As filed with the Securities and Exchange Commission on April 23, 1999.
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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. William J. O'Connell, Esq.
Jorden Burt Boros Cicchetti Vice President and Assistant General Counsel
Berenson & Johnson Liberty Life Assurance Company of Boston
1025 Thomas Jefferson Street, N.W. 175 Berkeley Street
Washington, D.C. 20007-5201 Boston, Massachusetts 02117
Securities being offered -- variable portion of flexible premium variable 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.
<PAGE>
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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ORGANIZATION AND GENERAL INFORMATION
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<S> <C>
1. (a) Name of trust..................................................... Cover, Definitions
(b) Title of each class of securities issued.......................... Cover, Purchase of Contract and
Allocation of Premiums
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
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GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
General Information Concerning Securities and Rights of Holders
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<S> <C>
10. (a), (b)Type of Securities.............................................. Cover, Purchase of Contract and
Allocation of Premiums
(c) Rights of security holders........................................ Cover, Amount Payable on
re: withdrawal or redemption Surrender of the Contract,
Contract Loans, Cancellation
(d) Rights of security holders........................................ Cover, Cancellation, Amount
re: conversion, transfer or partial withdrawal Payable on Surrender of the
Contract, Partial Withdrawals,
Allocation of Premiums,
Transfer of Account Value
(e) Rights of security holders........................................ Termination and Grace Period,
re: lapses, default, & reinstatement Reinstatement
(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 Premiums
(i) Other principal features.......................................... Deductions and Charges,
Contract Benefits and
ii
<PAGE>
Rights, Account Value
<CAPTION>
Information Concerning Securities Underlying Trust's Securities
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<S> <C>
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
<CAPTION>
Information Concerning Loads, Fees, Charges & Expenses
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<S> <C>
13. (a) With respect to each load, fee, charge & expense.................. Deductions and Charges
(b) Deductions for sales charges...................................... Withdrawal Charge
(c) Sales load as percentage of amount invested....................... Withdrawal Charge
(d)-(g) Other loads, fees & expenses.................................... Deductions and Charges
<CAPTION>
Information Concerning Operation of Trust
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<S> <C>
14. Procedure for applications for & issuance of trust's securities......... Application for a Contract,
Allocation of Premiums,
Distribution of Contracts
15. Procedure for receipt of payments from purchases of trust's securities.. Application for a Contract,
Allocation of Premiums,
Premiums, 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
Premiums
19. Procedure for keeping records & furnishing information to Portfolios, Statements to
security holders........................................................ 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
<CAPTION>
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
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Organization & Operations of Depositor
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iii
<PAGE>
<S> <C>
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
<CAPTION>
Companies Owning Securities of Depositor
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<S> <C>
29. Each company owning 5% of voting securities of depositor................ Liberty Life Assurance Company
of Boston
<CAPTION>
Controlling Persons
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<S> <C>
30. Control of depositor.................................................... Liberty Life Assurance Company
of Boston
<CAPTION>
DISTRIBUTION & REDEMPTIONS OF SECURITIES
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Distribution of Securities
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<S> <C>
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
<CAPTION>
Principal Underwriter
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39. (a) & (b) Principal Underwriter......................................... Distribution of Contracts
41. Character of Underwriter's business..................................... Distribution of Contracts
<CAPTION>
Offering Price or Acquisition Value of Securities of Trust
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<S> <C>
44. Information concerning offering price or acquisition valuation of Portfolios, Account Value
securities of trust. (All underlying securities are shares in registered
investment companies.)..................................................
<CAPTION>
Redemption Valuation of Securities of Trust
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<S> <C>
46. Information concerning redemption valuation of securities of trust. (All Portfolios, Account Value
underlying securities are shares in a registered
investment company.)....................................................
<CAPTION>
Purchase & Sale of Interests in Underlying Securities
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<S> <C>
47. Maintenance of Position................................................. Cover, Variable Account,
Portfolios, Allocation of
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Premiums
<CAPTION>
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
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<S> <C>
48. Custodian of trust...................................................... Variable Account
50. Lien on trust assets.................................................... Variable Account
<CAPTION>
INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
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<S> <C>
51. (a) Name & address of insurer......................................... Cover, Liberty Life Assurance
Company of Boston
(b) Types of Contracts................................................ Cover, Purchase of Contract and
Allocation of Premiums, 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 Premiums
(e) Beneficiaries..................................................... Death Benefit, Beneficiary
(f) Terms of cancellations & reinstatement............................ Termination
(g) Method of determining amount of premium paid by holder............ Purchase of Contract and
Allocation of Premiums
<CAPTION>
POLICY OF REGISTRANT
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<S> <C>
52. (a) & (c) Selection of Portfolio securities............................. Additions, Deletions, and
Substitutions of Securities
<CAPTION>
Regulated Investment Company
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<S> <C>
53. (a) Taxable status of trust........................................... Taxation of Liberty Life and
the Variable Account
<CAPTION>
FINANCIAL AND STATISTICAL INFORMATION
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<S> <C>
59. Financial Statements.................................................... Financial Statements
</TABLE>
*Items not listed are not applicable to this Registration Statement.
v
<PAGE>
PROSPECTUS
[SUBJECT TO COMPLETION]
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
issued by
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
in connection with its
LLAC VARIABLE ACCOUNT
175 Berkeley Street, P.O. Box 140
Boston, Massachusetts 02117-0140
Service Center
100 Liberty Way
Dover, New Hampshire 03820
[1-800-xxx-xxxx]
This prospectus describes Flexible Premium Variable Life Insurance Contracts
(the "Contracts") offered by Liberty Life Assurance Company of Boston ("we" or
"Liberty Life") for prospective insured persons ages 0-80. Subject to certain
restrictions, you may vary the frequency and amount of premium payments and
increase or decrease the level of life insurance benefits under the Contract.
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. (continued)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offer to buy be accepted before the registration statement becomes effective.
This prospectus is not an offer to sell nor is it soliciting an offer to buy
these securities nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of such state.
The Securities and Exchange Commission Has Not Approved or Disapproved of these
Securities or Passed upon the Accuracy or Adequacy of this Prospectus. Any
Representation to the Contrary is a Criminal Offense.
The Date of this Prospectus is April 23, 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 Net Premiums 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 Net Premiums.
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 Net Premiums, amounts withdrawn, and cost of insurance and any other
charges.
When the Insured dies, we will pay a Death Benefit to a Beneficiary specified by
you. We will reduce the amount of the Death Benefit by any unpaid Indebtedness
and any unpaid Contract charge. You may choose between one of two Death Benefit
options: (1) a level amount, which generally equals the Face Amount of the
Contract; or (2) a variable amount, which generally equals the Face Amount plus
the Account Value. 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 Net Premiums. As long as the
Contract remains in force and you make no withdrawals, the Death Benefit will
never be less than the Face Amount. The minimum Face Amount under the Contract
is $50,000.
The Contract will remain in force as long as (a) the Surrender Value is
sufficient to pay the monthly charges or (b) one of the two Coverage Guarantees
is in effect, regardless of changes in the Account Value. The Coverage
Guarantees are described on pages 23-24. You generally may cancel the Contract
by returning it to us within ten days after you receive it. In some states,
however, this right to return period may be longer, as provided by state law. We
will refund your Premium or Account Value, as provided by state law.
In certain states the Contracts may be offered as group contracts with
individual
2
<PAGE>
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 Contract may not be available in all states.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS....................................................................7
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT......................................9
FEES AND EXPENSES.............................................................17
PURCHASE OF CONTRACT AND ALLOCATION OF NET PREMIUMS...........................21
Application for a Contract..................................................21
Premiums....................................................................22
Modified Endowment Contract.................................................23
Guaranteed Coverage Monthly Premium.........................................23
Allocation of Net Premiums..................................................24
Account Value...............................................................25
Accumulation Unit Value.....................................................26
Transfer of Account Value...................................................26
Transfers Authorized by Telephone...........................................27
Dollar Cost Averaging.......................................................28
Asset Rebalancing...........................................................28
Asset Allocation Models.....................................................29
THE INVESTMENT AND FIXED ACCOUNT OPTIONS......................................29
Variable Account Investments................................................29
Portfolios................................................................30
Voting Rights.............................................................34
Additions, Deletions, and Substitutions of Securities.....................35
The Fixed Account...........................................................35
CONTRACT BENEFITS AND RIGHTS..................................................36
Death Benefit...............................................................36
Change in the Face Amount...................................................38
Optional Insurance Benefits.................................................39
Contract Loans..............................................................41
Amount Payable on Surrender of the Contract.................................42
Partial Withdrawals.........................................................43
Proceeds Options............................................................44
Termination and Grace Period................................................45
Reinstatement ..............................................................45
Cancellation ...............................................................46
Postponement of Payments ...................................................46
DEDUCTIONS AND CHARGES........................................................46
Premium Expense Charge......................................................46
Separate Account Expense Charge ............................................47
4
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Monthly Deduction...........................................................47
Cost of Insurance Charge..................................................48
Contract Fee..............................................................48
Portfolio Expenses..........................................................49
Withdrawal Charge...........................................................49
Withdrawal Fee..............................................................51
Transfer Fee................................................................51
Special Provisions for Group or Sponsored Arrangements .....................51
GENERAL CONTRACT PROVISIONS...................................................52
Statements to Contract Owners...............................................52
Limit on Right to Contest...................................................52
Suicide.....................................................................52
Misstatement as to Age and Sex..............................................53
Beneficiary.................................................................53
Assignment..................................................................53
Creditors' Claims...........................................................53
Dividends...................................................................53
Notice and Elections........................................................54
Modification................................................................54
FEDERAL TAX CONSIDERATIONS....................................................54
Taxation of Liberty Life and the Variable Account...........................54
Tax Status of the Contract .................................................55
Diversification Requirements..............................................55
Owner Control.............................................................56
Tax Treatment of Life Insurance Death Benefit Proceeds......................57
Accelerated Death Benefit.................................................57
Tax Deferral During Accumulation Period.....................................57
Contracts Which Are MECs..................................................58
Characterization of a Contract as a MEC.................................58
Tax Treatment of Withdrawals, Loans, Assignments and Pledges
under MECs............................................................58
Penalty Tax.............................................................58
Aggregation of Contracts................................................58
Contracts Which Are Not MECs..............................................58
Tax Treatment of Withdrawals Generally..................................59
Certain Distributions Required by the Tax Laws in the First
15 Contract Years.....................................................59
Tax Treatment of Loans..................................................59
Actions to Ensure Compliance with the Tax Law...............................59
Federal Income Tax Withholding..............................................59
Tax Advice..................................................................59
DESCRIPTION OF LIBERTY LIFE AND THE VARIABLE ACCOUNT..........................60
Liberty Life Assurance Company of Boston....................................60
Officers and Directors of Liberty Life......................................60
5
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Financial Information Concerning Liberty Life...............................63
Variable Account............................................................63
Safekeeping of the Variable Account's Assets................................63
State Regulation of Liberty Life............................................63
YEAR 2000 MATTERS.............................................................64
DISTRIBUTION OF CONTRACTS.....................................................64
LEGAL PROCEEDINGS.............................................................65
LEGAL MATTERS.................................................................66
REGISTRATION STATEMENT........................................................66
EXPERTS.......................................................................66
FINANCIAL STATEMENTS..........................................................66
</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.
6
<PAGE>
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.
Asset Allocation Models - Models developed by Standard & Poor's Inc. to provide
generalized guidance on how to allocate Account Value among the Sub-Accounts
under the Contract.
Asset Rebalancing - Our program under which we periodically readjust the
percentage of your Account Value allocated to each Sub-Account to maintain a
pre-set level.
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, before payment of any unpaid Indebtedness.
Delivery Date - If you pay your initial Premium 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.
