND
By:__________________________________
Attest:_____________________
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EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund)
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
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EXHIBIT B
LIST OF SEPARATE ACCOUNTS
LLAC Variable Account
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AGREEMENT
AGREEMENT made as of the _____ day of April, 1999 by and between
THE DREYFUS CORPORATION ("Dreyfus"), a New York corporation, and LIBERTY LIFE
ASSURANCE COMPANY OF BOSTON ("Insurance Company"), a life insurance company
organized under the laws of the Commonwealth of Massachusetts.
WITNESSETH:
WHEREAS, each of the investment companies listed on Schedule A
hereto, as such Schedule may be amended from time to time (each, a "Dreyfus
Fund" and collectively, the "Dreyfus Funds"), is an investment company
registered under the Investment Company Act of 1940, as amended, or a series
thereof;
WHEREAS, Insurance Company, on its own behalf and on behalf of
each of the Separate Accounts identified therein (each, a "Separate Account"),
has entered into a Fund Participation Agreement (the "Participation Agreement")
with each of the Dreyfus Funds and Dreyfus Life and Annuity Index Fund, Inc.
("Dreyfus Stock Index Fund");
WHEREAS, Dreyfus provides investment advisory and/or
administrative services to the Dreyfus Funds; and
WHEREAS, Dreyfus desires that Insurance Company provide certain
administrative services which will benefit each of the Dreyfus Funds, and
Insurance Company desires to furnish such services on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, each party hereto severally agrees as follows:
1. Insurance Company agrees to provide to each of the Dreyfus
Funds the administrative services specified in Exhibit A hereto (the
"Administrative Services").
2. In consideration of the anticipated administrative expense
savings resulting to the Dreyfus Funds from Insurance Company's services,
Dreyfus agrees to pay Insurance Company at the end of each calendar month a fee
(the "Service Fee") which will accrue daily at an annual rate of _______ basis
points (_.__%) of the aggregate net asset value of all of the issued and
outstanding shares of each Dreyfus Fund held in the subaccounts of the Separate
Accounts.
3. The parties to this Agreement recognize and agree that
Dreyfus' payments to Insurance Company relate to administrative services
provided to the Dreyfus Funds and do not constitute payment in any manner for
administrative services provided by Insurance Company to the Separate Accounts
or to Contractholders (as defined in the Participation Agreement), for
investment advisory services or for costs of distribution of the Contracts (as
defined in the
<PAGE>
Participation Agreement) or shares of the Dreyfus Funds, and that these payments
are not otherwise related to investment advisory or distribution services or
expenses.
4. Insurance Company agrees to indemnify and hold harmless
Dreyfus and its directors, officers, and employees from any and all loss,
liability, damage and expense resulting from any gross negligence or willful
wrongful act of Insurance Company in performing its services under this
Agreement or from a breach of a material provision of this Agreement, except to
the extent such loss, liability, damage or expense is the result of Dreyfus'
willful misfeasance, bad faith or gross negligence in the performance of its
duties.
Dreyfus agrees to indemnify and hold harmless Insurance Company
and its directors, officers, agents and employees from any and all loss,
liability, damage and expense resulting from any gross negligence or willful
wrongful act of Dreyfus in performing its services under this Agreement or from
a breach of a material provision of this Agreement, except to the extent such
loss, liability, damage or expense is the result of Insurance Company's willful
misfeasance, bad faith or gross negligence in the performance of its duties.
Dreyfus also agrees to indemnify and hold harmless Insurance Company and its
directors, officers, agents and employees from any and all loss, liability,
damage and expense resulting from a Dreyfus Fund's or Dreyfus Stock Index Fund's
failure, whether unintentional or in good faith or otherwise, to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), or to comply with the diversification
requirements set forth in Section 817(h) of the Code and the rules and
regulations thereunder.
The provisions of this paragraph 4 shall survive and not be
affected by any termination of this Agreement to the extent that a Separate
Account remains a shareholder of a Dreyfus Fund after the date of such
termination.
5. It is understood and agreed that in performing the services
under this Agreement, Insurance Company, acting in its capacity described
herein, shall at no time be acting as an agent for Dreyfus or any of the Dreyfus
Funds. Insurance Company agrees, and agrees to cause its agents, not to make any
representations concerning a Dreyfus Fund except those contained in the Dreyfus
Fund's then current prospectus or in current sales literature furnished by the
Dreyfus Fund or Dreyfus to Insurance Company.
6. Either party hereto may terminate this Agreement, without
penalty, on 180 days' written notice to the other party; provided, however, that
this Agreement will terminate automatically, as to a Dreyfus Fund, upon the
termination of the Participation Agreement as to such Dreyfus Fund; provided
further, that this Agreement will terminate immediately upon the determination
of either party, with the advice of counsel, that the payment of the Service Fee
is in conflict with applicable law. Termination of this Agreement under the
preceding sentence is subject to payment by Dreyfus, within ten (10) days
following the termination date, of all Services Fees remaining unpaid for any
completed calendar month and pro-rated Service Fees through the termination date
for any partial calendar month.
-2-
<PAGE>
7. This Agreement, including the provisions set forth in
paragraph 2, may be amended only pursuant to a written instrument signed by the
party to be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the other
party.
8. This Agreement shall be governed by the laws of the State of
New York, without giving effect to the principles of conflicts of law of such
jurisdiction.
9. This Agreement, including its Exhibit and Schedule,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes any previous agreements and documents with
respect to such matters.
IN WITNESS HEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
By: _______________________________
Authorized Signatory
___________________________________
Print or Type Name
THE DREYFUS CORPORATION
By: _______________________________
Authorized Signatory
___________________________________
Print or Type Name
-3-
<PAGE>
SCHEDULE A
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
-4-
<PAGE>
EXHIBIT A
Maintenance of Books and Records
- --------------------------------
Assist as necessary to maintain book entry records on behalf of the
Dreyfus Funds regarding issuance to, transfer within (via net purchaser
orders), and redemption by, the Separate Accounts of Dreyfus Fund
shares.
Maintain general ledgers regarding the Separate Accounts' holdings of
Dreyfus Fund shares, coordinate and reconcile information, and
coordinate maintenance of ledgers by financial institutions and other
contract owner service providers.
Communication with the Dreyfus Funds
- ------------------------------------
Serve as the designee of the Dreyfus Funds for the receipt of purchase
and redemption orders from the Separate Accounts and the transmission of
such orders and payment therefor to the Dreyfus Funds.
Coordinate with the Dreyfus Funds' agents respecting daily valuation of
the Dreyfus Funds' shares and the Separate Accounts' units
Purchase Orders
- Determine net amount available for investment in the Dreyfus
Funds.
- Deposit receipt at the Dreyfus Funds' custodian(s) (generally by
wire transfer).
- Notify the custodian(s) of the estimated amount required to pay
dividends or distributions.
Redemption Orders
- Determine net amount required for redemptions by the Dreyfus
Funds.
- Notify the custodian(s) and the Dreyfus Funds of cash required to
meet payments.
Purchase and redeem shares of the Dreyfus Funds on behalf of the
Separate Accounts at the then-current price in accordance with the terms
of each Dreyfus Fund's then current prospectus.
Assist in routing and revising sales and marketing materials to
incorporate or reflect the comments made on behalf of the Dreyfus Funds.
Assist in enforcing procedures adopted by the Dreyfus Funds to reduce,
discourage, or eliminate market timing transactions in Dreyfus Fund
shares in order to reduce or eliminate adverse effects on the Dreyfus
Fund or its shareholders.
Processing Distributions from the Dreyfus Funds
- -----------------------------------------------
Process ordinary dividends and capital gains.
Reinvest the Dreyfus Funds' distributions.
Reports
- -------
Periodic information reporting to the Dreyfus Funds, including, but not
limited to, furnishing registration statements, prospectuses, statements
of additional information, reports, solicitations for voting
instructions, sales or promotional materials and any other SEC filings
with respect to the Separate Accounts invested in the Dreyfus Funds, as
not otherwise provided for.
-5-
<PAGE>
Periodic information reporting about the Dreyfus Funds, including any
necessary delivery of the Dreyfus Funds' prospectus and annual and
semi-annual reports to contract owners, as not otherwise provided for.
Dreyfus Fund-related Contract Owner Services
- --------------------------------------------
Maintain adequate fidelity bond or similar coverage for all Insurance
Company officers, employees, investment advisers and other individuals
or entities controlled by the Insurance Company who deal with the money
and/or securities of the Dreyfus Funds.
Provide general information with respect to Dreyfus Fund inquiries (not
including information about performance or related to sales).
Provide information regarding performance of the Dreyfus Funds and the
subaccounts of the Separate Accounts.
Oversee and assist the solicitation, counting and voting or contract
owner voting interests in the Dreyfus Funds pursuant to Dreyfus Fund
proxy statements.
Other Administrative Support
- ----------------------------
Provide other administrative and legal compliance support for the Funds
as mutually agreed upon by the Insurance Company and the Dreyfus Funds.
Relieve the Dreyfus Funds of other usual or incidental administrative
services provided to individual contract owners.
-6-
Exhibit 1.8(d)(1)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 16th day of March 1999, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, a Massachusetts corporation
(the "Company"), on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or
variable life insurance contracts (individually, the "Policy" or, collectively,
the "Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
<PAGE>
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, Liberty Life Distributors LLC, the underwriter for the
individual variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase by
such Accounts, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
order for the Shares. For purposes of this Section 1.1, the Company
shall be the designee of the Trust for receipt of such orders from
Policy owners and receipt by such designee shall constitute receipt by
the Trust; provided that the Trust receives notice of such orders by
10:00 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and
the Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall calculate such
net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may refuse to sell any Shares to the Company and the Accounts,
or suspend or terminate the offering of the Shares if such action is
required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Board acting in good faith and in light
of its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and MFS
or its affiliates. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles II, III and VII of this
Agreement is in effect to govern such sales. The Company will not
resell the Shares except to the Trust or its agents.