Dollar Cost Averaging - Our program under which we periodically transfer a fixed
dollar amount to the Sub-Accounts of your choice, until the source you designate
is exhausted or you instruct us to stop.
Face Amount - The amount designated as such on the Contract Information page or
as subsequently changed in accordance with the terms of the Contract. It is used
to determine the amount of Death Benefit.
Fixed Account - The portion of the Account Value allocated to our general
account.
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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.
Insured - A person whose life is insured under the Contract.
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 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, and the cost of any
benefit Agreement.
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.
Net Premium - A Premium less any Premium Expense Charge.
Planned Premium - The amount of Premium selected by you to be paid periodically
as payment for the Contract.
Premium - 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 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
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<PAGE>
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.
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 flexible premium variable life insurance contract?
The Contract has a Death Benefit, Account Value, and other features similar to
life insurance contracts providing fixed benefits. It is a "flexible premium"
contract because you have a great amount of flexibility in determining when and
how much Premium to pay. 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 Net Premiums.
The Account Value is not guaranteed. Payment of the Death Benefit may be
guaranteed under the Contract's two Coverage Guarantees. 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 a Contract on the life of a prospective Insured age 0-80 who meets
our underwriting standards.
3. What is the Death Benefit?
While the Contract is in force, we will pay a Death Benefit to the Beneficiary
upon the death of the Insured. You may choose from two Death Benefit Options
available under this Contract: Option 1 and Option 2. Under Option 1, the Death
Benefit will be the greater of the Face Amount or a percentage of the Account
Value. Under Option 2, the Death Benefit will be the greater of the Face Amount
plus the Account Value or a percentage of the Account Value. You may change your
choice of Death Benefit Option while this Contract is in force as specified in
the Contract. Before we pay the Death
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<PAGE>
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 Face
Amount as described in this Prospectus on pages [43-44].
4. What are the guaranteed coverage features of the Contract?
Unless otherwise required in your state, this Contract includes two Coverage
Guarantees:
Limited Guaranteed Coverage; and
Lifetime Guaranteed Coverage.
While either Coverage Guarantee is in effect, and you have no outstanding
Indebtedness, your Contract will not lapse if the Cash Value is insufficient to
pay the Monthly Deduction.
Each Coverage Guarantee remains in effect until the date specified in your
Contract, provided that you pay sufficient Premium. Limited Guaranteed Coverage
terminates automatically at the later of the Insured's age 75 or 15 years after
the Contract Date. Lifetime Guaranteed Coverage does not have an automatic
termination date. Accordingly, if you pay sufficient Premium, this Coverage
Guarantee will stay in effect until the Insured dies. The amount of Premiums
required to keep each Coverage Guarantee in effect differs, as explained in the
Contract and page [22] of this Prospectus. If you do not pay sufficient
Premiums, one or both Coverage Guarantees will terminate, and you will be given
a fixed period of time to pay sufficient additional Premiums to restore the
guarantee. Even if both Guarantees terminate, however, your Contract will stay
in force provided that the Surrender Value is sufficient to pay the Monthly
Deductions as they come due. The Coverage Guarantees are explained in more
detail in "Guaranteed Coverage Monthly Premium" on page [23] below.
5. How will the Account Value of my Contract be determined?
Your Net Premiums are invested in one or more of the Sub-Accounts or allocated
to the Fixed Account, as you instruct us. Your Account Value is the sum of the
values of your interests in the Sub-Accounts, plus the values in the Fixed
Account and the Loan Account. Your Account Value will depend on the investment
performance of the Sub-Accounts and the amount of interest we credit to the
Fixed Account and the Loan Account, as well as the Net Premiums paid, partial
withdrawals, and charges assessed. We do not guarantee a minimum Account Value
on the portion of your Net Premiums allocated to the Variable Account.
6. What are the Premiums for this Contract?
You have considerable flexibility as to the timing and amount of your Premiums.
You may pay Premiums during the Insured's lifetime from the Contract Date until
the Contract Anniversary following the Insured's 100th birthday. You may pay
Planned Premiums monthly, quarterly, semiannually or annually. You may change
the timing
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of your Planned Premiums at any time. You may also pay unscheduled Premiums. You
are not required to pay any level of Premium. However, to take advantage of the
Coverage Guarantees under your Contract, you must pay the cumulative Guaranteed
Coverage Monthly Premium due. We may refuse any Premium that would cause the
Contract to lose its status as a life insurance contract under the Tax Code. We
may require you to provide evidence of insurability, if an increase in the Death
Benefit would result from an unscheduled Premium.
7. Can I increase or decrease my Contract's Face Amount?
Yes, you have considerable flexibility to increase or decrease your Contract's
Face Amount. After the first Contract Year, once each Contract Year you may
request an increase and/or a decrease by sending us a written request. Your
requested increase must be at least $25,000. If you request an increase in Face
Amount, we may require that you provide us with evidence of insurability that
meets our underwriting standards. An increase in the Face Amount of your
Contract will increase the charges deducted from your Account Value and will
result in an additional Withdrawal Charge for the amount of the increase. We
will not decrease the Face Amount of your Contract below $50,000. For more
detail, see "Change in Face Amount", on page [38].
8. When is the Contract effective?
If we approve your application, your Contract generally will be effective as of
the later of the date that we receive your initial Premium and the date we
approve your application. The effective date of your Contract will be designated
your Contract's Contract Date. If we have not previously received your initial
Premium, when we deliver your Contract we will require you to pay Premium to
place your insurance in force. While your application is in underwriting, if you
have paid your initial Premium, 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 and investment return on
your Net Premiums from the Contract Date. We will also begin to deduct the
Contract charges as of the Contract Date. We may temporarily allocate a portion
of your initial Net Premium to our Fixed Account until we allocate it to the
Sub-Accounts in accordance with the procedures described in the Answer to
Question 9.
If we reject your application, we will not issue you a Contract. We will return
any Premiums you have paid, adding interest at the rate required in your state.
We will not subtract any contract charges from the amount we refund to you.
9. How are my Net Premiums allocated?
Before your Premiums are allocated to the Account Value, we deduct a Premium
Expense Charge of 5.5% of each Premium. This charge covers a portion of our
distribution expenses, state premium tax expenses and certain federal tax
liabilities associated with the receipt of
11
<PAGE>
Premiums. For more detail, see "Premium Expense Charge" on page [46]. The
remaining amount is called the Net Premium.
When you apply for the Contract, you specify in your application how to allocate
your Net Premiums 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 Net Premiums in those percentages until you give us new written
instructions. You may allocate your Net Premiums to up to ten Sub-Accounts and
the Fixed Account. You must allocate at least five percent of your Net Premiums
to each option that you choose. In the future, we may change these limits.
We generally allocate your initial Net Premium to the Sub-Accounts and the Fixed
Account as of the Contract Date. Subsequent Net Premiums generally will be
allocated as of the date your Net Premium is received in our Service Center.
Until the fifth day after the end of the right to return period, however, we
will not allocate more than $2,000 of your Net Premiums to the Sub-Accounts.
Prior to that date, if your Premium allocation instructions would require us to
allocate more than $2,000 to the Sub-Accounts, we will allocate the first $2,000
to the Sub-Accounts in accordance with your instructions and temporarily
allocate the excess to the Fixed Account. We generally will then reallocate that
excess amount (including any interest) among the Sub-Accounts and the Fixed
Account, in accordance with your instructions, on the fifteenth 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. We may increase
or decrease this temporary allocation limit at any time.
You may transfer Account Value among the Sub-Accounts and the Fixed Account
while the Contract is in force, by writing to us or calling us at
1-800-xxx-xxxx. 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 after the first twelve transfers in any Contract Year, 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
[48], 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 pages [26-27].
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
[28].
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
12
<PAGE>
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 [28].
10. 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, Capital 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.
11. May I take out a Contract Loan?
13
<PAGE>
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 some 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 [39-40], and "Contracts Which Are MECs", on page
[55].
12. What are the charges deducted from my Premiums and my Account Value?
Premium Expense Charge. As noted above, we deduct a 5.5% Premium Expense Charge
from each Premium before it is allocated to the Account Value. This charge
covers a portion of our state premium tax expenses, certain federal tax expenses
associated with the receipt of premium, and our distribution expenses.
Separate Account Expense Charge. 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 equal to .60% of average
daily net assets.
Monthly Deduction. We also deduct a monthly deduction from your Account Value
for the cost of insurance charge, the Contract Fee, and the cost of any benefit
Agreement. The cost of insurance charge covers our anticipated mortality costs.
The Contract Fee covers certain administrative expenses in connection with the
Contracts. We allocate the monthly deduction pro rata among your Account Value
in the Sub-Accounts and the Fixed Account.
Transfer Fee. 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, after the
12th transfer in any Contract Year. We may change the number of free transfers
at any time, subject to the limits described in "Transfer Fee" on page [51], but
the transfer fee will never exceed $25.
Withdrawal Charge. 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 13 below and in "Withdrawal Charge" on pages
[49-50]. 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.
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<PAGE>
Other. 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.
For More Information. The charges assessed under the Contract are summarized in
the table entitled "Contract Charges and Deductions" on pages [18-19] and
described in more detail in "Deductions and Charges", beginning on page [46].
13. 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, 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 $500, 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 [42-43].
We may deduct a withdrawal charge and/or a withdrawal fee on a surrender or a
partial withdrawal.
Withdrawal Charge. If you surrender your Contract, we may deduct a withdrawal
charge. The withdrawal charge equals the amount shown in the withdrawal charge
table in your Contract, plus any additional withdrawal charge due to increases
in the Face Amount of your Contract. The amount of the withdrawal charge
decreases over time.
Generally, the initial amount of the withdrawal charge is equal to the Face
Amount of your Contract multiplied by the applicable rate per thousand dollars
of Face Amount. The applicable rate depends on the Insured's issue age, sex and
underwriting class. For example, if the Insured is age 45 when your Contract is
issued, the applicable rates per thousand, for both the Preferred and Standard
rate classes, are as follows:
<TABLE>
<S> <C>
Male Non-Smoker $13.68
Male Smoker $21.96
Female Non-Smoker $ 9.72
Female Smoker $13.32
Unisex Non-Smoker $xx.xx
Unisex Smoker $xx.xx
</TABLE>
The rates for each category are greater or lesser according to the age of the
Insured when your Contract is issued. The maximum rate for each category is
$50.00 per $1,000 of Face Amount.
If you surrender your Contract after ten Contract Years have elapsed, we will
not charge a withdrawal charge (unless you have increased the Face Amount of
your Contract, as explained
15
<PAGE>
below). Before that time, we determine the applicable withdrawal charge by
multiplying the initial withdrawal charge on your Contract by the appropriate
withdrawal charge percentage for the Contract Year in which the surrender
occurs.
We also charge a withdrawal charge on partial withdrawals, including amounts
withdrawn in connection with a decrease in Face Amount. The applicable
withdrawal charge will be a pro rata share of then current withdrawal charge on
a complete surrender.
If you increase the Face Amount of your Contract, we will determine an
additional withdrawal charge amount applicable to the amount of the increase. We
calculate the additional withdrawal charge using the same procedures described
above, except that we use the Insured's age and underwriting class at the time
of the increase, rather than at the time your Contract was issued. We will
include in your Contract a table showing the withdrawal charge applicable to
your Contract.
We also waive the withdrawal charge for qualified medical stays. This provision
can differ by state, so you should refer to your Contract.
Withdrawal fee. In addition to the withdrawal charge, we may charge a withdrawal
fee on any partial withdrawal after the first in any Contract Year. The
withdrawal fee will equal the lesser of $25 or two percent of the amount
withdrawn. The withdrawal fee does not apply to full surrenders. The withdrawal
fee is intended to compensate us for our administrative costs in processing your
partial withdrawal request.
For more detail, see "Withdrawal Charge", on pages [49-51].
14. 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 Premiums you pay under
the Contract to ensure that your Contract continues to meet that definition.
Current federal tax law generally excludes all death benefits from the gross
income of the beneficiary of a life insurance policy. In addition, you generally
are not subject to taxation on any increase in the Account Value until it is
withdrawn. Generally, you will be taxed on surrender proceeds and the proceeds
of any partial withdrawals only if those amounts, when added to all previous
distributions, exceed the total Premiums paid. Amounts received upon surrender
or withdrawal in excess of Premiums paid will be treated as ordinary income.
In some 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.
Depending on the amount and timing of your Premiums, your Contract may meet that
definition. 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
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<PAGE>
differently. Amounts withdrawn and Contract Loans are treated first as income,
to the extent of any gain, and then as a return of Premium. The income portion
of the distribution is includable in your taxable income. Also, an additional
ten percent penalty tax is generally imposed on the taxable portion of amounts
received before age 59-1/2. For more information on the tax treatment of the
Contract, see "Federal Tax Considerations", beginning on page [54], and consult
your tax adviser.
15. Can I return this Contract after it has been delivered?
In many states, you may cancel your Contract by returning it to us within ten
days after you receive it. In some states, however, this right to return period
may be longer, 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
Premiums. Since state laws differ as to the consequences of returning a
Contract, you should refer to your Contract for specific information about your
circumstances.
16. When does coverage under the Contract end?
Your Contract provides Limited Guaranteed Coverage and Lifetime Guaranteed
Coverage, which you can keep in effect for the period specified in your Contract
by paying sufficient Premiums. Under either Coverage Guarantee, if you do not
have any outstanding Indebtedness and your total Premiums at least equal the
applicable Guaranteed Coverage Monthly Premiums (net of any partial
withdrawals), your Contract will not lapse during the applicable coverage
period, regardless of changes in the Account Value. Your Contract will terminate
if you voluntarily surrender your Contract. If neither Coverage Guarantee is in
effect, your Contract may also terminate if on a Monthly Date the Surrender
Value is insufficient to pay the Monthly Deduction and you do not pay an amount
sufficient to keep the Contract in force by the end of the 61-day Grace Period.
17. 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 Insured's age, sex, underwriting
classification, Planned Premiums, and any available Agreements 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 your 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.
17
<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 [46]).
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<PAGE>
Contract Charges and Deductions
Charges Deducted from Account Value
<TABLE>
<S> <C> <C>
Monthly Cost of Insurance Charge(1)
Current Guaranteed
Ranges from $.05 per $1,000 of net amount at Ranges from $.05 per $1,000 of net amount at
risk to $79 per $1000 net amount at risk. risk to $83.33 per $1,000 of net amount at
risk.
<S> <C>
Monthly Contract Fee: $9.00 per month for Contracts
with Face Amounts under $100,000.
$6.00 per month for Contracts
with Face Amounts of at least $100,000.
Transaction Charges
Transfer Fee: $25 per transfer.(2)
Partial Withdrawal Fee: The lesser of $25 or 2% of the amount withdrawn.
Deferred Sales Charge
Maximum Withdrawal Charge: $50.00 per thousand dollars of Face Amount.(3)
Charges Deducted from the Sub-Accounts
Annual Variable Account Charges:
Expense Charge: .60% of daily net assets in the Variable
Account.(4)
Federal Income Tax Charge: Currently none.(5)
Premium Expense Charge: 5.5% of each Premium.
</TABLE>
(1) The 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 1.0032737 and the Account
Value. See "Deductions and Charges - Monthly Deduction - Cost of Insurance
Charge," on pages [47-48].
(2) We currently waive the Transfer Fee on all transfers. We reserve the right
in the future to charge the Transfer Fee on all transfers after the first
twelve transfers in a Contract Year, as described above. See "Transfer Fee"
on page [51].
(3) This charge applies to all surrenders and partial withdrawals, unless you
are eligible for the Medical
19
<PAGE>
Waiver of Withdrawal Charge. We also will charge a withdrawal charge if you
withdraw Account Value in connection with a decrease in the Face Amount of
your Contract. The amount of your withdrawal charge at issue will depend on
the Insured's age at issue, sex, and rating class. The withdrawal charge
declines to zero percent after the tenth Contract Year. The withdrawal
charge on a partial withdrawal or decrease in Face Amount will be a
percentage of the then applicable withdrawal charge on a surrender. The
withdrawal charge 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. See "Withdrawal Charge," on pages [49-51].
(4) 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.
(5) We currently do not assess a charge for federal income taxes that may be
attributable to the operations of the Variable Account. We reserve the
right to do so in the future. See "Deductions and Charges - Separate
Account Expense Charge", pages [46-47].
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 0.57% 0.24% 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 (4) 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
20
<PAGE>
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 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.
The following chart outlines the components of your Account Value. It is
intended to help you to understand how the fees and charges under the Contract
directly and indirectly affect your Account Value and benefits. You should use
this chart in conjunction with the more complete descriptions contained in other
parts of this prospectus and in your Contract.
- --------------------------------------------------------------------------------
Premium
less a charge of 5.5% of each Premium,
for state premium taxes, certain federal tax liabilities,
and distribution expenses, equals
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Premium
Allocated to one or more Sub-Accounts
and/or the Fixed Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Account Value
On the Contract Date, your Account Value is equal to your initial Net Premium
minus any of the charges described below that are due on that date. Thereafter,
your Account Value may change daily, as described below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Adjustments to Account Value:
Over the life of your Contract, your Account Value will increase and/or decrease
as indicated below to reflect the following:
o Addition of new Net Premiums.
o Any increase due to the investment experience of the chosen Sub-Accounts.
o Addition of guaranteed interest at an annual effective rate of 4.0% (plus any
excess interest if applicable) on the portion of the Account Value allocated
to the Fixed Account.
o Addition of interest at an annual effective rate of 6.0% on the portion of
your Loan Account which serves as collateral for your preferred Contract
loans, if any.
o Addition of interest at an effective annual rate of 4.0% on the portion of
your Loan Account which serves as collateral for your other Contract loans,
if any.
o Any decrease due to the investment experience of the chosen Sub-Accounts.
o Subtraction of any amounts withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Charges
o Management fees and expenses are deducted from the share value of each
underlying Portfolio, and are reflected in the investment experience of the
corresponding Sub-Account.
o Subtraction of a daily charge equivalent to an annual rate of 0.60% of average
daily net assets from each Sub-Account for mortality and expense risk
expenses, administrative expenses, and certain other expenses.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges Deducted from Your Account Value
o Subtraction of a contract fee of $9.00 ($6.00 for Contracts with face amounts
of at least $100,000), for administrative expenses.
o Subtraction of a cost of insurance charge, reflecting the Death Benefit under
your Contract and the Account Value.
o If your Contract includes optional benefit agreements, subtraction of the cost
of those agreements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transaction Charges
o Subtraction of a withdrawal charge, if you surrender your Contract or withdraw
Account Value within ten years of issuance or any Face Amount increase. The
withdrawal charge is intended to cover state premium taxes, certain federal
tax liabilities, and distribution expenses. We waive the withdrawal charge in
certain circumstances.
o Subtraction of a withdrawal fee of up to $25 for each partial withdrawal, for
administrative expenses.
o Currently we waive the transfer fee. In the future, we may subtract a transfer
fee of up to $25 on each transfer after the first twelve in any Contract year,
for administrative expenses.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Contract Loans
o You may borrow a portion of your Account Value. A Contract loan is not
subtracted from your Account Value. However, an amount equal to the amount of
the Contract loan is transferred to the Loan Account, where it serves as
collateral for the loan.
o Interest of 6% annually is charged on Contract loans.
o Outstanding Contract loans, including unpaid interest, are subtracted from
death benefit and surrender proceeds.
- --------------------------------------------------------------------------------
PURCHASE OF CONTRACT AND ALLOCATION OF NET PREMIUMS
Application for a Contract. You may apply to purchase a Contract by submitting a
written application to us through one of our authorized sales representatives.
We will not issue Contracts to insure people who are older than age 80. 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 Premium
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
Premium 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 Premium with your application if the requested
Face Amount of your Contract exceeds our then-current limit. In other cases, you
may
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<PAGE>
choose to pay the initial Premium with your application. If you did not submit
your initial Premium with your application, when we deliver your Contract we
will require you to pay sufficient Premium to place your insurance in force.
If we approve your application, your Contract generally will be effective as of
the later of the date that we receive your initial Premium and the date we
approve your application. In our discretion, we may permit an earlier Contract
Date. While your application is in underwriting, if you have paid your initial
Premium 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 and investment return on
your Net Premium from the Contract Date. We will also begin to deduct the
Contract charges as of the Contract Date. We may temporarily allocate a portion
of your initial Net Premium to our Fixed Account until we allocate it to the
Sub-Accounts and the Fixed Account in accordance with the procedures described
in the "Allocation of Net Premiums" on page [24] below.
If we reject your application, we will not issue you a Contract. We will return
any Premium you have paid, adding interest at the rate required in your state.
We will not subtract any contract charges from the amount we refund to you.
Premiums. You must pay an initial Premium to purchase a Contract. You may pay
additional Premiums during the Insured's lifetime from the Contract Date until
the Contract Anniversary following the Insured's 100th birthday. You may pay
Planned Premiums at the intervals selected in your application. You may change
the amount or interval of your Planned Premiums at any time by written request.
The amount of each Planned Premium must at least equal our minimum. We also
reserve the right to limit the amount of any increase in a Planned Premium. You
may pay unscheduled Premiums, provided the payment is at least $50.00, and the
Premium will not disqualify the Contract as a life insurance contract under the
Tax Code. If any unscheduled Premium increases the Death Benefit by more than it
increases the Account Value, we will require evidence of insurability
satisfactory to us.
While your Contract will show a Planned Premium amount, you are not required to
pay Planned Premiums. Your Contract will not lapse merely because you did not
pay a Planned Premium.
Even if you pay all of the Planned Premiums, your Contract nevertheless may
enter the Grace Period and thereafter lapse if neither Coverage Guarantee is in
effect and the Surrender Value is no longer enough to cover the Monthly
Deductions. However, paying Planned Premiums can help to keep your Contract in
force if your payments at least equal the applicable Guaranteed Coverage
Premiums.
If you owe any Indebtedness under the Contract, we will treat any unscheduled
Premium as a repayment of the Indebtedness and not as additional Premium. You
may pay Premiums at our Service Center or to an authorized agent.
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Modified Endowment Contract. Under certain circumstances, a Contract could be
classified as a "modified endowment contract", a category of life insurance
contract defined in the Tax Code. If your Contract were to become a modified
endowment contract, distributions and loans from the Contract could result in
current taxable income for you, as well as other adverse tax consequences. These
tax consequences are described in more detail in "Tax Matters - Modified
Endowment Contracts", on pages [58-59].
Your Contract could be deemed to be a modified endowment contract if, among
other things, you pay too much Premium or the Death Benefit is reduced. We will
monitor the status of your Contract and advise you if you need to take action to
prevent your Contract from being deemed a modified endowment contract. If you
pay a Premium that would result in your Contract being deemed a modified
endowment contract, we will notify you and allow you to request a refund of the
excess Premium, or other action, to avoid having your Contract being deemed a
modified endowment contract. If, however, you choose to have your Contract
deemed a modified endowment contract, we will not refund the Premium.
If you replace a modified endowment contract issued by another insurer with a
Contract, your Contract will also be deemed to be a modified endowment contract.
Our ability to determine whether a replaced contract issued by another insurer
is a modified endowment contract is based solely on the sufficiency of the
contract data we receive from the other insurer. We do not consider ourselves to
be liable to you if that data is insufficient to accurately determine whether
the replaced contact is a modified endowment contract. You should discuss this
issue with your tax adviser if it pertains to your situation.