-2-
<PAGE>
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed
by Policy owners on that Business Day), executing such requests on a
daily basis at the net asset value next computed after receipt by the
Trust or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Trust for
receipt of requests for redemption from Policy owners and receipt by
such designee shall constitute receipt by the Trust; provided that the
Trust receives notice of such request for redemption by 10:00 a.m. New
York time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted
with respect to any Portfolio. However, with respect to payment of the
purchase price by the Company and of redemption proceeds by the Trust,
the Company and the Trust shall net purchase and redemption orders with
respect to all Portfolios and shall transmit one net payment for all of
the Portfolios in accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the
Shares by 2:00 p.m. New York time on the next Business Day after an
order to purchase the Shares is made in accordance with the provisions
of Section 1.1. hereof. In the event of net redemptions, the Trust
shall pay the redemption proceeds by 2:00 p.m. New York time on the
next Business Day after an order to redeem the shares is made in
accordance with the provisions of Section 1.4. hereof. All such
payments shall be in federal funds transmitted by wire. In the event
payment is not received by the receiving party within three (3)
Business Days after the order is placed pursuant to Section 1.1 or 1.4,
as applicable, the paying party shall reimburse the receiving party for
the reasonable cost the receiving party incurs as a result of such late
payment.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust will be recorded in an appropriate
title for the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable
on a Portfolio's Shares in additional Shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all
such income dividends and capital gains distributions in cash. The
Trust shall notify the Company of the number of Shares so issued as
payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per
share for each Portfolio available to the Company on each Business Day
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:00 p.m. New York time. In the event that the
Trust is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the
purchase and redemption of Shares. Such additional time shall be equal
to the additional time which the Trust takes to make the net asset
value available to the Company. If the Trust provides materially
incorrect share net asset value information, the Trust shall make an
adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any material
error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon
discovery to the Company. The Trust or MFS,
-3-
<PAGE>
whichever is responsible for a material pricing error, shall reimburse
the Company for the reasonable cost the Company incurs as a result of
such error.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold,
and distributed in compliance in all material respects with all
applicable state and federal laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act. The Company further
represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and
validly established the Account as a segregated asset account under
applicable law and has registered or, prior to any issuance or sale of
the Policies, will register the Accounts as unit investment trusts in
accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies,
and that it will maintain such registration for so long as any Policies
are outstanding. The Company shall amend the registration statements
under the 1933 Act for the Policies and the registration statements
under the 1940 Act for the Accounts from time to time as required in
order to effect the continuous offering of the Policies or as may
otherwise be required by applicable law. The Company shall register and
qualify the Policies for sales in accordance with the securities laws
of the various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life
insurance, endowment or annuity contract under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), that it
will maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the
Policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that Liberty Life Distributors
LLC, the underwriter for the individual variable annuity and the
variable life policies, is a member in good standing of the NASD and is
a registered broker-dealer with the SEC. The Company represents and
warrants that the Company and Liberty Life Distributors LLC will sell
and distribute such policies in accordance in all material respects
with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust shall amend the registration statement for its
Shares under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares. The
Trust shall register and qualify the Shares for sale in accordance with
the laws of the various states only if and to the extent deemed
necessary by the Trust. The Trust will use its best efforts to comply
with specific provisions of state insurance laws applicable to the
Company to the extent specifically requested in writing by the Company;
provided that the Trust shall have no other obligation to comply with
such laws.
-4-
<PAGE>
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Trust and MFS represent that the Trust and the Underwriter
will sell and distribute the Shares in accordance in all material
respects with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940
Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
any applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS
represents and warrants that it is not subject to state securities laws
other than the securities laws of The Commonwealth of Massachusetts and
that it is exempt from registration as an investment adviser under the
securities laws of The Commonwealth of Massachusetts.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the
Shares as the Company may reasonably request for distribution to
existing Policy owners whose Policies are funded by such Shares. The
Trust or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares
as the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof,
the Trust or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial
printer) and other assistance as is reasonably necessary in order for
the parties hereto once each year (or more frequently if the prospectus
for the Shares is supplemented or amended) to have the prospectus for
the Policies and the prospectus for the Shares printed together in one
document; the expenses of such printing to be apportioned between (a)
the Company and (b) the Trust or its designee in proportion to the
number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear
the cost of printing the Shares' prospectus portion of such document
for distribution to owners of existing Policies funded by the Shares
and the Company to bear the expenses of printing the portion of such
document relating to the Accounts; provided, however, that the Company
shall bear all printing expenses of such combined documents where used
for distribution to prospective purchasers or to owners of existing
Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's prospectus
in a "camera ready" or diskette format, the Trust shall be responsible
for providing the prospectus in the format in which it or MFS is
accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (e.g., typesetting expenses),
and the Company shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or
its designee. The Trust or its designee, at its expense,
-5-
<PAGE>
shall print and provide such statement of additional information to the
Company (or a master of such statement suitable for duplication by the
Company) for distribution to any owner of a Policy funded by the
Shares. The Trust or its designee, at the Company's expense, shall
print and provide such statement to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to
a prospective purchaser who requests such statement or to an owner of a
Policy not funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's
proxy materials, reports to Shareholders and other communications to
Shareholders in such quantity as the Company shall reasonably require
for distribution to Policy owners. The Trust shall provide the Company
with advance notification of its intent to file proxy solicitation
materials with the SEC.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3
above, or of Article V below, the Company shall pay the expense of
printing or providing documents to the extent such cost is considered a
distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Shares'
prospectus or prospectuses for distribution to prospective purchasers
or to owners of existing Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate
to include in the prospectus pursuant to which a Policy is offered
disclosure regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been
received in the same proportion as the Shares of such
Portfolio for which instructions have been received from
Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable
contract owners. The Company will in no way recommend action in
connection with or oppose or interfere with the solicitation of proxies
for the Shares held for such Policy owners. The Company reserves the
right to vote shares held in any segregated asset account in its own
right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate
accounts holding Shares calculates voting privileges in the manner
required by the Mixed and Shared Funding Exemptive Order. The Trust and
MFS will notify the Company of any changes of interpretations or
amendments to the Mixed and Shared Funding Exemptive Order.
-6-
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least three
(3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to
such use within three (3) Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the
Trust, MFS or their respective designees, except with the permission of
the Trust, MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for approval
within two Business Days and agrees not to unreasonably withhold such
approval. The Company shall adopt policies reasonably designed to
ensure that information concerning the Trust, MFS or any of their
affiliates which is intended for use only by brokers or agents selling
the Policies (i.e., information that is not intended for distribution
to Policy owners or prospective Policy owners) is so used, and neither
the Trust, MFS nor any of their affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker
only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or
the Accounts is named, at least three (3) Business Days prior to its
use. No such material shall be used if the Company or its designee
reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf
of the Company or concerning the Company, the Accounts, or the Policies
in connection with the sale of the Policies other than the information
or representations contained in a registration statement, prospectus,
or statement of additional information for the Policies, as such
registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to
respond to any request for approval within two Business Days and agrees
not to unreasonably withhold such approval. The parties hereto agree
that this Section 4.4. is neither intended to designate nor otherwise
imply that MFS is an underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least
one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Policies, or to the Trust or its
Shares, prior to or contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
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<PAGE>
The Company and the Trust shall also each promptly inform the other of
the results of any examination by the SEC (or other regulatory
authorities) that relates to the Policies, the Trust or its Shares, and
the party that was the subject of the examination shall provide the
other party with a copy of relevant portions of any "deficiency letter"
or other correspondence or written report regarding any such
examination.
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio,
and of any material change in the Trust's registration statement,
particularly any change resulting in change to the registration
statement or prospectus or statement of additional information for any
Account. The Trust and MFS will cooperate with the Company so as to
enable the Company to solicit proxies from Policy owners or to make
changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will
make reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates
for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited
to advertisements (such as material published, or designed for use in,
a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media), and sales literature (such as
brochures, circulars, reprints or excerpts or any other advertisement,
sales literature, or published articles), distributed or made generally
available to customers or the public, educational or training materials
or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution and Shareholder servicing expenses, then,
subject to obtaining any required exemptive orders or regulatory
approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust
in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expenses initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent
the parties hereto from otherwise agreeing to perform, and arranging
for appropriate compensation for, other services relating to the Trust
and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration
fees; preparation and filing of the Trust's proxy materials and reports
to Shareholders; setting in type and printing its prospectus and
statement of additional information (to the extent provided by and as
determined in accordance with Article III above); setting in type and
printing the proxy materials and reports to Shareholders (to the extent
provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by
any federal or state law with respect to its Shares; all taxes on the
issuance or transfer of the Shares; and the costs of distributing the
Trust's prospectuses and proxy materials to owners of Policies funded
by
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<PAGE>
the Shares and any expenses permitted to be paid or assumed by the
Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
The Trust shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies
and of distributing the Trust's Shareholder reports to Policy owners.
The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing
and distributing the Policy prospectus and statement of additional
information; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by
state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1)
of the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, as they may be amended from time to time (and any revenue
rulings, revenue procedures, notices, and other published announcements
of the Internal Revenue Service interpreting these sections), as if
those requirements applied directly to each such Portfolio. In the
event that any Portfolio is not so diversified at the end of any
applicable quarter, the Trust and MFS will make every effort to
adequately diversify the Portfolio so as to achieve compliance within
the grace periods afforded by Treas. Reg. 1.817-5 and Section 851(d) of
the Code (the "Grace Periods"). In the event that any Portfolio is not
so diversified at the end of any applicable Grace Period, the Trust or
MFS will promptly notify the Company of such non-diversification.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the
Code and that they will maintain such qualification (under Subchapter M
or any successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for
the existence of any material irreconcilable conflict between the
interests of the variable annuity contract owners and the variable life
insurance policy owners of the Company and/or affiliated companies
("contract owners") investing in the Trust. The Board shall have the
sole authority to determine if a material irreconcilable conflict
exists, and such determination shall be binding on the Company only if
approved in the form of a resolution by a majority of the Board, or a
majority of the disinterested trustees of the Board. The Board will
give prompt notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC
has granted the Mixed and Shared Funding Exemptive Order by providing
the Board, as it may reasonably request, with all information necessary
for the Board to consider any issues raised and agrees that it will be
responsible for promptly reporting any potential or existing conflicts
of which it is aware to the Board including, but not limited to, an
obligation by the
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<PAGE>
Company to inform the Board whenever contract owner voting instructions
are disregarded. The Company also agrees that, if a material
irreconcilable conflict arises, it will at its own cost remedy such
conflict up to and including (a) withdrawing the assets allocable to
some or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including
(but not limited to) another Portfolio of the Trust, or submitting to a
vote of all affected contract owners whether to withdraw assets from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their
contracts or policies, and (b) establishing a new registered management
investment company and segregating the assets underlying the Policies,
unless a majority of Policy owners materially adversely affected by the
conflict have voted to decline the offer to establish a new registered
management investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately
remedies any material irreconcilable conflict. In the event that the
Board determines that any proposed action does not adequately remedy
any material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the
disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding
Exemptive Order) on terms and conditions materially different from
those contained in the Mixed and Shared Funding Exemptive Order, then
(a) the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2,
7.3 and 7.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
7.5. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably
request so that it may carry out fully the obligations imposed upon it
by the conditions contained in the exemptive application pursuant to
which the SEC has granted exemptive relief to permit mixed and shared
funding (the "Mixed and Shared Funding Exemptive Order").
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust,
MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls the
Trust or MFS within the meaning of Section 15 of the 1933 Act, and any
agents or employees
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<PAGE>
of the foregoing (each an "Indemnified Party," or collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or expenses
(including reasonable counsel fees) to which any Indemnified Party may
become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to
the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Policies or contained in the
Policies or sales literature or other promotional material
for the Policies (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Company or its designee by or on behalf of the Trust
or MFS for use in the registration statement, prospectus or
statement of additional information for the Policies or in
the Policies or sales literature or other promotional
material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus,
statement of additional information or sales literature or
other promotional material of the Trust not supplied by the
Company or its designee, or persons under its control and
on which the Company has reasonably relied) or wrongful
conduct of the Company or persons under its control, with
respect to the sale or distribution of the Policies or
Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Trust, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
-11-
<PAGE>
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act,
and any agents or employees of the foregoing (each an "Indemnified
Party," or collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust) or expenses (including reasonable counsel fees) to which any
Indemnified Party may become subject under any statute, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to
the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading,
provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information
furnished to the Trust, MFS, the Underwriter or their
respective designees by or on behalf of the Company for use
in the registration statement, prospectus or statement of
additional information for the Trust or in sales literature
or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus,
statement of additional information or sales literature or
other promotional material for the Policies not supplied by
the Trust, MFS, the Underwriter or any of their respective
designees or persons under their respective control and on
which any such entity has reasonably relied) or wrongful
conduct of the Trust or persons under its control, with
respect to the sale or distribution of the Policies or
Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Accounts or relating to the Policies, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
-12-
<PAGE>
requirements specified in Article VI of this Agreement) or
arise out of or result from any other material breach of
this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(f) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of
the Agreement;
as limited by and in accordance with the provisions of this
Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating
Insurance Company or any Policy holder, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made
by the Company hereunder or by any Participating Insurance Company
under an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by the Company or any
Participating Insurance Company to maintain its segregated asset
account (which invests in any Portfolio) as a legally and validly
established segregated asset account under applicable state law and as
a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company
or any Participating Insurance Company to maintain its variable annuity
and/or variable life insurance contracts (with respect to which any
Portfolio serves as an underlying funding vehicle) as life insurance,
endowment or annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to
any losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of notice of commencement of any action, such Indemnified Party
will, if a claim in respect thereof is to be made against the
indemnifying party under this section, notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any Indemnified Party otherwise than under this section. In
case any such action is brought against any Indemnified Party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such Indemnified Party. After notice from the
indemnifying party of its intention to assume the defense of an action,
the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying party shall not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of
its respective officers, directors, trustees, employees or
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<PAGE>
1933 Act control persons in connection with the Agreement, the issuance
or sale of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this Article
VIII shall survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate
funding vehicles" for the Policies, as reasonably
determined by the Company. Without limiting the generality
of the foregoing, the Shares of a Portfolio would not be
"appropriate funding vehicles" if, for example, such Shares
did not meet the diversification or other requirements
referred to in Article VI hereof; or if the Company would
be permitted to disregard Policy owner voting instructions
pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and an
explanation of such cause shall be furnished to the Trust
by the Company; or
(c) at the option of the Trust or MFS upon institution of
formal proceedings against the Company by the NASD, the
SEC, or any insurance department or any other regulatory
body regarding the Company's duties under this Agreement or
related to
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<PAGE>
the sale of the Policies, the operation of the Accounts, or
the purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body regarding the Trust's or MFS' duties under
this Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt
of any necessary regulatory approvals and/or the vote of
the Policy owners having an interest in the Accounts (or
any subaccounts) to substitute the shares of another
investment company for the corresponding Portfolio Shares
in accordance with the terms of the Policies for which
those Portfolio Shares had been selected to serve as the
underlying investment media. The Company will give thirty
(30) days' prior written notice to the Trust of the Date of
any proposed vote or other action taken to replace the
Shares; or
(f) termination by either the Trust or MFS by written notice to
the Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Trust
and MFS, if the Company shall determine, in its sole
judgment exercised in good faith, that the Trust or MFS has
suffered a material adverse change in this business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised
for cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations,
the Company shall not redeem the Shares attributable to the Policies
(as opposed to the Shares attributable to the Company's assets held in
the Accounts), and the Company shall not prevent Policy owners from
allocating payments to a Portfolio that was otherwise available under
the Policies, until thirty (30) days after the Company shall have
notified the Trust of its intention to do so.
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<PAGE>
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Policies in effect on the
effective date of termination of this Agreement (the "Existing
Policies"), except as otherwise provided under Article VII of this
Agreement. Specifically, without limitation, the owners of the Existing
Policies shall be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the
Trust upon the making of additional purchase payments under the
Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile to the other party at the address
of such party set forth below or at such other address as such party may from
time to time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Attn: Morton Spitzer, EVP & COO-Individual
Facsimile No: (617) 574-5637
Copy to:
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
Facsimile No.: (617) 350-8864
Attn: William J. O'Connell, Vice President & Counsel
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
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<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required by
applicable law or regulation, shall not disclose, disseminate or
utilize such names and addresses and other confidential information
without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws. This Agreement may not be assigned by
any party without the written consent of the other parties.
13.8. Article VIII, and Sections 2.2 and 13.1, shall survive the
termination of this Agreement.
13.9. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument
are not binding upon any of the Trust's trustees, officers, employees,
agents or shareholders individually, but are binding solely upon the
assets and property of the Trust in accordance with its proportionate
interest hereunder. The Company further acknowledges that the assets
and liabilities of each Portfolio are separate and distinct and that
the obligations of or arising out of this instrument are binding solely
upon the assets or property of the Portfolio on whose behalf the Trust
has executed this instrument. The Company also agrees that the
obligations of each Portfolio hereunder shall be several and not joint,
in accordance with its proportionate interest hereunder, and the
Company agrees not to proceed against any Portfolio for the obligations
of another Portfolio.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
By its authorized officer,
By:
--------------------------------------------
Title:
-----------------------------------------
MFS VARIABLE INSURANCE TRUST,
on behalf of the Portfolios
By its authorized officer and not individually,
By:
--------------------------------------------
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By:
--------------------------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
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<PAGE>
As of March 16, 1999
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of by Separate Account Applicable to Policies
Directors
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
LLAC Variable Account Modified Single Payment MFS Growth with Income
(Est. 7/10/98) Variable Life MFS Research
MFS Utilities
MFS Emerging Growth
- ----------------------------------------------------------------------------------------------
</TABLE>
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Exhibit 1.8(d)(2)
March 16, 1999
J. Thomas Treece
President
Liberty Life Distributors LLC
100 Liberty Way
Dover, New Hampshire 03820
Re: Liberty Life Assurance Company of Boston -
MFS Variable Insurance Trust (the "Trust")
Dear Mr. Treece:
The purpose of this letter is to confirm certain financial arrangements
between Massachusetts Financial Services Company ("MFS"), the investment adviser
to the Trust, and Liberty Life Assurance Company of Boston ("Liberty Life") in
connection with Liberty Life's provision of administrative services as provided
in Exhibit A. Effective March 16, 1999, MFS or its affiliates will pay an
administrative assistance fee to Liberty Life equal, on an annualized basis, to
____% of the net assets of the Trust attributable to variable life or variable
annuity contracts offered by Liberty Life or its affiliates. Such fee shall be
paid quarterly (on a calendar year basis) in arrears and will be used by Liberty
Life to defray its costs in providing the services specified in Schedule A
hereto.
Please confirm your understanding of this arrangement by signing the
enclosed duplicate copy of this letter where indicated below and return this
duplicate copy to me.
Very truly yours,
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
Arnold D. Scott
Senior Executive Vice President
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
By:
--------------------------------
Title:
-----------------------------
JFD/clh
Enclosure
cc: Erik G. Lindahl
Lynne F. Barnett
EXHIBIT 2.
----------
William J. O'Connell, Mail Stop 07F
VICE PRESIDENT AND ASSISTANT GENERAL
COUNSEL
175 Berkeley Street
Boston, MA 02117
Telephone: (617) 574-5808
Fax: (617) 350-8864
May 14, 1999
Liberty Life Assurance Company of Boston
175 Berkeley Street
Boston, MA 02117
RE: LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
LLAC VARIABLE ACCOUNT
REGISTRATION STATEMENT ON FORM S-6 (File No. 333-65957)
Dear Sirs:
This opinion is furnished in connection with the filing of a Registration
Statement on Form S-6 ("Registration Statement") by LLAC Variable Account
("Separate Account"). The Registration Statement covers an indefinite amount of
interests under the variable portion of Modified Single Payment Variable
Universal Life Insurance Contracts ("Contracts") offered by Liberty Life
Assurance Company of Boston ("Liberty Life"). Premiums paid under modified
single payment variable universal life insurance policies offered by Liberty
Life may be allocated by Liberty Life to the Separate Account in accordance with
the owners' direction with reserves established by Liberty Life to support such
Contracts.
The Contracts are designed to provide life insurance protection and are to
be offered in a manner described in the Prospectus which is included in the
Registration Statement.
The Contracts will be sold only in jurisdictions authorizing such sales.
I have examined all such corporate records of Liberty Life and such other
documents and laws as I consider appropriate as a basis for this opinion. On the
basis of such examination, it is my opinion that:
1. Liberty Life is a corporation duly organized and validly existing
under the laws of the Commonwealth of Massachusetts.
A member of the Liberty Mutual Group
Liberty Mutual Group
<PAGE>
2. The Separate Account is an account established and maintained by
Liberty Life pursuant to the laws of the Commonwealth of Massachusetts,
under which income, gains and losses, whether or not realized, from assets
allocated to the Separate Account, are, in accordance with the Contracts,
credited to or charged against the Separate Account without regard to other
income, gains or losses of Liberty Life.
3. Assets allocated to the Separate Account will be owned by Liberty
Life. The Contracts provide that the portion of the assets of the Separate
Account equal to the reserves and other Contract liabilities with respect
to the Separate Account will not be chargeable with liabilities arising out
of any other business Liberty Life may conduct.
4. When issued and sold as described above, the Contracts will be duly
authorized and will constitute validly issued and binding obligations of
Liberty Life in accordance with their terms.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ William J. O'Connell
-------------------------------------------
William J. O'Connell
Vice President and Assistant General Counsel
WJO/hme
A member of the Liberty Mutual Group
Exhibit 6
Liberty Life Assurance Company of Boston
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Variable Universal Life Insurance
[LOGO]
Procedures
Memorandum
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Revised 05/04/99
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ISSUANCE AND RELATED TRANSACTIONS..........................................4
1. ISSUANCE..............................................................4
A. Applications and Policy Issuance.................................4
B. Effective Date of Contract and Interest Calculation..............4
C. Contract Amendments..............................................5
2. FREE LOOK.............................................................5
A. Free Look Period.................................................5
B. Delivery Date Assumptions........................................6
3. MINIMUM ISSUE LIMIT...................................................6
4. ALLOCATION TO THE SEPARATE ACCOUNT....................................6
A. Timing of the Allocation to the Separate Account.................6
5. REINSTATEMENT........................................................7
REDEMPTIONS, TRANSFERS, AND LOANS..........................................7
6. LOANS.................................................................7
A. Loans at Issue...................................................7
B. Loan at Issue Rates..............................................7
C. Preferred Loans..................................................7
D. Loan Payments....................................................7
E. Loan Repayments..................................................8
F. Source of Loans..................................................8
7. WITHDRAWALS...........................................................8
A. Minimum Amount Remaining After Partial Withdrawal................8
B. Tax Withholding..................................................9
8. TRANSFERS.............................................................9
A. Minimum Transfer Amounts and Timing..............................9
B. Telephone Transfers.............................................10
C. Confirmations of Transfer Requests..............................10
D. Asset Rebalancing...............................................10
E. Asset Allocation Models.........................................11
F. Dollar Cost Averaging...........................................11
PAYMENTS..................................................................12
9. SUBSEQUENT PREMIUM..................................................12
A. Underwriting Subsequent Premium..................................12
B. Allocation of Subsequent Premiumt................................13
C. Payment Not Honored By Bank.......................................13
DEATH.....................................................................13
10. DEATH BENEFIT.......................................................13
A. Definition of Due Proof of Death................................13
B. Death Benefit Calculation.......................................14
EXHIBIT 1.................................................................15
</TABLE>
2
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
Memorandum Regarding Issuance, Face Amount Increases,
Redemption and Transfer Procedures
Date:
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This memorandum sets forth the information called for by Rule
6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 (the "1940 Act")
with respect to procedures for issuance, face amount increases, redemptions and
transfers under the modified single payment variable life insurance Contract
forms SPV-9890 and SPV-9891, or state-specific variations of such contract forms
("Contracts") offered through LLAC Variable Account (the "Separate Account") of
the Liberty Life Assurance Company of Boston ("Liberty Life"). That rule
provides an exemption for separate accounts, their investment advisors,
principal underwriters and sponsoring insurance companies from Sections 2(c),
22(d), 22(e), and 27(c)(1) of the 1940 Act and Rule 22c-1 thereunder for
issuance, face amount increase, transfer and redemption procedures under
flexible premium variable life insurance policies to the extent necessary to
comply with Rule 6e-3(T), state insurance law and regulations, and established
administrative procedures of the life insurance company. In order to qualify for
the exemption, procedures must be reasonable, fair and not discriminatory and
they must be disclosed in the registration statement filed by a separate
account. In certain states the Contracts may be offered as group contracts with
individual ownership represented by Certificates. The discussion of Contracts in
this document applies equally to Certificates under group contracts, unless the
context specifies otherwise.