Guaranteed Coverage Monthly Premium. This Contract includes two
Coverage Guarantees:
Limited Guaranteed Coverage; and
Lifetime Guaranteed Coverage
These Coverage Guarantees are intended to enable you to ensure that your
Contract will remain in force during a specified period regardless of changes in
the Account Value. The specified period for Limited Guaranteed Coverage is the
period from the Contract Date until the later of (a) the Insured's seventy-fifth
birthday or (b) the fifteenth Contract Anniversary. Lifetime Guaranteed Coverage
will remain in effect until the Insured's death, provided that sufficient
Guaranteed Coverage Monthly Premiums are paid as described below.
As a general rule, your Contract will enter the Grace Period, and may lapse, if
the Surrender Value is not sufficient to pay a Monthly Deduction when it is due.
Under each Coverage Guarantee, however, we guarantee that regardless of declines
in your Account Value, your Contract will not enter the Grace Period as long as
you have no outstanding Indebtedness and you have paid sufficient total
Premiums. To keep a Coverage Guarantee in effect, your total Premiums must at
least equal: (a) the total of the applicable Guaranteed Coverage Monthly
Premiums for each month since the Contract Date; plus (b) the amount of any
partial withdrawals. The Guaranteed Coverage Monthly Premium for each Coverage
Guarantee under your Contract is set forth on the Contract Information Page. If
you increase or decrease the Face
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Amount of your Contract, we will adjust the Guaranteed Coverage Monthly Premium
amount applicable after the change.
If at any time your total Premiums are insufficient to keep a Coverage Guarantee
in effect, we will notify you and you will have a fixed period of time,
currently sixty months, to satisfy the Premium shortfall. If you do not, that
Coverage Guarantee will end and it cannot be reinstated. If both Coverage
Guarantees are no longer in effect, your Contract will stay in force provided
that the Surrender Value is sufficient to pay the Monthly Deductions as they
come due. We may change the amount of time you have to reinstate a Coverage
Guarantee, but we will not reduce it to fewer than twelve months. For more
detail about the circumstances in which the Contract will lapse, see
"Termination and Grace Period", on pages [45-46].
Allocation of Net Premiums. We generally allocate your initial Net Premium to
the Sub-Accounts and the Fixed Account as of the Contract Date. Subsequent Net
Premiums generally will be allocated as of the date your Net Premium is received
in our Service Center. Until the fifth day after the end of the right to return
period, however, we will not allocate more than $2,000 of your Net Premiums to
the Sub-Accounts. Before then, if your Premium allocation instructions would
require us to allocate more than $2,000 to the Sub-Accounts, we will allocate
the first $2,000 to the Sub-Accounts in accordance with your instructions and
temporarily allocate the excess to the Fixed Account. We generally will then
reallocate that excess amount (including any interest) among the Sub-Accounts
and the Fixed Account, in accordance with your instructions, on the fifteenth
day after the Delivery Date. This period may be longer, 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. The amount
temporarily allocated to the Fixed Account will earn interest until it is
reallocated to the Sub-Accounts. In our discretion, in the future we may
increase or decrease the temporary allocation limit or otherwise change our
procedures for allocating Net Premiums received before the end of the right to
return period. We will not change the temporary allocation provisions of your
Contract once we have delivered it to you.
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 Net Premiums 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.
Excepting your initial Premium, we generally will allocate your Net Premiums to
the Sub-Accounts and the Fixed Account as of the date we receive your Premium in
our Service Center. If an unscheduled Premium requires underwriting, however, we
may
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delay allocation until after we have completed underwriting. We will follow the
allocation instructions in our file, unless you send us new allocation
instructions with your Premium. If you have any outstanding Indebtedness, we
will apply any unscheduled Premium 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 Premium and other Premiums requiring underwriting, on the date we
receive your Premium or request for other action 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 Net
Premium, 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 Net Premium 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 Net Premium received from you and allocated to the Sub-Account
during the current Valuation Period; plus
(3) Any Account Value transferred to the Sub-Account during the current
Valuation Period; minus
(4) Any Account Value transferred from the Sub-Account during the current
Valuation Period; minus
(5) Any amounts withdrawn by you (plus the applicable withdrawal charge
and withdrawal fee) from the Sub-Account during the current Valuation
Period; minus
(6) The portion of any Monthly Deduction allocated to the Sub-Account
during the current Valuation Period for the Contract Month following
the Monthly Date.
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On each Valuation Day, your Fixed Account balance will equal:
(1) The Fixed Account balance on the previous Valuation Day; plus
(2) Any Net Premium 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 Separate Account 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, 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
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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 after the first twelve
transfers in any Contract Year. We may impose a limit on the number of free
transfers or change that number, at any time.
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 assurances 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.
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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
each month 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 page [51].
Your request to participate in this program will be effective when we receive
your completed application at our Service Center. Call or write us for a copy of
the application and additional information concerning the program. We may
change, terminate, limit or suspend Dollar Cost Averaging at any time.
The theory of dollar cost averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount will purchase more
units when the unit prices are relatively low rather than when the prices are
higher, in a fluctuating market, the average cost per unit may be less than the
average of the unit prices on the purchase dates. However, participation in this
program does not assure you of a greater profit from your purchases under the
program; nor will it prevent or necessarily reduce losses in a declining market.
Moreover, other investment programs 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 Net
Premium (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 page [51].
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
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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 Program 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 Net Premiums
in accordance with the percentages specified in one of the S&P models. You may
only use one model at a 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 Net Premiums 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 Net Premiums or Account Value among
the Subaccounts. Call us at our Service Center or contact your sales
representative 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
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Portfolio is a separate investment series of an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act"). We
briefly describe the Portfolios below. You should read the current Prospectuses
for the Portfolios for more detailed and complete information concerning the
Portfolios, their investment objectives and strategies, and the investment risks
associated with the Portfolios. If you do not have a Prospectus for a Portfolio,
contact us and we will send you a copy.
Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio generally have no effect on the investment
performance of any other Portfolio.
The Portfolios which currently are the permissible investments of the Variable
Account under this Contract are separate series of AIM Variable Insurance Funds,
Inc. ("AIM Funds"), Liberty Variable Investment Trust ("Liberty Trust"), MFS
Variable Insurance Trust ("MFS Trust"), 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.
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)
- --------
(1)"Standard & Poor's 500", "S&P 500(R)", 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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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. You
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.
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
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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
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has provided investment advisory services since 1931. Liberty Asset Management
Company, an affiliate of Liberty Life, serves as sub-adviser for the Liberty
All-Star Equity Fund and the current portfolio managers are J.P. Morgan
Investment Management Inc., Oppenheimer Capital, Wilke/Thompson Capital
Management Inc., Westwood Management Corp., and Boston Partners Asset
Management, L.P.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser for each of the
Dreyfus Portfolios. Dreyfus has operated as an investment adviser since 1947.
Mellon Equity Associates, an affiliate of Dreyfus, serves as index fund manager
to the Dreyfus Stock Index Fund. Sarofim serves as sub-investment adviser to the
Dreyfus Capital Appreciation Fund. NCM Capital Management Group, Inc. serves as
sub-investment adviser to the Dreyfus Socially Responsible Growth Fund, Inc.
Massachusetts Financial Services Company ("MFS") is the investment adviser to
each Portfolio of the MFS Trust. MFS and its predecessor organizations have a
history of money management dating back to 1924 and the founding of the first
mutual fund in the United States.
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 Net Premiums 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.
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Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Contract Owners will not bear the attendant expenses.
Voting Rights. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Sub-Account to which you have allocated
your Account Value. Under current interpretations, however, you are entitled to
give us instructions on how to vote those shares on certain matters. We will
notify you when your instructions are needed and will provide proxy materials or
other information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Contract, the assignee may be entitled to give
voting instructions. Retirement plans may have different rules for voting by
plan participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
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
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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 Net Premiums under the
Contract. Any substitution will comply with the requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Variable Account and the Sub-Accounts:
(a) to operate the Variable Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain
and continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any
Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Variable Account;
(e) to assess a charge for taxes attributable to the operation of the
Variable Account or for other taxes, as described in "Deductions and Charges --
Separate Account Expense Charge" on pages [46-47] 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 1940 Act.
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
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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 Net Premiums 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 Net Premiums and transfers allocated to the Fixed Account during a
Contract Year. We guarantee that the current rate in effect when a Net Premium
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 [26-27].
Amounts allocated to the Fixed Account become part of the general account of
Liberty Life. Liberty Life invests the assets of the general account in
accordance with applicable laws governing the investments of insurance company
general accounts.
We may delay payment of partial or full withdrawals from the Fixed Account for
up to 6 months from the date we receive your written withdrawal request. If we
defer payment for more than 30 days, we will pay interest (if required) on the
deferred amount at such rate as may be required by the applicable state or
jurisdiction.
CONTRACT BENEFITS AND RIGHTS
Death Benefit.
While your Contract is in force, we will pay Death Proceeds to the Beneficiary
upon the death of the Insured. As described below in "Proceeds Options", on
pages [44-45], we will pay the Death Benefit proceeds in a lump sum or under an
optional payment plan.
The Death Benefit proceeds payable to the Beneficiary equal the applicable Death
Benefit, less any Indebtedness, and less any due and unpaid charges. The
proceeds may be increased, if you have added an Agreement 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
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Benefit proceeds within seven days after we have received due proof of death and
all other requirements we deem necessary have been satisfied.
The amount of the Death Benefit will be based on the Death Benefit Option you
have selected, any increases or decreases in the Face Amount, and in some
instances your Account Value. If you withdraw part of your Account Value, we
will reduce the Death Benefit as described in this Prospectus on page [43].
Death Benefit Options. You may choose one of two Death Benefit options. Under
Option 1, the Death Benefit will be the greater of: (a) the then current Face
Amount of your Contract; or (b) the Account Value multiplied by the applicable
corridor percentage as described below. Under Option 2, the Death Benefit will
be the greater of: (a) the then current Face Amount of your Contract plus the
Account Value; or (b) the Account Value multiplied by the applicable corridor
percentage as described below. 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 increase the Death Benefit
above the Face Amount, and a decrease in Account Value due to unfavorable
investment experience may decrease the Death Benefit (but not below the Face
Amount).
EXAMPLES:
<TABLE>
<CAPTION>
===========================================================================================
Example A Example B
===========================================================================================
<S> <C> <C>
Face Amount $100,000 $100,000
- -------------------------------------------------------------------------------------------
Death Benefit Option 1
- -------------------------------------------------------------------------------------------
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 Face Amount) 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
Face Amount) or $65,000 (the Account Value of $50,000 multiplied by the corridor
percentage of 130%).
Option 1 is designed to provide a specific amount of Death Benefit that does not
vary with changes in the Account Value. Therefore, under Option 1, as your
Account Value increases, the
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net amount at risk under your Contract will decrease. Under Option 2, on the
other hand, the amount of the Death Benefit generally increases to reflect
increases in the Account Value. Therefore, if you select Option 2, your Contract
generally will involve a constant net amount at risk. Since the cost of
insurance charge on your Contract is based upon the net amount at risk, the cost
of insurance charge will generally be less under a Contract with an Option 1
Death Benefit than under a similar Contract with an Option 2 Death Benefit. As a
result, if the Sub-Accounts you select experience favorable investment results,
your Account Value will tend to increase faster under Option 1 than under Option
2, but the total Death Benefit under Option 2 will increase or decrease directly
with changes in Account Value. Thus, you may prefer Option 1 if you are more
interested in the possibility of increasing your Account Value based upon
favorable investment experience, while you may prefer Option 2 if you are
seeking to increase total Death Benefits.
After the first Contract Year, once each Contract Year you may change the Death
Benefit option by writing to us at our Service Center. If you ask to change from
Option 2 to Option 1, we will increase the Face Amount of your Contract to equal
the Option 2 Death Benefit as of the effective date of the change. If you ask to
change from Option 1 to Option 2, we will change the Face Amount of your
Contract to equal the Option 1 Death Benefit less the Account Value as of the
effective date of the change. The change will take effect on the Monthly Date on
or immediately following the date we approve your request.