Liberty Life believes its procedures meet the requirements of Rule
6e-3(T)(b)(12)(iii) and states the following:
1. Because of the insurance nature of the contract and due to the requirements
of state insurance laws, the procedures necessarily differ in significant
respects from procedures for mutual funds and contractual plans for which
the 1940 Act was designed.
2. Many of the procedures used by Liberty Life have been adopted from
established procedures for variable universal life insurance contracts of
other companies and from Liberty Life's established procedures for its
universal life insurance contracts and modified single premium whole life
insurance contract.
3. In structuring its procedures to comply with Rule 6e3(T), state insurance
laws and established administrative procedures, Liberty Life has attempted
to comply with the intent of the 1940 Act.
4. In general, state insurance laws require that Liberty Life procedures be
reasonable, fair and not discriminatory.
5. Because of the nature of the insurance product, it is often difficult to
determine precisely when Liberty Life procedures deviate from those
required under Sections 22(d), 22(e) or 27(c)(1) of the 1940 Act or Rule
22c-1 thereunder. Accordingly, set out below is a summary of the principal
contract provisions and procedures not otherwise described in the
prospectus which may be deemed to constitute, either directly or
indirectly, such a deviation. The summary, while comprehensive, does not
attempt to treat each and every procedure or variation which might occur
and includes certain procedural steps which do not constitute deviations
from the above-cited sections or rule.
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3
<PAGE>
Issuance and Related Transactions
1. Issuance
A. Applications and Policy Issuance
An applicant may apply to purchase a contract by submitting a written
application to Liberty Life through one of our authorized agents. We
will not issue contracts to insure people who are older than age 85.
Upon receipt of a completed application, Liberty Life will follow
certain insurance underwriting (e.g. evaluation of risks) procedures
designed to determine whether the applicant is insurable. This process
may involve such verification procedures as medical examinations and
blood testing, and may require that further information be provided by
the proposed insured before a determination can be made. A Contract
will not be issued until the underwriting procedure has been completed.
Acceptance of an application is subject to Liberty Life's insurance
underwriting rules.
B. Effective Date of Contract and Interest Calculation
The Contract Date is the effective date of insurance coverage under the
Contract. Liberty Life uses the Contract Date to determine Contract
Anniversaries, Contract Years and Monthly Dates. If an application is
taken by an authorized agent of Liberty Life, and is approved through
simplified underwriting by Liberty Life, the Contract Date will be the
date of application, provided the initial payment is submitted with the
application. The authorized agent of Liberty Life is instructed to
forward the initial payment and application to the Liberty Life Service
Center ("Service Center"). If the initial payment is received at the
Service Center within ten business days of the application date,
Liberty Life will assign the application date as the Contract Date and
interest will begin to be credited and charges accrued as of this date.
If Liberty Life does not receive the initial payment within ten
business days of the application date, or if the initial payment is
dated later than the application date, Liberty Life reserves the right
to amend the Contract Date to the date that payment is received in the
Service Center. If the Contract Date is amended, Liberty Life will
begin crediting interest and deducting monthly charges as of the
amended Contract Date. Liberty Life will honor the initial Contract
Date if the application and initial payment are lost in the mail and
the envelope in which they are received is postmarked within ten days
of the application date. If the application and initial payment are
received more than thirty days from the application date, Liberty Life
will return the initial payment, and request that a new application be
submitted.
If the application requires full underwriting and is approved, the
Contract Date will be the date the authorized agent of Liberty Life
takes the initial payment. Interest will be credited at the Fixed
Account interest rate, beginning on the Contract Date. Any Contract
charges will be deducted as of the Contract Date. If the application
requires full underwriting, and the application is submitted without
the initial payment, when an authorized agent of Liberty Life delivers
your Contract Liberty Life will require sufficient payment to place
insurance in force. The Contract Date will be the date an authorized
agent of Liberty Life receives the initial payment.
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4
<PAGE>
If an application requires full underwriting, and an initial payment
has been accepted by an authorized agent of Liberty Life, Liberty Life
will issue a Temporary Insuring Agreement. Temporary insurance is
subject to the terms and maximums stated in the Temporary Insuring
Agreement.
If the application is declined by Liberty Life, or issued other than
applied for and declined by the proposed insured, the initial payment
will be refunded to the proposed owner adding the greater of the then
current interest rate of the Fixed Account or the rate required by the
Issue State. If the proposed insured refuses a policy, which is offered
as applied for, the initial payment will be refunded to the proposed
owner without interest.
C. Contract Amendments
A Contract Amendment is a change to certain information shown on the
Contract application (see Exhibit 1). If there is a change to this
certain Contract information, Liberty Life will send out a Contract
Amendment for signature. Any Contract with a Contract Amendment will be
assigned a Contract Date that is equal to the date the Amendment is
signed. Liberty Life will not allocate the Initial Payment to the
Separate Account until the Contract Amendment is received at the
Service Center. Once the signed Contract Amendment is received at the
Service Center, the Free Look Period will begin as of the date the
Amendment is signed. If the Contract Amendment is outstanding for
thirty days, Liberty Life will cancel the Contract and return the
premium to the Contract Owner without interest.
2. Free Look
A. Free Look Period
The Contract Owner may cancel the Contract by returning it to us within
the Free Look period as provided by state law. The following table sets
out the Free Look period for each state on non-replacement business:
<TABLE>
<S> <C>
-------------------------------------------------------------------------
10 Day Free Look Period
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AL, AK, AZ, AR, CA, CT, DC, DE, FL, GA, HI, IL, IN, IA, KS, KY, LA, ME,
MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, OH, OK, OR, PA,
RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY
-------------------------------------------------------------------------
15 Day Free Look Period
-------------------------------------------------------------------------
CO
-------------------------------------------------------------------------
20 Day Free Look Period
-------------------------------------------------------------------------
ID, ND
-------------------------------------------------------------------------
</TABLE>
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5
<PAGE>
If the Contract Owner returns the Contract during the Free Look Period,
coverage terminates and Liberty Life will pay the Contract Owner an
amount equal to their Initial Payment or Account Value, as required by
state law.
B. Delivery Date Assumptions
If the Contract Date is the same as the date the application is
approved, Liberty Life will begin the Free Look Period on the Contract
Date and move the payment from the Fixed Account to the Separate
Account at the end of the Free Look Period plus five days. If the
approval date of the application is later than the Contract Date, the
Free Look Period will begin five days after the policy has been issued
and mailed from the Service Center and the payment will be moved from
the Fixed Account to the Separate Account at the end of the Free Look
period plus five days. If the application is submitted without the
initial payment, and Liberty Life approves the Contract, the Free Look
Period will begin on the day an authorized agent of Liberty Life has
delivered the Contract and collected the initial payment. In states
that require a delivery notice (California, Colorado and West Virginia)
Liberty Life will begin the Free Look period as of the date the
delivery notice or the Contract Amendment is signed.
If a Contract is issued with a Contract Amendment, Liberty Life will
not consider a Contract to be delivered until any and all outstanding
Contract Amendments have been signed and received. Liberty Life will
begin the Free Look Period for Contracts with Amendments on the date
the Amendment is signed. If an outstanding Amendment is not signed and
returned to the Service Center, Liberty Life reserves the right to
withdraw the offer of coverage, and return any premium without
interest.
3. Minimum Issue Limit
The initial payment purchases a Death Benefit initially equal to the
Contract's Initial Death Benefit. The minimum initial payment is
$10,000. In the case of 1035 exchange, which at the time of sale was
estimated to be worth $10,000, Liberty Life will accept the actual
payment received as the initial payment, waiving the $10,000 minimum.
4. Allocation to the Separate Account
A. Timing of the Allocation to the Separate Account
When administering a Modified Single Premium Contract, Liberty Life
allocates the initial payment to the Fixed Account as of the Contract
Date. Liberty Life generally will then reallocate that amount
(including any interest) among the Separate Account and the Fixed
Account, in accordance with instructions from the Contract Owner, five
days after the end of the Free Look Period (see Free Look Period, 2A.).
Allocation of the initial payment into the Separate Account will be
delayed if Contract Amendments are needed. Once all outstanding
Contract Amendments are received, Liberty Life will begin the Free Look
Period based on the latest dates the amendments were signed and
allocate the Payment plus interest to the Separate Account five days
after the end of the Free Look Period.
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6
<PAGE>
5. Reinstatement
If a Contract lapses because of insufficient Surrender Value to cover
the monthly deductions, and it has not been surrendered, it may be
reinstated at any time within five years from the end of the Grace
Period and before the Maturity Date. Reinstatement is subject to:
A. Receipt of evidence of insurability satisfactory to Liberty Life;
B. Payment of the next three monthly deductions from the date of
reinstatement, plus any outstanding interest on indebtedness and
any outstanding fees that had accrued prior to lapse. (Note:
Interest does not accrue during the lapse period).
C. Reinstatement of any indebtedness against the Contract. If
outstanding indebtedness is repaid in full during the
reinstatement period, it will always be sufficient to reinstate a
Modified Single Premium Contract even if the indebtedness is less
than the amount otherwise necessary to reinstate the Contract.
The effective date of reinstatement of a Contract will be the date that
Liberty Life approves the reinstatement request. Suicide and
incontestability provisions will apply from the effective date of
reinstatement.
Redemptions, Transfers, and Loans
6. Loans
A. Loans at Issue
Loans at Issue are permissible by Liberty Life only in the case of a
1035 Exchange. Liberty Life will accept outstanding loans that are not
greater than 40 percent of the total account value exchanged. Liberty
Life reserves the right to change Loan at Issue limits at its
discretion. Changes will be applied uniformly to all applicants.
B. Loans at Issue Rates
Loans at Issue will be charged at a rate of 4.25%. Liberty Life will
credit interest on the outstanding loan balance at a rate of 3.5%.
C. Preferred Loans
Liberty Life will determine the amount available for a preferred loan
by determining the earnings of the Contract since its inception.
Earnings equal: (A) minus (B) minus (C) minus (D) plus (E); where
(A) is the Account Value
(B) is total payments made
(C) is the preferred loan balance
(D) is accrued loan interest; and
(E) is all prior partial withdrawals in excess of
earnings.
D. Loan Payments
Once a Contract loan is requested and approved by Liberty Life, the
payment will be sent out within seven days. All requirements must be
satisfied in order for Liberty Life to process a loan. Loan requests
must be submitted in writing to the Service Center.
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7
<PAGE>
Liberty Life Service Center
100 Liberty Way
Dover, NH 03820
E. Loan Repayments
Contract Owners may repay a loan in full or make a partial repayment on
any Contract loan while the Contract is still in effect. Liberty Life
will treat any payment we receive from a Contract Owner as a loan
repayment, unless otherwise instructed in writing. Any portion of a
payment in excess of the loan repayment will be treated as additional
premium. Liberty Life will deduct an amount equal to the loan repayment
from the loan account and allocate the payment proportionately among
the Sub-Accounts and the Fixed Account on the same basis as additional
payments are allocated, unless instructed otherwise.
If a specific loan is not selected for Loan Repayment, the last loan
taken will be the first loan repaid. If a specific loan is requested,
loans must be repaid in the following order:
o Non Preferred
o Preferred
o Loan at Issue
F. Source of Loans
The Contract Owner can specify the source of the loan (the accounts he
or she would like the money removed from), but cannot direct that more
than a pro rata share of the loan be made from the Fixed Account. If
the Contract Owner does not specify the source of the loan, the loan
will be made from the Sub-Accounts and Fixed Account based on the
proportionate Account Value in each account.
7. Withdrawals
A. Minimum Amount Remaining After Partial Withdrawal
Partial withdrawals are permitted after the first Contract year. A
Contract Owner may make a partial withdrawal under this Contract.
Partial withdrawals must be at least $250. If in any contract year more
than one partial withdrawal is taken, Liberty Life may charge a
transaction fee of the lesser of $25 or 2% of the amount of the
subsequent partial withdrawal(s). The Contract Owner may select the
Sub-Accounts from which to deduct the amount of the partial withdrawal.
If the Contract Owner does not indicate which accounts the withdrawal
will be deducted from, the amount of the partial withdrawal will be
deducted on a pro rata basis from the Sub-Accounts and the Fixed
Account. The Contract Owner cannot direct more than a pro rata share be
removed from the Fixed Account. The Initial Death Benefit is reduced on
the date of the partial withdrawal proportionately to the Account Value
reduction. If a partial withdrawal less any applicable Withdrawal
Charge reduces the Account Value to below Liberty Life's current
minimum of $10,000 then the withdrawal request will not be processed,
unless the Contract Owner instructs Liberty Life to treat the request
as a full surrender of the Contract. Liberty Life will not process a
full surrender without written consent from the Contract Owner.
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8
<PAGE>
Example of proportionate reduction in Initial Death Benefit:
<TABLE>
<S> <C>
1. Account Value before withdrawal: $50,000
2. Initial Death Benefit before withdrawal: $100,000
3. 7702 Corridor Percentage (assume age 35): 250%
4. Death Benefit before withdrawal (1) x (3): $125,000
5. Withdrawal: $10,000
6. Account Value after withdrawal: $40,000
7. Revised Initial Death Benefit after withdrawal (2) x (6) / (1): $80,000
8. New Death Benefit after withdrawal (6) x (3): $100,000
</TABLE>
B. Tax Withholding
When a partial withdrawal or full surrender is requested, Liberty Life
will not withhold taxes, unless instructed to do so. If no tax
withholding instructions are included with the request, Liberty Life
will process the request for the total amount requested and will not
withhold taxes, unless otherwise required by law.
8. Transfers
A. Minimum Transfer Amounts and Timing
Transfer amounts will be based on the Accumulation Unit Value next
determined following receipt of valid, complete transfer instructions
by Liberty Life. Transfer requests must be in writing. The requests
must be signed by the Contract Owner and must be legible. The request
should include the appropriate Contract number. Requests can also be
made by telephone as authorized by Liberty Life. Transfer requests
received at the Service Center after the close of the New York Stock
Exchange ("NYSE") (normally 4:00 p.m. Eastern Time), will be priced on
the next business day after received. Transfer requests received at the
Service Center in writing before the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern Time), on any day that the New
York Stock Exchange and Liberty Life is open will be priced as of the
day received, unless Liberty Life is closed in the case of an
emergency. If Liberty Life is closed, Transfer Requests will be priced
as of the day Liberty Life and the NYSE are next
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9
<PAGE>
open. The minimum partial transfer amount is $250 from a single
Sub-Account or Fixed Account, unless the amount requested is your
entire balance in the Sub-Account or Fixed Account. If less than $500
would remain in a Sub-Account or Fixed Account after a transfer,
Liberty Life requires a transfer of the entire balance.
B. Telephone Transfers
Transfers will be accepted by telephone, unless the Contract Owner
elected not to allow such transfers at the time of application.
Telephone Privileges will be automatically granted unless the Contract
Owner elects "No Telephone Privileges" on the application at issue.
Telephone Privileges may be cancelled after policy issuance by
submitting the request in writing to the Liberty Life Service Center.
The cut off time for telephone transfer requests to be effective on the
same day received is normally 4:00 p.m. Eastern Time each day that the
New York Stock Exchange (NYSE) and Liberty Life is open. Transfer
requests received over the telephone before and up until 4:00 p.m.
Eastern Time will be processed on that day at that day's price.
Transfers received after the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern Time), will be processed on the next
business day and priced as of the next business day. Transfer requests
received after the official closing of the New York Stock Exchange will
be priced the next business day that the New York Stock Exchange and
Liberty Life are open. If Liberty Life is closed due to an emergency,
transfer requests will be honored as of the business day that Liberty
Life received the request or, if the New York Stock Exchange is not
open, on the next business day that the New York Stock Exchange is
open.
If a Contract Owner calls in to make a transfer prior to the New York
Stock Exchange close, and then calls back to cancel the transfer, we
will cancel it only if the request to cancel is received prior to the
close of the NYSE. Any requests to cancel a transfer after the close of
the NYSE will not be honored.
C. Confirmations of Transfer Requests
Written acknowledgment of transfers between Sub-Accounts will be
provided at three points in time: (1) a confirmation notice will be
sent to the Contract Owner within five days of receipt of the request,
(2) the quarterly statement will reflect transfers, and (3) the annual
statement will reflect transfers.
The transfer provisions may be suspended, modified or terminated at any
time by Liberty Life.
D. Asset Rebalancing
A Contract Owner may elect to have transfers made automatically among
the Sub-Accounts of the Separate Account on an annual, semi-annual,
quarterly or monthly basis, so that Account Value is reallocated to
match the percentage allocations in the Contract Owner's premium
allocation elections. Asset Rebalancing will occur on the 25th day of
the month in which the rebalancing is scheduled to occur. The Contract
Owner may choose a day other than the 25th. Asset Rebalancing is not
available until the end of the Free Look Period. If the Contract Owner
chooses a date prior to the end of the Free Look Period, we will
schedule Asset Rebalancing to be on the 25th of the month in which the
Free Look Period ends. Liberty Life will require the Administrative
form five business days prior to the 25th day of the month, or five
business days prior to the selected date of the Automatic Account
Rebalance.
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10
<PAGE>
Automatic transfers into or out of the Fixed Account are not
permissible. Transfers under this program will not be subject to the
$250 minimum transfer amounts. An election to participate in the
Automatic Account Rebalancing program must be in writing on the form
prescribed by and returned to Liberty Life at its Service Center.
E. Asset Allocation Models
Standard & Poor's ("S&P") has developed several asset allocation models
for use with the Contract. If a Contract Owner decides to use a model,
Liberty Life will automatically enroll the Contract in the Asset
Rebalancing Program and allocate Payments in accordance with the
percentages specified in one of the S&P models. Only one model may be
used at a time. If Contract Owners wish to allocate a portion of
Payments or Account Value to the Fixed Account, they must instruct us
specifically, because none of the models includes the Fixed Account.
Liberty Life will rebalance the total Sub-Account Values in accordance
with the chosen model on a quarterly basis.
If a model is chosen at the time of application, the first time the
Sub-Account Values will be rebalanced is the 25th day of the month
following the Free Look Period. If a model is chosen after the Contract
has been issued, the first time the Sub-Account Values will be
rebalanced is the 25th day of the last month in the calendar quarter in
which use of the model was requested. The Contract Owner may choose a
day other than the 25th. If the Contract Owner wishes, they may
instruct us, in writing, to rebalance their Sub-Account Values monthly,
semi-annually, or annually instead of quarterly. Written instructions
must be mailed to the Service Center. Liberty Life will require the
instructions to be received five business days prior to the selected
date of the next scheduled Automatic Account Rebalance.
Contract Owners may choose to use an S&P asset allocation model at any
time. Contract Owners may also discontinue use of the models at any
time. Liberty Life will automatically discontinue use of a model if the
Contract Owner (a) discontinues the Asset Rebalancing Program or (b)
gives us instructions to change the allocations of Payments or Account
Value among the Sub-Accounts. Instructions to discontinue use of the
asset allocation model must be received five business days prior to the
date Asset Rebalancing is scheduled to occur.
Periodically, S&P will review the models. If S&P decides to change the
percentage allocations under a model, Contract Owners using that model
will be notified before we implement the change so that they will have
reasonable time to instruct Liberty Life not to reallocate according to
the new percentages. If a Contract Owner is not enrolled in a model at
the time S&P decides to make a percentage change to the allocations,
they will not be notified of the changes.
F. Dollar Cost Averaging
Before the end of the Free Look Period, a Contract Owner may designate
a portion of the Account Value attributable to the Fixed Account, or
any Sub-Account, to be automatically transferred, on a monthly basis,
to one or more of the Sub-Accounts, or the Fixed Account. The Dollar
Cost Averaging process will not take place until the end of the Free
Look Period. If the Contract Owner chooses a date prior to the end of
the Free Look Period, we will begin Dollar Cost Averaging on the 1st
(or any other day elected) of the month immediately following the end
of the Free Look Period. If no election is made as a source fund,
Liberty Life will not process the request and will contact the Contract
Owner to obtain the necessary information. After the end of the Free
Look Period, a Contract Owner may designate a portion of the Account
Value attributable to the Sub-Accounts to be automatically transferred,
on a monthly basis, to one or more of the Sub-Accounts or the Fixed
Account. If
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11
<PAGE>
no election is made as a source fund, Liberty Life will not process the
request and will contact the Contract Owner to obtain the necessary
information. Dollar Cost Averaging from the Fixed Account cannot be
elected after the end of the Free Look Period. A Contract Owner may
enroll in this program at the time the Contract is issued or anytime,
thereafter, by properly completing the Administrative Form and
returning it to Liberty Life at its Service Center at least five
business days prior to the 1st day of a month, which, unless otherwise
elected, is the date that all Dollar Cost Averaging transfers will be
made. If a Contract Owner enrolls in the Dollar Cost Averaging program
after the Contract has been issued, the Fixed Account is not an
available option to be designated as the source account. If a Contract
Owner wishes to choose a day other than the 1st of the month, Liberty
Life will require the form five business days prior to that date. If
Dollar Cost Averaging is not elected at issue then the Fixed Account
cannot be used as the source account.