We may require you to provide evidence of insurability for a change in Death
Benefit option. We will not permit you to change the Death Benefit option under
your Contract if afterward the Face Amount remaining in force would be less than
$50,000.
Death Benefit at Attained Age 100. If the Insured is living and your Contract is
in effect on the first Contract Anniversary after the Insured's 100th birthday,
we will make the following changes in your Contract:
- If Lifetime Guaranteed Coverage is in effect, the Death Benefit will
equal the greater of the Face Amount of your Contract or 101% of the
Account Value of your Contract. Otherwise, the Death Benefit will
equal 101% of the Account Value of your Contract;
- You may not pay additional Premiums; and
- We no longer will charge the cost of insurance charge as part of your
Monthly Deductions.
Change in the Face Amount. While the Contract is in force, you may change the
Face Amount after the first Contract Year. Write or call our Service Center to
obtain the necessary form. The change will take effect when we approve your
request.
If you request a decrease in Face Amount, we will first apply it to coverage
provided by the most recent increase in Face Amount, then to the next most
recent increase successively and finally to the Face Amount under the original
application. We will not permit a decrease in the Face Amount of your Contract
if afterward the Face Amount remaining in force would be less than $50,000.
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If a request for a Face Amount decrease would cause your Contract to fail to
qualify for treatment as a life insurance contract under the Tax Code, we may
decline your request. In the alternative, we may give you the option of
withdrawing sufficient Account Value from your Contract to enable it to continue
to be treated as a life insurance contract for tax purposes after the requested
Face Amount decrease. If you withdraw that amount, we may charge a Withdrawal
Charge, calculated as described in "Withdrawal Charge on Partial Withdrawals" on
page [47].
To apply for an increase in the Face Amount, you must submit to us a
supplemental application, accompanied by satisfactory evidence of insurability.
We will not permit any increase in Face Amount after the Insured's 80th
birthday. The minimum amount of a Face Amount increase is $25,000. You may not
increase the Face Amount of your Contract more often than once every twelve
months.
You should be aware that an increase in the Face Amount of your Contract will
affect the cost of insurance charges applicable to your Contract. We will deduct
a larger amount of cost of insurance charges, because an increase in the Face
Amount also will increase the net amount at risk under your Contract. We will
not approve a request for a Face Amount increase if the Surrender Value is too
small to pay the Monthly Deduction for the Contract month following the
increase. As described in "Withdrawal Charge" on pages [49-51], your maximum
withdrawal charge will also increase. Increases in the Face Amount of your
Contract will increase the Guaranteed Coverage Monthly Premium amount. Likewise,
decreases in the Face Amount of your Contract will decrease the Guaranteed
Coverage Monthly Premium amount.
Optional Insurance Benefits. You may ask to add one or more Agreements to your
Contract to provide additional optional insurance benefits. We may require
evidence of insurability before we issue an Agreement to you. We will deduct the
cost of any Agreements as part of the Monthly Deduction. The Agreements we
currently offer are described below. For more information concerning what
options we may offer, please ask your sales representative or contact us at
800-xxx-xxxx. In our discretion we may offer Agreements or stop offering an
Agreement at any time.
Not all of these Agreements may be available in your state, and the terms of
these benefits may differ in some states. In addition, if your Contract was
issued in connection with a Qualified Plan, we may not be able to offer you some
of the benefits provided by these Agreements. Contact us for more information.
Accelerated Death Benefit Agreement. You may elect to add an Accelerated Death
Benefit Agreement to your Contract. If such Agreement has been attached, you may
request payment of a portion of the Death Benefit as an Accelerated Death
Benefit if either: (1) the Insured has a Terminal Condition; or (2) the Insured
is Chronically Ill, as these terms are defined in the Contract. You generally
may request an Accelerated Death Benefit equal to up to the lesser of 90% of the
Death Benefit (before subtracting any indebtedness) or $250,000. We will reduce
the amount you request by a discount for the early payment, a $100 processing
fee, and the repayment of a pro rata portion of your indebtedness. You may
choose for the Accelerated Death Benefit to be paid in a
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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.
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 [57].
Waiver of Specified Monthly Premium. Under this Agreement, we will contribute a
specified monthly amount to the Account Value while the Insured is disabled as
defined in the Agreement.
Waiver of Monthly Deduction. Under this Agreement, we will waive the Monthly
Deduction while the Insured is disabled as defined in the Agreement.
Children's Protection Benefit. Under this Agreement we will pay a Death Benefit
to the Beneficiary if one of the Insured's children dies before the child's 25th
birthday while the Agreement is in force. If the Insured dies while this
Agreement is in force, the benefit becomes fully paid up. Until the child's 25th
birthday, you may convert the Agreement for a new Contract on the child's life,
subject to certain conditions as defined in the Agreement. We will not require
evidence of insurability to convert the Agreement.
Accidental Death and Dismemberment. Under this Agreement, we will pay a benefit
if the Insured dies from accidental bodily injury or suffers a bodily injury as
specified in the Agreement.
Primary Insured Term Insurance. This Agreement provides additional term life
insurance coverage on the primary Insured. Until the primary Insured reaches age
75, you may exchange this Agreement for a new contract or an increase in the
Face Amount of your Contract without evidence of insurability. In addition, if
you convert this Agreement on or after its first anniversary, but no later than
its fourth anniversary, we will contribute a conversion credit toward the
premium for the new contract. We will not require evidence of insurability to
exchange or convert the Agreement. The addition of a Term Insurance Agreement
does not affect the withdrawal charge on your Contract. As a result, if you
provide a portion of your insurance coverage through a Term Insurance Rider
instead of through increasing the Face Amount of your Contract, your withdrawal
charge will be lower. However, under some combinations of coverage, your cost of
insurance charges may be higher.
Additional Insured Term Insurance. This Agreement provides life insurance
coverage on an additional Insured. We will pay the Face Amount of the Agreement
to the named Beneficiary when we receive due proof that the additional Insured
died while the Agreement was in force. Until the additional Insured's 75th
birthday, you may exchange the Agreement for a new Contract on the additional
Insured's life, subject to certain conditions as defined in the Agreement. In
addition, if you convert this Agreement on or after its first anniversary, but
no later than its fourth
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anniversary, we will contribute a conversion credit toward the premium for the
new contract. We will not require evidence of insurability to exchange or
convert the Agreement.
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 $10,000 and you
already had $5,000 in Indebtedness outstanding, you could borrow an additional
$4,000 ($10,000 x 90% - $5,000). 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.
The interest rate on all Contract Loans is the Loan Interest Rate shown in your
Contract. 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 portion of the Loan Account attributable to
"Preferred Loans", as defined below, at the Loan Interest Rate shown in your
Contract. 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 In excess of earnings. We will credit interest to the remainder of
the Loan Account at the minimum guaranteed interest 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 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 [45-46]. 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 without penalty at any time
while the Contract is still in effect and the Insured is living. If you have a
Contract Loan outstanding, we will treat any unscheduled Premium we receive from
you as a loan
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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 Net Premium
among the Sub-Accounts and the Fixed Account on the same basis as Planned
Premium are allocated, unless you instruct us otherwise.
A Contract Loan, whether or not repaid, will have a permanent effect on your
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.
You may realize taxable income when you take a Contract Loan. In some instances,
a Contract is treated as a "modified endowment contract" for federal tax
purposes. In that situation, Contract Loans are treated as withdrawals for tax
purposes, and the amount of the loan 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.
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.
Amount Payable on Surrender of the Contract. While your Contract is in force,
you may fully surrender your Contract. Upon surrender, we will pay you the
Surrender Value determined as of the day we receive your written request at our
Service Center. Your Contract will terminate on 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 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 [49-51].
You may receive the Surrender Value in a lump sum or under any of the proceeds
options described in "Proceeds Options" on pages [44-45].
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The tax consequences of surrendering the Contract are discussed in "Federal Tax
Considerations," beginning on page [54].
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 [49-51].
You may specify how much of your partial withdrawal you wish to be 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 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 $250 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 $500, we may treat your
request as a request to withdraw the total Account Value and terminate your
Contract. We may waive or change these limits.
If you have selected Death Benefit Option 1, a partial withdrawal will reduce
the Face Amount of your Contract as well as the Account Value. We will reduce
the Face Amount by the amount of the partial withdrawal and any charges
associated with it. The Face Amount after a partial withdrawal may not be less
than $50,000. If you have previously increased the Face Amount of your Contract,
your partial withdrawals will first reduce the Face Amount of the most recent
increase, then the next most recent increases successively, then the Face Amount
of the original Contract. We will notify you of any change in the Face Amount in
our next quarterly or annual report to you.
Under Option 2, a reduction in Account Value as a result of a partial withdrawal
will typically result in a dollar for dollar reduction in the life insurance
proceeds payable under the Contract. It will not, however, affect the Face
Amount.
The tax consequences of partial withdrawals are discussed in "Federal Tax
Considerations" beginning on page [54].
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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,
such as Option 4 below, 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 that we will declare annually.
We will never declare an effective annual rate of less than 3-1/2%.
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
that we will declare annually. We will never declare an effective annual rate of
less than 3-1/2%.
Option 3 - Fixed Period. We will pay monthly installments for a period selected
by you of not more than 25 years.
Option 4 - Life Income, with or without a Guarantee Period. We will pay proceeds
in periodic payments to the payee for as long as the payee is alive. If no
Guarantee Period is selected, payments will stop when the payee dies. It is
possible for the payee to receive only one payment, if the payee dies before the
second payment is due. If a Guarantee Period is selected and the payee dies
before the end of the Guarantee Period, we will continue payments to a named
beneficiary until the end of the Guarantee Period. We offer Guarantee Periods of
ten years, fifteen years or twenty years. We base the payments on the 1983
Individual Annuity Mortality Table, adjusted to include ten years of mortality
improvement under Projection Scale G.
Liberty Security Account(R). We will credit interest to proceeds left with us in
the Liberty Security Account(R). We will credit interest to your Liberty
Security Account(R) 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
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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 Grace Period ends; or
(c) 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 either (a) neither
Coverage Guarantee is in effect or (b) at least one of the Coverage Guarantees
is in effect, but you have outstanding Indebtedness under your Contract. You
will be given a 61-day Grace Period in which to pay an amount sufficient 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 [36].
As described in "Guaranteed Coverage Monthly Premium" on page [23], your
Contract has a Limited Guaranteed Coverage Period and a Lifetime Guaranteed
Coverage Period, provided that you pay sufficient Premiums. Under each Coverage
Guarantee, if you do not have any outstanding Indebtedness and you have paid
sufficient Premiums, your Contract will not lapse during the applicable
Guaranteed Coverage Period.
Reinstatement. If the Contract lapses during the life of the Insured, you may
apply for reinstatement of the Contract by paying us the reinstatement Premium.
You must request reinstatement within five years from the end of the Grace
Period while the
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Insured is living. The reinstatement Premium 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 Premium paid
at the time of reinstatement. All Contract charges will continue to be based on
your original Contract Date.
Cancellation. In many states, you may cancel your Contract by returning it to us
within ten days after you receive it. In some states, however, this right to
return period may be longer, as provided by state law. If you return your
Contract, the Contract terminates and, in most states, we will pay you an amount
equal to your Payment. We will pay the refund within seven days of receiving
your request. No withdrawal charge is imposed upon return of a Contract within
the right to return period. This right to return may vary in certain states 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 Premium 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.