The Contract Owner may choose to Dollar Cost Average a fixed amount
until a specified date, or until the funds are exhausted. The Contract
Owner may choose to transfer all funds over a specified period of time.
The Contract Owner may make the election in percentages or in whole
dollar amounts. Dollar Cost Averaging will terminate when (1) the
number of designated monthly transfers has been completed, (2) the
Account Value attributable to the DCA Account is insufficient to
complete the next transfer, (3) the Owner requests termination in
writing and such writing is received by the Service Center at least
five business days prior to the next Transfer Date in order to cancel
the transfer scheduled to take effect on such date, or (4) the Policy
is surrendered.
A Contract Owner may initiate or reinstate Dollar Cost Averaging or
change existing Dollar Cost Averaging terms by properly completing the
new enrollment form and returning it to the Service Center at least 5
business days prior to the next Transfer Date on which such transfer is
to be made.
If the Contract Owner wishes to discontinue Dollar Cost Averaging from
the Fixed Account, the Contract Owner will have 60 days to transfer the
remaining balance from the Fixed Account to the Sub-Accounts. After the
60th day, if money remains in the Fixed Account, it cannot be moved
until the first 60 days following the next anniversary of the Contract.
If Liberty Life receives a request to transfer money out of the Fixed
Account that is post-marked within 60 days following the Contract
Anniversary, the request will be accepted and Liberty Life will process
the transfer out of the Fixed Account.
Payments
9. Subsequent Premium
A. Underwriting Subsequent Premium
A Contract Owner may choose to make additional payments of at least
$1,000 each. We may require evidence of insurability if an increase in
the Death Benefit would result from an additional payment. During the
Underwriting period, the subsequent premium may not be applied to the
policy. The payment will be applied to a non-interest bearing Suspense
Account. Upon underwriting approval from the Service Center, the
subsequent premium will be applied to the Fixed Account and the
Sub-Accounts, according to the current premium allocation, unless
otherwise elected. Interest will not be credited on the subsequent
premium during the Underwriting period. Liberty Life will refuse to
accept any additional Payment that would cause the Contract to lose its
status as a life insurance contract under the Internal
- --------------------------------------------------------------------------------
12
<PAGE>
Revenue Code. Additional payments in excess of guideline premium
limitations will result in an increase in Initial Death Benefit,
subject to underwriting approval. If the acceptance of a subsequent
premium requires an increase in the Initial Death Benefit to maintain
the Contract's qualification as life insurance under the Internal
Revenue Code, the Initial Death Benefit will be increased by the
minimum amount required to maintain such qualification.
B. Allocation of Subsequent Premium
In the application, the Contract Owner must choose an initial
allocation of premium. Additional premiums received, subsequent to the
initial payment will continue to be allocated in accordance with the
Owner's instructions in the application unless contrary written
instructions are received or the Contract Owner calls the Service
Center or Integrated Voice Response Unit and gives contrary
instructions. Once a change in allocation is made, all future premiums
will be allocated in accordance with the new allocation, unless
contrary written instructions are received.
C. Payment Not Honored By Bank
If a payment or portion of a payment due on a Contract is not honored
by the Contract Owner's bank, Liberty Life's bank will resubmit the
check to the bank for payment. If the payment does not clear, Liberty
Life will not resubmit the check a third time. If payment is not
honored within ten days of the first attempt to deposit the payment,
the Contract will be cancelled. Any charges incurred by the bank are
the responsibility of the Contract Owner.
Death
10. Death Benefit
A. Definition of Due Proof of Death
Due Proof of Death is defined as the date on which Liberty Life is
satisfied that the Insured is deceased. Typically, the receipt of the
original Death Certificate or a notarized copy of the Death Certificate
and the Death Claim form satisfies Liberty Life's criteria. Payment of
Death Proceeds is subject to the Contract provisions regarding suicide,
incontestability and misrepresentation and misstatement of age or sex.
In addition, payment of Death Proceeds is subject to proof of date of
death, satisfactory to Liberty Life and receipt of all other
requirements deemed necessary by Liberty Life, including state law
requirements. However, in addition to the reasons for delaying payment
stated in the Contract, Liberty Life may delay payment if Due Proof of
Death is not met. Some instances where Due Proof of Death may not be
met include: (1) additional investigation is needed to determine the
cause of death, (2) Liberty life has reason to suspect fraud on the
part of the Applicant, Insured or claimant, (3) death occurs within the
Contract's contestable period, (4) the designated beneficiary cannot be
located, is not competent to receive the Death Proceeds, or may be
precluded from receiving the Death Proceeds, (5) different parties have
presented conflicting claims to the same Death Proceeds, (6) additional
information is required to identify the beneficiary, or (7) a
governmental entity or agency or court has placed a lien or other form
of attachment on the Death Proceeds. Provision of a death certificate
is not necessarily Due Proof of Death. Liberty Life may decide that the
circumstances of certain claims raise questions of whether the insured
has died and require additional investigation to establish Due Proof of
Death.
- --------------------------------------------------------------------------------
13
<PAGE>
Liberty Life will pay Death Proceeds out of its General Account and
will transfer the Account Value from the Sub-Accounts to the General
Account. The excess, if any, of the Death Benefit over the amount
transferred will be paid out of the General Account.
B. Death Benefit Calculation
When Liberty Life receives Due Proof of Death, the Death Benefit will
be calculated as of the actual date of death. Units in the Separate
Account will be sold on the date Due Proof of Death is received by the
Service Center. The proceeds will be placed into a Suspense Account.
Interest will be credited at the rate established by Liberty Life or in
accordance with state laws, if greater. Liberty Life will typically pay
death proceeds within seven days after Liberty Life receives Due Proof
of Death.
- --------------------------------------------------------------------------------
14
<PAGE>
Exhibit 1
Subjects of Required Amendments for the Modified Single Payment Variable Life
Contract
A. Incomplete Applications
We can require an amendment if the following questions on the application
initially were left blank or corrected, but not initialed by the client.
1. Plan of Insurance
2. Initial Payment
3-4. Insured Name
6. Owner Name
7. Beneficiary name
8b. 1st Year Fixed Account Guaranteed Interest Rate
9-10. All medical questions (underwriting information)
Contract Date
Note: If a contract amendment becomes necessary, we will use the amendment to
correct any other area of the application as needed.
B. Other Circumstances Requiring Special Handling
2. Initial Death Benefit: We will require an amendment if we
alter a Contract whose Initial Death Benefit is less than
originally shown on the initial application. If the Death
Benefit is higher than originally shown, we will use an
acknowledgement to inform the Contract Owner of the change.
3a-4a. Birth Date/Age: The Initial Death Benefit may be incorrect if
the Insured's birth date is wrong on the original application.
If as a result of an incorrect birth date, the Initial Death
Benefit is less than originally shown on the application, we
will amend the Initial Death Benefit, and the Insured's birth
date/age. If the Initial Death Benefit is higher than
originally shown or has not changed, we will use an
Acknowledgement to correct the Initial Death Benefit, and the
Insured's birth date/age.
7. Beneficiary relationship- amendment required if name and
relationship blank or changed.
Class determination: We will require an amendment if the Class
Determination at issue is less favorable than the premium
class originally applied for.
11. Tobacco Use question: If the answer on the application is
blank or changed, we will amend if the question is answered
NO. An amendment will not be required if the question is
answered YES. With exam requirements, we will use an
acknowledgement if the tobacco use question is left blank and
the exam is negative for tobacco use. An amendment is required
if this question is answered NO or blank on the application
and the exam results indicate tobacco use.
- --------------------------------------------------------------------------------
15
<PAGE>
Contract Date: When an Initial Payment is collected at the
time the Contract is delivered, the Contract Date will be
amended. The Contract Date will be assigned the same date that
the Amendment is signed.
- --------------------------------------------------------------------------------
16
EXHIBIT 7.
----------
ACTUARIAL OPINION AND CONSENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
May 14, 1999
Liberty Life Assurance Company of Boston
175 Berkley Street
Boston, MA 02217
Gentlemen:
This opinion is furnished in connection with the filing by Liberty Life
Assurance Company of Boston ("Liberty Life"), on behalf of LLAC Variable Account
(the "Separate Account"), of Pre-Effective Amendment No. 2 ("Amendment No. 2")
to the Registration Statement on Form S-6 (File No. 333-65857) covering an
indefinite amount of interests under Liberty Life's Modified Single Payment
Variable Universal Life Insurance Contracts (the "Contracts"). Premiums received
under the Contract may be allocated to the Separate Account. The prospectus
included in Amendment No. 2 describes the Contracts. I am familiar with the
Contract provisions and with Amendment No. 2, including exhibits.
It is my opinion that the hypothetical illustrations of death benefits, account
values, and surrender values included in Amendment No. 2, based on the
stipulated rates of investment return and other assumptions stated in the
hypothetical illustrations, are consistent with the provisions of the Contract.
The rate structure of the Contracts has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear more favorable to a prospective non-tobacco using purchaser of a Contract
aged 65 than to prospective purchasers of Contracts of other ages or
underwriting classes. The Standard non-tobacco rate class generally has a more
favorable rate structure than other rate classes.
The current and monthly cost of insurance rates used in the illustrations have
not been designed so as to make the relationship between current and guaranteed
rates more favorable for the ages and sexes illustrated than for non-tobacco
using prospective purchasers at other ages. The Standard non-tobacco using rate
classes generally have lower cost of insurance rates than the other rate
classes. The female rate classes generally have lower guaranteed cost of
insurance than the male rate classes.
I hereby consent to the use of this opinion as an exhibit to Amendment No. 2 and
to my name under the heading "Experts" in the Prospectus included as part of
Amendment No. 2.
Sincerely,
/s/ Douglas Wood
---------------------------------
Douglas Wood, FSA, MAAA
Associate Actuary
Exhibit 8
---------
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 8, 1999 with respect to the financial
statements of Liberty Life Assurance Company of Boston in Pre-Effective
Amendment No. 2 to the Registration Statement (Form S-6 File No. 333-65957) and
in the Prospectus of LLAC Variable Account.
ERNST & YOUNG LLP
Boston, Massachusetts
May 13, 1999
EXHIBIT 9
ILLUSTRATIONS OF ACCOUNT VALUES,
SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under Single
Life and Survivorship Contracts change with investment experience. The tables
illustrate how Account Values, Surrender Values, and Death Benefits under a
Contract issued on an Insured of a given age would vary over time if the
hypothetical gross investment rates of return on the Portfolios' assets were a
uniform, gross, after tax, annual rate of 0%, 6%, and 12%. If the hypothetical
gross investment rate of return averages 0%, 6%, or 12%, but fluctuates over or
under those averages throughout the years, the Account Values, Surrender Values
and Death Benefits may be different.
The amounts shown for the Account Value, Surrender Value and Death Benefit
as of each Contract Anniversary reflect the fact that the net investment return
on the assets held in the Sub-Accounts is lower than the gross after-tax return
on the assets held in the Portfolios, as a result of expenses paid by the
Portfolios and charges levied against the Sub-Accounts. The values shown reflect
a daily charge to the Sub-Accounts of 1.65% of average daily net assets to
compensate Liberty Life for its expenses incurred and for assuming mortality and
expense risks under the Contracts. In addition, the net investment returns also
reflect the deduction of the Portfolio investment advisory fees and other
Portfolio expenses (0.79%, the arithmetic average of the actual and estimated
fees and expenses, including any caps or reimbursements). The tables also
reflect applicable charges including an annual Contract Fee of $30.00 per year,
and monthly charges for providing insurance protection. However, no Contract Fee
is deducted in any year in which the Account Value exceeds $50,000. For each
hypothetical gross investment rate of return, tables are provided reflecting
current and guaranteed cost of insurance charges. The current cost of insurance
charge for Single Life Contracts, Standard class (NT) is equal to the lesser of
(a) 0.45% annually of the Account Value or (b) the guaranteed cost of insurance
charge. The current cost of insurance charge for Survivorship Contracts,
Standard class (NT) is equal to the lesser of (a) 0.15% annually of the Account
Value or (b) the guaranteed cost of insurance charge. After deduction of these
amounts (other than the cost of insurance charges), hypothetical gross average
investment rates of return of 0%, 6% and 12% correspond to approximate net
annual investment rates of return of -0.79%, 5.21% and 11.21%, respectively.
Guaranteed cost of insurance rates vary by issue age (or attained age in the
case of increases in Initial Death Benefit), sex, rating class and Contract Year
and, therefore, cost of insurance charges are not reflected in the approximate
net annual investment rate of return stated above.
The tables illustrate the Account Values, Surrender Values, and Death
Benefits that would result based upon the hypothetical investment rates of
return if no Payment other than the indicated initial Payment is paid, if the
entire initial Payment is allocated to the Variable Account, and if no Contract
loans are taken. The tables also assume that no partial withdrawals or transfers
have been made.
Values are shown for Contracts which are issued to standard class Insureds.
Values for Contracts issued on a basis involving a higher mortality risk would
result in lower Account Values, Surrender Values and Death Benefits than those
illustrated. Females generally have a more favorable guaranteed rate structure
than males.
Where the Surrender Value shown in an illustration is zero, the Death
Benefit shown is the Minimum Guaranteed Death Benefit. If a Contract Loan is
outstanding in this situation, the Contract may lapse in accordance with the
Grace Period provisions.
The tables reflect the fact that no charges for Federal, state or other
income taxes are currently made against the Variable Account. If such a charge
is made in the future, it will take a higher gross rate of return than
illustrated to produce the net after-tax returns shown in the tables.
Upon request, Liberty Life will furnish a comparable illustration based on
the proposed Insured's age, sex, underwriting classification, proposed initial
Payment, and any available agreements requested.
A-1
<PAGE>
SINGLE LIFE
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$60,477 INITIAL DEATH BENEFIT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
Single 0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
Payment ----------------------- ----------------------- -----------------------
Plus
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,174 26,249 60,477 30,962 28,037 60,477 32,750 29,825 60,477
2 33,075 28,226 25,376 60,477 31,895 29,045 60,477 35,784 32,934 60,477
3 34,729 27,176 24,401 60,477 32,829 30,054 60,477 39,186 36,411 60,477
4 36,465 26,008 23,758 60,477 33,764 31,514 60,477 43,025 40,775 60,477
5 38,288 24,701 22,526 60,477 34,696 32,521 60,477 47,382 45,207 60,477
6 40,203 23,218 21,718 60,477 35,612 34,112 60,477 52,359 50,859 60,477
7 42,213 21,534 20,109 60,477 36,514 35,089 60,477 58,016 56,591 64,398
8 44,324 19,615 19,615 60,477 37,399 37,399 60,477 64,321 64,321 70,110
9 46,540 17,396 17,396 60,477 38,252 38,252 60,477 71,347 71,347 76,341
10 48,867 14,817 14,817 60,477 39,068 39,068 60,477 79,193 79,193 83,152
11 51,310 11,809 11,809 60,477 39,842 39,842 60,477 87,978 87,978 92,377
12 53,876 8,291 8,291 60,477 40,573 40,573 60,477 97,711 97,711 102,596
13 56,569 4,166 4,166 60,477 41,259 41,259 60,477 108,490 108,490 113,914
14 59,398 0 0 60,477 41,896 41,896 60,477 120,421 120,421 126,442
15 62,368 0 0 60,477 42,476 42,476 60,477 133,619 133,619 140,300
16 65,486 0 0 60,477 42,985 42,985 60,477 148,207 148,207 155,618
17 68,761 0 0 60,477 43,400 43,400 60,477 164,318 164,318 172,534
18 72,199 0 0 60,477 43,693 43,693 60,477 182,091 182,091 191,195
19 75,809 0 0 60,477 43,823 43,823 60,477 201,675 201,675 211,758
20 79,599 0 0 60,477 43,746 43,746 60,477 223,231 223,231 234,393
21 83,579 0 0 60,477 43,402 43,402 60,477 246,936 246,936 259,283
22 87,758 0 0 60,477 42,707 42,707 60,477 272,979 272,979 286,628
23 92,146 0 0 60,477 41,547 41,547 60,477 301,566 301,566 316,645
24 96,753 0 0 60,477 39,754 39,754 60,477 332,919 332,919 349,565
25 101,591 0 0 60,477 37,077 37,077 60,477 367,273 367,273 385,636
30 129,658 0 0 60,477 0 0 60,477 609,942 609,942 616,042
35 165,480 0 0 60,477 0 0 60,477 1,024,670 1,024,670 1,024,670
</TABLE>
A-2
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE>
SINGLE LIFE
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$60,477 INITIAL DEATH BENEFIT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Single Gross Investment Return Gross Investment Return Gross Investment Return
Payment ----------------------- ----------------------- ------------------------
Plus
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,722 26,797 60,477 31,506 28,581 60,477 33,289 30,364 60,477
2 33,075 29,417 26,567 60,477 33,055 30,205 60,477 36,905 34,055 60,477
3 34,729 29,115 26,340 60,477 34,682 31,907 60,477 40,917 38,142 60,477
4 36,465 28,816 26,566 60,477 36,391 34,141 60,477 45,370 43,120 60,477
5 38,288 28,519 26,344 60,477 38,186 36,011 60,477 50,310 48,135 60,477
6 40,203 28,225 26,725 60,477 40,071 38,571 60,477 55,826 54,326 63,083
7 42,213 27,934 26,509 60,477 42,050 40,625 60,477 61,946 60,521 68,760
8 44,324 27,646 27,646 60,477 44,129 44,129 60,477 68,737 68,737 74,923
9 46,540 27,360 27,360 60,477 46,312 46,312 60,477 76,281 76,281 81,620
10 48,867 27,077 27,077 60,477 48,605 48,605 60,477 84,705 84,705 88,940
11 51,310 26,797 26,797 60,477 51,013 51,013 60,477 94,137 94,137 98,844
12 53,876 26,519 26,519 60,477 53,573 53,573 60,477 104,588 104,588 109,817
13 56,569 26,243 26,243 60,477 56,261 56,261 60,477 116,161 116,161 121,969
14 59,398 25,971 25,971 60,477 59,103 59,103 62,059 128,972 128,972 135,420
15 62,368 25,700 25,700 60,477 62,083 62,083 65,188 143,143 143,143 150,300
16 65,486 25,433 25,433 60,477 65,199 65,199 68,459 158,836 158,836 166,777
17 68,761 25,167 25,167 60,477 68,471 68,471 71,895 176,248 176,248 185,061
18 72,199 24,905 24,905 60,477 71,907 71,907 75,502 195,570 195,570 205,349
19 75,809 24,644 24,644 60,477 75,516 75,516 79,292 217,010 217,010 227,861
20 79,599 24,386 24,386 60,477 79,305 79,305 83,271 240,801 240,801 252,841
21 83,579 24,131 24,131 60,477 83,285 83,285 87,450 267,199 267,199 280,559
22 87,758 23,878 23,878 60,477 87,465 87,465 91,838 296,492 296,492 311,317
23 92,146 23,627 23,627 60,477 91,854 91,854 96,447 328,996 328,996 345,446
24 96,753 23,378 23,378 60,477 96,464 96,464 101,287 365,063 365,063 383,316
25 101,591 23,132 23,132 60,477 101,305 101,305 106,370 405,084 405,084 425,339
30 129,658 21,935 21,935 60,477 129,680 129,680 130,977 682,890 682,890 689,719
35 165,480 20,792 20,792 60,477 166,193 166,193 166,193 1,152,524 1,152,524 1,152,524
</TABLE>
A-4
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE>
SINGLE LIFE
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
FEMALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$69,417 INITIAL DEATH BENEFIT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
Single 0% Hypothetical 6% Hypothetical 12% Hypothetical
Payment Gross Investment Return Gross Investment Return Gross Investment Return
Plus
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,293 26,368 69,417 31,078 28,153 69,417 32,864 29,939 69,417
2 33,075 28,491 25,641 69,417 32,144 29,294 69,417 36,014 33,164 69,417
3 34,729 27,620 24,845 69,417 33,230 30,455 69,417 39,532 36,757 69,417
4 36,465 26,675 24,425 69,417 34,341 32,091 69,417 43,476 41,226 69,417