Premium Expense Charge. Each time a Premium is paid, we charge a premium
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expense charge of 5.5% of each Premium paid. The premium expense charge is
intended to cover a portion of our state premium tax expenses, certain federal
tax liabilities resulting from the receipt of Premiums, and a portion of our
distribution expenses. State premium tax rates vary. We do not vary this charge
to reflect the actual premium tax rate in individual states. Accordingly, the
portion of this charge attributable to state premium taxes may be more or less
than the premium taxes assessed in your state.
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. The separate account expense charge will be
calculated at an annual rate equivalent to .60% of average daily net assets of
each Sub-Account, as described in the table of Contract Charges and Deductions
on pages [17-18]. The amount deducted will be determined on each Valuation Day.
The separate account expense charge is intended to cover all expenses under the
Contract other than distribution expenses, and the cost of insurance charges and
the other expenses covered by the monthly deduction and premium expense charge,
which are charged for separately and described below. Accordingly, the separate
account expense charge is intended to compensate us for incurring the following
expenses and assuming certain risks under the Contracts:
- mortality and expense risk;
- certain federal taxes and other expenses associated with the receipt
of Premiums; and
- a portion of our administrative expenses, such as salaries, postage,
telephone, office equipment and periodic reports.
The mortality risk assumed in relation to the Contract includes the risk that
the cost of insurance charges specified in the Contract will be insufficient to
meet claims and the risks under the Guaranteed Death Benefit. We also assume a
risk that, on the Monthly Date preceding the death of an Insured, the Death
Benefit will exceed the amount on which the cost of insurance charges were
based. The expense risk assumed is that expenses incurred in issuing and
administering the Contracts will exceed the administrative charges set in the
Contract.
We currently are not maintaining a provision for taxes attributable to the
operations of the Variable Account (as opposed to the federal tax related to the
receipt of Premiums 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, and any charges for optional benefit
Agreements. We
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deduct 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 equal to the current cost of
insurance rate times the net amount at risk. The net amount at risk is (a) minus
(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) is the Account Value on that day before the deduction of the Monthly
Deduction.
Rates may differ based on the age, sex, rating class and history of tobacco use
of the Insured. Your guaranteed cost of insurance rates are set forth in the
mortality tables in your Contract. Because 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. If the Insured is still living and your Contract is
in effect on the first Contract Anniversary after the Insured's 100th birthday,
we will discontinue charging you a cost of insurance charge.
We determine the cost of insurance charge separately for the initial Face Amount
and each subsequent increase. The current 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 maximum 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 Mortality Table B assuming a blend of 80% male and 20% female lives.
Contract Fee. We charge a contract fee of $9.00 per month if your Contract's
Face Amount is less than $100,000. We charge a contract fee of $6.00 per month
if your Contract's Face Amount is $100,000 or greater. The contract fee is
intended to compensate us for administrative expenses such as salaries, postage,
telephone, office equipment and periodic reports.
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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 [19-20].
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.
In general . If you surrender your Contract or take a partial withdrawal, you
may pay a withdrawal charge. The withdrawal charge on surrender equals the
amount shown in the withdrawal charge table in your Contract, plus any
additional withdrawal charge due to increases in the Face Amount of your
Contract. The amount of the withdrawal charge decreases over time. The
withdrawal charge on a partial withdrawal is a pro rata share of the withdrawal
charge on a surrender. The withdrawal charge is explained in more detail below.
For additional information concerning the rates applicable to you, please
consult your sales representative. In addition, a table of the applicable rates
is on file with the SEC as an exhibit to the registration statement for this
product.
The withdrawal charge and the premium expense charge are imposed to cover our
actual distribution and premium tax expenses, which include agents' sales
commissions and other sales and distribution expenses. We expect to recover
total sales expenses and premium tax expenses of the Contracts over the life of
the Contracts. However, to the extent distribution costs and premium taxes are
not recovered by the withdrawal charge or the premium expense 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.
Initial Withdrawal Charge. When we issue your Contract, we determine the initial
withdrawal charge. To determine the initial amount of the withdrawal charge, we
multiply the initial Face Amount of your Contract by the applicable rate per
thousand dollars of Face Amount. The applicable rate depends on the Insured's
issue age, sex and underwriting class. For example, if the Insured is age 45
when your Contract is issued, the applicable rates per thousand are as follows:
<TABLE>
<S> <C>
Male Non-Smoker $13.68
Male Smoker $21.96
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Female Non-Smoker $ 9.22
Female Smoker $13.32
Unisex Non-Smoker $xx.xx
Unisex Smoker $xx.xx
</TABLE>
Accordingly, if the Insured were a male non-smoker age 45 and the Contract's
Face Amount were $100,000, the withdrawal charge initially would be $1,368. The
rates for each category are greater or lesser according to the age of the
Insured when your Contract is issued. The maximum rates for each category is
$50.00 per $1,000 of Face Amount.
Withdrawal Charge on Surrender. If you surrender your Contract after ten
Contract Years have elapsed, we will not charge a withdrawal charge (unless you
have increased the Face Amount of your Contract, as explained below). Before
that time, we determine the applicable withdrawal charge by multiplying the
initial withdrawal charge on your Contract by the appropriate withdrawal charge
percentage for the Contract Year in which the surrender occurs. Those
percentages are:
<TABLE>
<CAPTION>
% of Initial % of Initial
Contract Withdrawal Contract Withdrawal
Year Charge Year Charge
<S> <C> <C> <C>
1 100% 6 70%
2 100% 7 60%
3 100% 8 50%
4 90% 9 40%
5 80% 10 20%
</TABLE>
Withdrawal Charge on Partial Withdrawal. We also charge a withdrawal charge on a
partial withdrawal from your Contract, including a partial withdrawal taken in
connection with a decrease in the Face Amount of your Contract. The applicable
withdrawal charge will be a pro rata share of the then current withdrawal charge
on a complete surrender, based on the percentage of the Surrender Value being
withdrawn.
Withdrawal Charge on Increases in Initial Face Amount. If you increase the Face
Amount of your Contract, we will determine an additional withdrawal charge
applicable to the amount of the increase. We calculate the additional withdrawal
charge using the same procedures described above, except that we use the
Insured's age and underwriting class at the time of the increase, rather than at
the time your Contract was issued. If you surrender your Contract or make a
partial withdrawal after an increase in Face Amount, we separately calculate the
withdrawal charge applicable to the initial Face Amount and each increase and
add those amounts to determine the total Withdrawal Charge.
Each Face Amount increase also has a withdrawal charge associated with it. It
reduces at the same rate as the initial withdrawal charge shown above.
Medical Waiver of Withdrawal Charge. After the first Contract Year, we will
waive the
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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. This provision may vary in some states
and is discussed in more detail in the Contract.
Withdrawal Fee. In addition to a withdrawal charge, we charge a withdrawal fee
on any partial withdrawal after the first in any Contract Year. The withdrawal
fee will equal the lesser of $25 or two percent of the amount of the partial
withdrawal. The withdrawal fee does not apply to full surrenders. The withdrawal
fee is intended to compensate us for our administrative costs in effecting a
partial withdrawal.
Transfer Fee. The Contract permits us to charge a maximum transfer fee of $25
per transfer on each transfer after the first twelve transfers in any Contract
Year, 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, 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 Premiums 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
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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
Contract 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.
In addition, we will send you the financial statements of the Portfolios and
other reports as specified in the 1940 Act. 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 Face Amount. 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 and any supplemental applications, 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. Likewise, if the Insured
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dies by suicide while sane or kills him- or herself while insane within two
years after the effective date of any increase in the Face Amount, the amount we
will pay you with respect to that increase will be limited to the Monthly
Deductions taken in connection with that increase.
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.
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.
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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.
FEDERAL TAX CONSIDERATIONS
NOTE: The following discussion is based upon our understanding of current
federal income tax law applicable to life insurance contracts in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the contracts. You bear the complete
risk that the Contracts may not be treated as "life insurance contracts" under
federal income tax laws.
In addition, this discussion does not include a detailed description of the
federal income tax consequences of the purchase of these Contracts or any
discussion of special tax rules that may apply to certain purchase situations.
We also have not tried to consider any other possibly applicable state or other
tax laws, for example, the estate tax consequences of the Contracts. You should
seek tax advice concerning the effect on your personal tax liability of the
transactions permitted under the Contract, as well as any other questions you
may have concerning the tax status of the Contract or the possibility of changes
in the tax law.
Taxation of Liberty Life and the Variable Account. Liberty Life is taxed as a
life insurance company under Part I of Subchapter L of the Tax Code. The
operations of the Variable Account are taxed as part of the operations of
Liberty Life. Investment income and realized capital gains are not taxed to the
extent that they are applied under the Contracts.
Accordingly, we do not anticipate that Liberty Life will incur any federal
income tax liability attributable to the operation of the Variable Account (as
opposed to the federal tax related to the receipt of Payments under the
Contracts). Therefore, we are not making any charge or provision for federal
income taxes. However, if the tax treatment of the Variable Account is changed,
we may charge the Variable Account for its share of the resulting federal income
tax.
In several states we may incur state and local taxes on the operations of the
Variable Account. We currently are not making any charge or provision for them
against the
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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 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
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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
segregated asset 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, a segregated asset account will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of the account is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the account is represented by any two investments; (3) no more
than 80% of the value of the total assets of the account is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the account is represented by any four investments.
These diversification standards are applied to each Sub-Account of the Variable
Account by looking to the investments of the Portfolio underlying the
Sub-Account. One of our criteria in selecting the Portfolios is that their
investment managers intend to manage them in compliance with these
diversification requirements.
Owner Control. In certain circumstances, variable life insurance contract owners
will be considered the owners, for tax purposes, of separate account assets
underlying their contracts. In those circumstances, the contract owners could be
subject to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a variable
insurance contract owner will be considered the owner of separate account
assets, if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. When the
diversification regulations were issued, the Treasury Department announced that
in the future, it would provide guidance on the extent to which variable
contract owners could direct their investments among Sub-Accounts without being
treated as owners of the underlying assets of the Variable Account. As of the
date of this Prospectus, no such guidance has been issued. We cannot predict
when or whether the Treasury Department will issue that guidance or what
position the Treasury Department will take. In addition, although regulations
are generally issued with prospective effect, it is possible that regulations
may be issued
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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 (accruing 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 tax 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"
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generally is the total Premiums and other consideration paid for the Contract,
less the aggregate amount received under the Contract previously to the extent
such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the Contract
constitute income depends, in part, upon whether the Contract is considered a
"modified endowment contract" ("MEC") for federal income tax purposes.
Contracts Which Are MECs
- ------------------------
Characterization of a Contract as a MEC. In general, this Contract will not
constitute a MEC, unless: (1) it was received in exchange for another life
insurance contract which was a MEC; (2) excess Premiums are paid into the
Contract, causing it to fail the "7-pay" test under Section 7702A of the Tax
Code, or (3) there is a decrease in the Face Amount or an Agreement is removed,
such that the Contract no longer complies with the "7-pay" test under Section
7702A of the Tax Code. Other "material" changes to your Contract may also cause
it to be treated as a MEC.
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 your investment in the Contract.
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 that 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 59-1/2, (2) because you have become disabled (as defined
in the Tax Code), 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 Code). Certain other exceptions to the ten-
percent penalty tax may apply.
Aggregation of Contracts. All life insurance contracts which are MECs and which
are purchased by the same person from us or any of our affiliates within the
same calendar year will be aggregated and treated as one contract for purposes
of determining the amount of a withdrawal (including a deemed withdrawal) that
is includable in taxable income.
Contracts Which Are Not MECs
- ----------------------------
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Tax Treatment of Withdrawals Generally. If your Contract is not a MEC, the
amount of any withdrawal from the Contract will be treated first as a
non-taxable recovery of premiums 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.
Where cash distributions are required under the Tax Code in connection with a
reduction in benefits during the first 15 years after the Contract is issued (or
if withdrawals are made in anticipation of a reduction in benefits, within the
meaning of the Tax Code, during this period), some or all of such amounts may be
includable in taxable income.
Tax Treatment of Loans. If your Contract is not a MEC, a loan received under the
Contract generally will be treated as indebtedness for tax purposes, rather than
a withdrawal of Account Value. As a result, you will not realize taxable income
on any part of the loan as long as the Contract remains in force. If you
surrender your Contract, however, any outstanding loan balance will be treated
as an amount received by you as part of the Surrender Value. Accordingly, you
may be subject to taxation on the loan amount at that time. Moreover, if any
portion of your Contract Loan is a preferred loan, a portion of your Contract
Loan may be includable in your taxable income. Generally, you may not deduct
interest paid on loans under the Contract, even if you use the loan proceeds in
your trade or business.
Actions to Ensure Compliance with the Tax Law. We believe that the maximum
amount of Premiums 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 Premiums, and, if your total Premiums during a Contract Year exceed those
permitted by the Tax Code, we will refund the excess Premiums within 60 days of
the end of the Contract Year and will pay interest and other earnings (which
will be includable in taxable income) as required by law on the amount refunded.
We reserve the right to increase the Death Benefit (which may result in larger
charges under a Contract) or to take any other action deemed necessary to ensure
the compliance of the Contract with the federal tax definition of a life
insurance contract.
Federal Income Tax Withholding. We will withhold and remit to the federal
government a part of the taxable portion of withdrawals made under a Contract,
unless the Owner notifies us in writing at or before the time of the withdrawal
that he or she chooses not to have withholding. As a 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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<PAGE>
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 officers are listed
below, together with information as to their dates of election and principal
business
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<PAGE>
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.
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 Market, Liberty Mutual Insurance Company.
J. Paul Condrin, III; Vice President and Director, April 1997 to date; Senior
Vice President and Chief Financial Officer, Liberty Mutual Insurance Company.
Christopher C. Mansfield; Director, August 1995 to date; Senior Vice President
and General Counsel, Liberty Mutual Insurance Company.
Andrew M. Girdwood, Jr.; Vice President, March 1984 to date.
Richard W. Hadley; Vice President, and Comptroller, June 1993 to date.
Richard B. Lassow; Vice President, September 1994 to date; Chief Actuary -
Individual Life, Connecticut Mutual Life Insurance Company, September 1989 to
June 1994.
William J. O'Connell, Vice President and Assistant General Counsel, November
1998
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<PAGE>
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.
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.
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<PAGE>
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 1940 Act. 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 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
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<PAGE>
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
that we have developed internally and software that 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.
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
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<PAGE>
Company, either individually or through an incorporated insurance agency. LLD
enters into selling agreements with 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 that
may be acting as broker-dealers without separate registration under the
Securities Exchange Act of 1934, pursuant to legal and regulatory exceptions.
Generally, representatives will receive a commission of not more than 50% of the
Premiums received in the first year on Premiums up to the commissionable
Premium, plus not more than 5% of any additional Premiums in the first Contract
Year. Commissions on Premiums paid in subsequent years are lower.
Representatives also will generally receive a commission on a Face Amount
increase. In addition we may pay or permit other promotional incentives in cash,
or credit or other compensation. We also may 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 January 1, 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
Williams 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 lawsuits which, in our management's judgment, are not
of material importance to its total assets or material with respect to the
Variable Account.
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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 upon 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. The most current financial statements of Liberty Life are
those as of the end of the most recent fiscal year. Liberty Life represents that
there have been no adverse material changes in Liberty Life's financial position
or operations between the end of the most recent fiscal year and
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the date of this Prospectus.
[financial statements to be added by pre-effective amendment]
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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 Flexible Premium Variable Life Insurance Contract
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
i
<PAGE>
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
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 (to be filed by pre-effective
amendment)
(4) Other Agreements between the depositor, principal underwriter, and
custodian with respect to Registrant or its securities (not
applicable)
(5) (a) Specimen Contract (filed herewith)
(b) Specimen Disability Waiver of Monthly Deduction Benefit Agreement
(filed herewith)
(c) Specimen Children's Protection Benefit Agreement (filed herewith)
(d) Specimen Disability Waiver of Specified Monthly Premium Benefit
Agreement (filed herewith)
(e) Specimen Primary Insured Term Insurance Benefit Agreement (filed
herewith)
(f) Specimen Additional Insured Term Insurance Benefit Agreement
(filed herewith)
(g) Specimen Accidental Death and Dismemberment Benefit Agreement
(filed herewith)
(h) Specimen Accelerated Death Benefit Agreement (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) Form of Participation Agreement By and Among AIM Variable
Insurance Funds, Inc., _________ Life Insurance Company, and
___________ (3)
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(b) Form of Participation Agreement By and Among _______Life
Insurance Company, Liberty Variable Investment Trust, and Liberty
Financial Investments, Inc.(3)
(c) Form of Participation Agreement By and Among _______ Life
Insurance Company, Dreyfus Variable Investment Fund, The Dreyfus
Socially Responsible Growth Fund, Inc., and Dreyfus Life and
Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund)(3)
(d) Form of Participation Agreement By and Among MFS Variable
Insurance Trust, _________________ and Massachusetts Financial
Services Company (3)
(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)
(c) Specimen Variable Life Insurance Supplemental Application (3)
2. Opinion and Consent of Counsel (to be filed by pre-effective amendment)
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) (to be filed by
pre-effective amendment)
7. Actuarial Opinion and Consent (to be filed by pre-effective amendment)
8. Consent of Independent Accountants (to be filed by pre-effective amendment)
9. Form of Illustrations (filed herewith)
10. Table of Surrender Charge Factors and Percentages (to be filed by
pre-effective amendment)
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(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.
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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 23rd of
April, 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 April 23, 1999
/s/ Edmund F. Kelly
- ----------------------------
Edmund F. Kelly President, Chief Executive Officer April 23, 1999
and Director
/s/ Elliot J. Williams
- ----------------------------
Elliot J. Williams Treasurer April 23, 1999
/s/ J. Paul Condrin
- ---------------------------- Director April 23, 1999
J. Paul Condrin
v
<PAGE>
/s/ John B. Conners
- ----------------------------
John B. Conners Director April 23, 1999
/s/ A. Alexander Fontanes
- ----------------------------
A. Alexander Fontanes Director April 23, 1999
/s/ Christopher C. Mansfield
- ----------------------------
Christopher C. Mansfield Director April 23, 1999
/s/ Jean M. Scarrow
- ----------------------------
Jean M. Scarrow Director April 23, 1999
/s/ Morton E. Spitzer
- ----------------------------
Morton E. Spitzer Director April 23, 1999
</TABLE>
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EXHIBIT INDEX
5(a) Specimen Contract
(b) Specimen Disability Waiver of Monthly Deduction Benefit Agreement
(c) Specimen Children's Protection Benefit Agreement
(d) Specimen Disability Waiver of Specified Monthly Premium Benefit Agreement
(e) Specimen Primary Insured Term Insurance Benefit Agreement
(f) Specimen Additional Insured Term Insurance Benefit Agreement
(g) Specimen Additional Death and Dismemberment Benefit Agreement
(h) Specimen Accelerated Death Benefit Agreement
9 Form of Illustrations
vii
LIBERTY [Liberty
MUTUAL logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
Home Office: 175 Berkeley Street, P.O. Box 140, Boston, Massachusetts
02117-0140.
Service Center: 100 Liberty Way, Dover, New Hampshire 03820-5808
READ THIS INSURANCE CONTRACT 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 within 10 days of its receipt and any
premium will be refunded.
Liberty Life Assurance Company of Boston, a stock Company, will pay the benefits
provided in this 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.
We have issued this flexible premium variable life insurance contract in
consideration of Your application and the receipt of Your initial premium.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS
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. Silvan /s/ Edmund F. Kelly
SECRETARY PRESIDENT
CONTRACT DESCRIPTION
This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT.
The amount and frequency of payments are flexible.
The Death Benefit is payable if the Insured dies while this contract is in
force. Death Benefit and Account Value may vary with investment and earnings
experience and contract charges. This contract is non-participating.
<PAGE>
CONTRACT INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Insured [John Doe] Contract Number [NV-12345678]
Issue Age/Sex [35 ]/[Male] Contract Date [June 1,1999]
Rating Class [Standard] [Non-Tobacco] Loan Interest Rate [6.00%]
Face Amount [$100,000.00] Minimum Face Amount [$50,000]
Initial Premium [$300.00] Minimum Face Amount Increase [$25,000]
Planned Premium [$1,200.00] Death Benefit Option [1]
Planned Premium Frequency [Annual] Initial Net Premium
Allocation Limit [$2,000]
</TABLE>
Limited Guaranteed Coverage Monthly Premium [$ 84.92]
Limited Guaranteed Coverage Period - The Limited Guaranteed Coverage Period
begins on the Contract Date and is in effect through the Monthly Date following
the Insured's Attained Age [75.]
Lifetime Guaranteed Coverage Monthly Premium [$ 109.92]
Lifetime Guaranteed Coverage Period - The Lifetime Guaranteed Coverage Period
begins on the Contract Date and is in effect for the duration of the contract.
Coverage may end if no premiums are paid after the Initial Premium or if
subsequent premiums are not sufficient to cover the Monthly Deduction.
Interest Rates
Guaranteed Annual Interest Rate For the Fixed Account [4.00%]
Guaranteed Monthly Equivalent Interest Rate [0.32737%]
<TABLE>
Contract Charges
<S> <C><C>
Contract Fee [$6.00] per month. Withdrawal Charge on Withdrawal as defined on page 13.
Cost of Insurance as defined on page 9. Premium Expense Charge [5.5%] of each premium payment.
Separate Account Expense Charge [.60%]
</TABLE>
Table of Withdrawal Charges
This table applies in the event of a
Withdrawal in the first [10] contract years.
<TABLE>
<CAPTION>
Contract Withdrawal Contract Withdrawal
Year Charge Year Charge
<S> <C> <C> <C>
[1 $959.00 6 $671.00
2 $959.00 7 $575.00
3 $959.00 8 $480.00
4 $863.00 9 $384.00
5 $767.00 10 192.00
11 and thereafter $0.00]
</TABLE>
Mortality Table
1980 Commissioners Standard Ordinary, Age Last Birthday, Smoker or Non-smoker
<PAGE>
Contract Number [NV-12345678]
CONTRACT INFORMATION (continued)
Additional Agreements
Accelerated Death Benefit Agreement
Issue Date: [June 1, 1999]
Additional Insured Benefit Agreement
Additional Insured: [Jane Doe]
Face Amount: [$100,000.00]
Issue Age/Sex [35 ]/[Female]
Rating Class [Standard] [Non-Tobacco]
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2064]
Primary Insured Term Insurance Benefit Agreement
Primary Insured: [John Doe]
Face Amount: [$100,000.00]
Issue Age/Sex [35 ]/[Male]
Rating Class [Standard] [Non-Tobacco]
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2064]
Accidental Death and Dismemberment Benefit Agreement
Amount of Accidental Death Benefit: [$100,000.00]
Monthly Deduction [$7.00]
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2034]
Children's Protection Benefit Agreement
Units: [5]
Monthly Deduction: [$2.50]
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2034]
Disability Waiver of Monthly Deductions Benefit Agreement
Rating Factor: [1.00]
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2029]
Disability Waiver of Monthly Specified Premium Benefit Agreement
Specified Monthly Premium Amount: [$100.00]
Monthly Deduction: [$6.00]
The Monthly Deduction is based on a rating factor of [1.00].