5 38,288 25,644 23,469 69,417 35,475 33,300 69,417 47,912 45,737 69,417
6 40,203 24,510 23,010 69,417 36,628 35,128 69,417 52,918 51,418 69,417
7 42,213 23,246 21,821 69,417 37,792 36,367 69,417 58,587 57,162 69,417
8 44,324 21,818 21,818 69,417 38,955 38,955 69,417 65,029 65,029 70,881
9 46,540 20,185 20,185 69,417 40,107 40,107 69,417 72,253 72,253 77,311
10 48,867 18,304 18,304 69,417 41,239 41,239 69,417 80,311 80,311 84,327
11 51,310 16,125 16,125 69,417 42,345 42,345 69,417 89,316 89,316 93,782
12 53,876 13,599 13,599 69,417 43,422 43,422 69,417 99,310 99,310 104,276
13 56,569 10,663 10,663 69,417 44,471 44,471 69,417 110,399 110,399 115,919
14 59,398 7,243 7,243 69,417 45,486 45,486 69,417 122,697 122,697 128,832
15 62,368 3,230 3,230 69,417 46,463 46,463 69,417 136,328 136,328 143,144
16 65,486 0 0 69,417 47,388 47,388 69,417 151,424 151,424 158,996
17 68,761 0 0 69,417 48,244 48,244 69,417 168,130 168,130 176,537
18 72,199 0 0 69,417 49,008 49,008 69,417 186,598 186,598 195,928
19 75,809 0 0 69,417 49,655 49,655 69,417 206,992 206,992 217,341
20 79,599 0 0 69,417 50,158 50,158 69,417 229,488 229,488 240,962
21 83,579 0 0 69,417 50,483 50,483 69,417 254,276 254,276 266,990
22 87,758 0 0 69,417 50,588 50,588 69,417 281,560 281,560 295,638
23 92,146 0 0 69,417 50,410 50,410 69,417 311,557 311,557 327,135
24 96,753 0 0 69,417 49,862 49,862 69,417 344,496 344,496 361,721
25 101,591 0 0 69,417 48,808 48,808 69,417 380,619 380,619 399,650
30 129,658 0 0 69,417 22,254 22,254 69,417 634,329 634,329 640,672
35 165,480 0 0 69,417 0 0 69,417 1,065,924 1,065,924 1,065,924
</TABLE>
A-6
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE>
SINGLE LIFE
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
FEMALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$69,417 INITIAL DEATH BENEFIT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
Single 0% Hypothetical 6% Hypothetical 12% Hypothetical
Payment Gross Investment Return Gross Investment Return Gross Investment Return
Plus ----------------------- ----------------------- -----------------------
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,722 26,797 69,417 31,506 28,581 69,417 33,289 30,364 69,417
2 33,075 29,417 26,567 69,417 33,055 30,205 69,417 36,905 34,055 69,417
3 34,729 29,115 26,340 69,417 34,682 31,907 69,417 40,917 38,142 69,417
4 36,465 28,816 26,566 69,417 36,391 34,141 69,417 45,370 43,120 69,417
5 38,288 28,519 26,344 69,417 38,186 36,011 69,417 50,310 48,135 69,417
6 40,203 28,225 26,725 69,417 40,071 38,571 69,417 55,826 54,326 69,417
7 42,213 27,934 26,509 69,417 42,050 40,625 69,417 61,969 60,544 69,417
8 44,324 27,646 27,646 69,417 44,129 44,129 69,417 68,867 68,867 75,065
9 46,540 27,360 27,360 69,417 46,312 46,312 69,417 76,552 76,552 81,911
10 48,867 27,077 27,077 69,417 48,605 48,605 69,417 85,126 85,126 89,382
11 51,310 26,797 26,797 69,417 51,013 51,013 69,417 94,706 94,706 99,441
12 53,876 26,519 26,519 69,417 53,573 53,573 69,417 105,339 105,339 110,606
13 56,569 26,243 26,243 69,417 56,261 56,261 69,417 117,137 117,137 122,993
14 59,398 25,971 25,971 69,417 59,084 59,084 69,417 130,220 130,220 136,731
15 62,368 25,700 25,700 69,417 62,049 62,049 69,417 144,722 144,722 151,958
16 65,486 25,433 25,433 69,417 65,163 65,163 69,417 160,784 160,784 168,823
17 68,761 25,167 25,167 69,417 68,477 68,477 71,901 178,558 178,558 187,486
18 72,199 24,905 24,905 69,417 71,940 71,940 75,537 198,207 198,207 208,117
19 75,809 24,644 24,644 69,417 75,550 75,550 79,328 219,936 219,936 230,933
20 79,599 24,386 24,386 69,417 79,342 79,342 83,309 244,047 244,047 256,250
21 83,579 24,131 24,131 69,417 83,323 83,323 87,490 270,802 270,802 284,342
22 87,758 23,878 23,878 69,417 87,505 87,505 91,880 300,489 300,489 315,514
23 92,146 23,627 23,627 69,417 91,896 91,896 96,491 333,432 333,432 350,103
24 96,753 23,378 23,378 69,417 96,508 96,508 101,333 369,985 369,985 388,484
25 101,591 23,132 23,132 69,417 101,351 101,351 106,419 410,546 410,546 431,073
30 129,658 21,935 21,935 69,417 129,755 129,755 131,052 692,177 692,177 699,099
35 165,480 20,792 20,792 69,417 166,317 166,317 166,317 1,168,402 1,168,402 1,168,402
</TABLE>
A-8
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-9
<PAGE>
SURVIVORSHIP
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD NON-TOBACCO ISSUE AGE 65, FEMALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$84,933 INITIAL DEATH BENEFIT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
Single 0% Hypothetical 6% Hypothetical 12% Hypothetical
Payment Gross Investment Return Gross Investment Return Gross Investment Return
Plus ----------------------- ----------------------- -----------------------
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,839 26,914 84,933 31,630 28,705 84,933 33,421 30,496 84,933
2 33,075 29,608 26,758 84,933 33,278 30,428 84,933 37,163 34,313 84,933
3 34,729 29,328 26,553 84,933 34,972 32,197 84,933 41,294 38,519 84,933
4 36,465 28,987 26,737 84,933 36,706 34,456 84,933 45,859 43,609 84,933
5 38,288 28,573 26,398 84,933 38,476 36,301 84,933 50,912 48,737 84,933
6 40,203 28,068 26,568 84,933 40,276 38,776 84,933 56,515 55,015 84,933
7 42,213 27,449 26,024 84,933 42,097 40,672 84,933 62,743 61,318 84,933
8 44,324 26,690 26,690 84,933 43,930 43,930 84,933 69,694 69,694 84,933
9 46,540 25,751 25,751 84,933 45,760 45,760 84,933 77,484 77,484 84,933
10 48,867 24,588 24,588 84,933 47,573 47,573 84,933 86,228 86,228 90,540
11 51,310 23,150 23,150 84,933 49,358 49,358 84,933 95,983 95,983 100,782
12 53,876 21,379 21,379 84,933 51,104 51,104 84,933 106,820 106,820 112,161
13 56,569 19,207 19,207 84,933 52,803 52,803 84,933 118,852 118,852 124,795
14 59,398 16,552 16,552 84,933 54,450 54,450 84,933 132,205 132,205 138,815
15 62,368 13,307 13,307 84,933 56,034 56,034 84,933 147,012 147,012 154,362
16 65,486 9,322 9,322 84,933 57,542 57,542 84,933 163,418 163,418 171,589
17 68,761 4,400 4,400 84,933 58,959 58,959 84,933 181,578 181,578 190,657
18 72,199 0 0 84,933 60,262 60,262 84,933 201,657 201,657 211,740
19 75,809 0 0 84,933 61,429 61,429 84,933 223,830 223,830 235,021
20 79,599 0 0 84,933 62,437 62,437 84,933 248,285 248,285 260,699
21 83,579 0 0 84,933 63,262 63,262 84,933 275,223 275,223 288,984
22 87,758 0 0 84,933 63,875 63,875 84,933 304,860 304,860 320,103
23 92,146 0 0 84,933 64,234 64,234 84,933 337,426 337,426 354,297
24 96,753 0 0 84,933 64,281 64,281 84,933 373,167 373,167 391,825
25 101,591 0 0 84,933 63,922 63,922 84,933 412,341 412,341 432,958
30 129,658 0 0 84,933 46,068 46,068 84,933 687,236 687,236 694,109
35 165,480 0 0 84,933 0 0 84,933 1,154,820 1,154,820 1,154,820
</TABLE>
A-10
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-11
<PAGE>
SURVIVORSHIP
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD NON-TOBACCO ISSUE AGE 65, FEMALE STANDARD NON-TOBACCO ISSUE AGE 65
$30,000 INITIAL PAYMENT
$84,933 INITIAL DEATH BENEFIT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
Single 0% Hypothetical 6% Hypothetical 12% Hypothetical
Payment Gross Investment Return Gross Investment Return Gross Investment Return
Plus ----------------------- ----------------------- -----------------------
Contract Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year at 5% Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 29,839 26,914 84,933 31,630 28,705 84,933 33,421 30,496 84,933
2 33,075 29,622 26,772 84,933 33,285 30,435 84,933 37,164 34,314 84,933
3 34,729 29,406 26,631 84,933 35,029 32,254 84,933 41,329 38,554 84,933
4 36,465 29,191 26,941 84,933 36,866 34,616 84,933 45,964 43,714 84,933
5 38,288 28,978 26,803 84,933 38,801 36,626 84,933 51,123 48,948 84,933
6 40,203 28,766 27,266 84,933 40,839 39,339 84,933 56,898 55,398 84,933
7 42,213 28,556 27,131 84,933 42,986 41,561 84,933 63,326 61,901 84,933
8 44,324 28,346 28,346 84,933 45,247 45,247 84,933 70,479 70,479 84,933
9 46,540 28,139 28,139 84,933 47,629 47,629 84,933 78,444 78,444 84,933
10 48,867 27,932 27,932 84,933 50,138 50,138 84,933 87,335 87,335 91,702
11 51,310 27,727 27,727 84,933 52,813 52,813 84,933 97,248 97,248 102,111
12 53,876 27,523 27,523 84,933 55,630 55,630 84,933 108,262 108,262 113,675
13 56,569 27,320 27,320 84,933 58,597 58,597 84,933 120,492 120,492 126,516
14 59,398 27,119 27,119 84,933 61,723 61,723 84,933 134,103 134,103 140,808
15 62,368 26,918 26,918 84,933 65,015 65,015 84,933 149,252 149,252 156,715
16 65,486 26,719 26,719 84,933 68,483 68,483 84,933 166,112 166,112 174,418
17 68,761 26,522 26,522 84,933 72,136 72,136 84,933 184,877 184,877 194,121
18 72,199 26,325 26,325 84,933 75,984 75,984 84,933 205,761 205,761 216,049
19 75,809 26,130 26,130 84,933 80,037 80,037 84,933 229,005 229,005 240,455
20 79,599 25,936 25,936 84,933 84,307 84,307 88,522 254,874 254,874 267,618
21 83,579 25,744 25,744 84,933 88,804 88,804 93,244 283,666 283,666 297,849
22 87,758 25,552 25,552 84,933 93,540 93,540 98,217 315,710 315,710 331,496
23 92,146 25,362 25,362 84,933 98,530 98,530 103,456 351,374 351,374 368,943
24 96,753 25,173 25,173 84,933 103,786 103,786 108,975 391,067 391,067 410,620
25 101,591 24,985 24,985 84,933 109,322 109,322 114,788 435,244 435,244 457,006
30 129,658 24,062 24,062 84,933 141,759 141,759 143,177 743,256 743,256 750,689
35 165,480 23,169 23,169 84,933 183,822 183,822 183,822 1,269,243 1,269,243 1,269,243
</TABLE>
A-12
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT SHOWN IS THE
GUARANTEED DEATH BENEFIT. IF A CONTRACT LOAN WERE OUTSTANDING WHEN THE
SURRENDER VALUE IS ZERO, THE CONTRACT MIGHT LAPSE IN ACCORDANCE WITH
THE GRACE PERIOD PROVISIONS.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, ACCOUNT VALUE AND SURRENDER VALUE
FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIBERTY LIFE ASSURANCE COMPANY OF BOSTON THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-13