Issue Date: [June 1, 1999]
Termination Date: [June 1, 2029]
FPV-98150
<PAGE>
Contract Number [NV-12345678]
CONTRACT INFORMATION (continued)
<TABLE>
<CAPTION>
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
Attained Monthly Attained Monthly Cost Attained Monthly
Age Cost of Age of Age Cost of
Insurance Insurance Rate Insurance
Rate Rate
Male Male Male
<S> <C> <C> <C> <C> <C> <C>
0 -- 35 0.1442 70 3.0703
1 -- 36 0.1517 71 3.4033
2 -- 37 0.1617 72 3.7600
3 -- 38 0.1726 73 4.1934
4 -- 39 0.1843 74 4.6701
5 -- 40 0.1984 75 5.1801
6 -- 41 0.2134 76 5.7192
7 -- 42 0.2293 77 6.2835
8 -- 43 0.2468 78 6.8762
9 -- 44 0.2660 79 7.5161
10 -- 45 0.2876 80 8.2238
11 -- 46 0.3110 81 9.0181
12 -- 47 0.3360 82 9.9157
13 -- 48 0.3635 83 10.9129
14 -- 49 0.3935 84 11.9904
15 -- 50 0.4277 85 13.1242
16 -- 51 0.4669 86 14.3000
17 -- 52 0.5120 87 15.5000
18 -- 53 0.5637 88 16.7191
19 -- 54 0.6213 89 17.9749
20 -- 55 0.6855 90 19.2858
21 -- 56 0.7556 91 20.6825
22 -- 57 0.8299 92 22.2180
23 -- 58 0.9125 93 24.0437
24 -- 59 1.0052 94 26.5035
25 -- 60 1.1088 95 30.2074
26 -- 61 1.2240 96 36.3581
27 -- 62 1.3569 97 47.2118
28 -- 63 1.5073 98 66.2071
29 -- 64 1.6745 99 82.5000
30 -- 65 1.8577
31 -- 66 2.0559
32 -- 67 2.2685
33 -- 68 2.4996
34 -- 69 2.7560
</TABLE>
FPV-98150
<PAGE>
Contract Number [NV-12345678]
CONTRACT INFORMATION (continued)
<TABLE>
<CAPTION>
PRIMARY INSURED TERM INSURANCE BENEFIT AGREEMENT
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
Attained Monthly Attained Monthly Cost Attained Monthly
Age Cost of Age of Age Cost of
Insurance Insurance Rate Insurance
Rate Rate
Male Male Male
<S> <C> <C> <C> <C> <C> <C>
[0 -- 35 0.1442 70 3.0703
1 -- 36 0.1517 71 3.4033
2 -- 37 0.1617 72 3.7600
3 -- 38 0.1726 73 4.1934
4 -- 39 0.1843 74 4.6701
5 -- 40 0.1984 75 5.1801
6 -- 41 0.2134 76 5.7192
7 -- 42 0.2293 77 6.2835
8 -- 43 0.2468 78 6.8762
9 -- 44 0.2660 79 7.5161
10 -- 45 0.2876 80 8.2238
11 -- 46 0.3110 81 9.0181
12 -- 47 0.3360 82 9.9157
13 -- 48 0.3635 83 10.9129
14 -- 49 0.3935 84 11.9904
15 -- 50 0.4277 85 13.1242
16 -- 51 0.4669 86 14.3000
17 -- 52 0.5120 87 15.5000
18 -- 53 0.5637 88 16.7191
19 -- 54 0.6213 89 17.9749
20 -- 55 0.6855 90 19.2858
21 -- 56 0.7556 91 20.6825
22 -- 57 0.8299 92 22.2180
23 -- 58 0.9125 93 24.0437
24 -- 59 1.0052 94 26.5035
25 -- 60 1.1088 95 30.2074
26 -- 61 1.2240 96 36.3581
27 -- 62 1.3569 97 47.2118
28 -- 63 1.5073 98 66.2071
29 -- 64 1.6745 99 82.5000
30 -- 65 1.8577
31 -- 66 2.0559
32 -- 67 2.2685
33 -- 68 2.4996
34 -- 69 2.7560
</TABLE>
These rates are based on the Mortality Table listed on the Contract Information
Page.
FPV-98150
<PAGE>
Contract Number [NV-12345678]
CONTRACT INFORMATION (continued)
ADDITIONAL INSURED TERM INSURANCE BENEFIT AGREEMENT
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
<TABLE>
<CAPTION>
Attained Monthly Attained Monthly Cost Attained Monthly
Age Cost of Age of Age Cost of
Insurance Insurance Rate Insurance
Rate Rate
Male Male Male
<S> <C> <C> <C> <C> <C> <C>
0 -- 35 0.1442 70 3.0703
1 -- 36 0.1517 71 3.4033
2 -- 37 0.1617 72 3.7600
3 -- 38 0.1726 73 4.1934
4 -- 39 0.1843 74 4.6701
5 -- 40 0.1984 75 5.1801
6 -- 41 0.2134 76 5.7192
7 -- 42 0.2293 77 6.2835
8 -- 43 0.2468 78 6.8762
9 -- 44 0.2660 79 7.5161
10 -- 45 0.2876 80 8.2238
11 -- 46 0.3110 81 9.0181
12 -- 47 0.3360 82 9.9157
13 -- 48 0.3635 83 10.9129
14 -- 49 0.3935 84 11.9904
15 -- 50 0.4277 85 13.1242
16 -- 51 0.4669 86 14.3000
17 -- 52 0.5120 87 15.5000
18 -- 53 0.5637 88 16.7191
19 -- 54 0.6213 89 17.9749
20 -- 55 0.6855 90 19.2858
21 -- 56 0.7556 91 20.6825
22 -- 57 0.8299 92 22.2180
23 -- 58 0.9125 93 24.0437
24 -- 59 1.0052 94 26.5035
25 -- 60 1.1088 95 30.2074
26 -- 61 1.2240 96 36.3581
27 -- 62 1.3569 97 47.2118
28 -- 63 1.5073 98 66.2071
29 -- 64 1.6745 99 82.5000
30 -- 65 1.8577
31 -- 66 2.0559
32 -- 67 2.2685
33 -- 68 2.4996
34 -- 69 2.7560
</TABLE>
These rates are based on the Mortality Table listed on the Contract Information
page.
FPV-98150
<PAGE>
Page
CONTRACT ASSIGNMENT........................................................6
GUIDE CONTRACT LOANS...................................................11
CONTRACT VALUES...................................................8
CONTRACT WITHDRAWAL..............................................12
DEATH BENEFIT.....................................................3
DEFINITIONS.......................................................2
GENERAL CONTRACT PROVISIONS.......................................6
GRACE PERIOD......................................................5
INCONTESTABILITY AND SUICIDE......................................7
OWNER AND BENEFICIARY.............................................6
PAYMENT OF PROCEEDS..............................................14
PAYMENT OF PROCEEDS OPTIONS......................................14
REINSTATEMENT.....................................................6
SEPARATE ACCOUNT PROVISIONS......................................10
PREMIUMS..........................................................5
TABLE OF GUARANTEED MAXIMUM MONTHLY
COST OF INSURANCE RATES...................Contract Information page
TABLE OF WITHDRAWAL CHARGES...............Contract Information page
ANY ADDITIONAL AGREEMENTS, ENDORSEMENTS
AND A COPY OF THE APPLICATION APPEAR
AFTER PAGE.......................................................15
DEFINITIONS This is what We mean when We use the following words in Your
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 contract 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 Contract 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.
Net Premium. The premium paid, less any premium expense charge.
Proceeds. All or part of the amount payable under any provision of
this 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.
You, Your. The Owner of this contract, who may be someone other than
the Insured.
2
<PAGE>
DEATH THE BENEFIT
BENEFT If the Insured dies while this contract is in force, We will pay a
Death Benefit to the Beneficiary. The amount of the Death Benefit
will depend on the Death Benefit Option in effect on the date of
death. We will reduce the Death Benefit by any Indebtedness.
The Death Benefit will be determined on the date We receive due
proof of the Insured's death.
There are two Death Benefit Options available under this contract:
Option 1 and Option 2. The Death Benefit Option selected on the
application is shown on the Contract Information page. You may
change that Option while this contract is in force, in accordance
with the Contract Change section.
DEATH BENEFIT OPTIONS
Under Option 1, the Death Benefit will be the greater of:
o the Face Amount; or
o a percentage, shown below, of the Account Value.
Under Option 2, the Death Benefit will be the greater of:
o the Face Amount plus the Account Value; or
o a percentage shown below, of the Account Value.
The Face Amount is shown on the Contract Information page. This
amount may be changed in accordance with the Contract Change
section.
Under either Death Benefit Option, the percentage depends on the
Insured's Attained Age.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Attained Account Attained Account Value Attained Account Value
Age Value % Age % Age %
<S> <C> <C> <C> <C> <C>
40 & less 250 56 146 72 111
41 243 57 142 73 109
42 236 58 138 74 107
43 229 59 134 75-90 105
44 222 60 130 91 104
45 215 61 128 92 103
46 209 62 126 93 102
47 203 63 124 94 & later 101
48 197 64 122
49 191 65 120
50 185 66 119
51 178 67 118
52 171 68 117
53 164 69 116
54 157 70 115
55 150 71 113
- --------------------------------------------------------------------------------------------
</TABLE>
INTEREST ON DEATH BENEFIT
We will add interest to any Death Benefit payable in one sum as
required by applicable state law.
3
<PAGE>
GUARANTEED GUARANTEED DEATH BENEFIT
DEATH This Contract includes two coverage guarantees:
BENEFIT
o Limited Guaranteed Coverage; and
o Lifetime Guaranteed Coverage
While either guarantee is in effect and You have no outstanding
Indebtedness, Your Contract will not lapse if the Cash Value is
insufficient to pay the Monthly Deduction.
Each guarantee terminates on the date specified on the Contract
Information page. To keep a guarantee in effect until its
termination date, You must pay the corresponding amount of premiums.
If You fail to pay sufficient premiums, one or both guarantees will
terminate before the specified date. Even if the guarantees
terminate, however, Your Contract will stay in force provided that
the Surrender Value is sufficient to pay the Monthly Deduction.
On each Monthly Date We will determine separately for each guarantee
whether You have paid sufficient premiums to keep each guarantee in
effect.
If there is a Face Amount increase or decrease, or if there is a
change in the Death Benefit Option, the Limited Guaranteed Coverage
and Lifetime Guaranteed Coverage Monthly Premiums will change
prospectively from the date of the change.
To keep the Limited Guaranteed Coverage in effect, Your total
premiums paid as of that Monthly Date must equal or exceed the sum
of:
o all applicable Limited Guaranteed Coverage Monthly Premiums for
each month, from the Contract Date up to and including the
current month; plus
o the amount of any partial withdrawals.
To keep the Lifetime Guaranteed Coverage in effect, Your total
premium paid as of that Monthly Date must equal or exceed the sum
of:
o all applicable Lifetime Guaranteed Coverage Monthly Premiums for
each month, from the Contract Date up to and including the
current month; plus
o the amount of any partial withdrawals.
If Your total premiums are insufficient to keep either guarantee in
effect, We will notify You in writing. You may reactivate either
guarantee by paying the premium insufficiency within one year of Our
notice to You.
Even if You have paid sufficient premiums to keep one or both
Guarantee Periods in effect, if You have outstanding Indebtedness,
Your Contract will enter the Grace Period if Your Surrender Value is
insufficient to cover Your Monthly Deductions.
DEATH DEATH BENEFIT AT ATTAINED AGE 100
BENEFIT If the Insured is living and the contract is in force when the
AT ATTAINED Insured reaches Attained Age 100, the Death Benefit will equal 101%
AGE 100 of the Account Value of the contract. If the Lifetime Guaranteed
Coverage Period is still in effect at Attained Age 100, the Death
Benefit will equal the greater of the Face Amount or 101% of the
Account Value.
After Attained Age 100, no further premium payments will be required
nor will they be accepted and the Monthly Deductions will no longer
include a cost of insurance charge.
PAYMENT OF PAYMENT OF PREMIUMS
PREMIUMS Premiums are payable during the Insured's lifetime beginning on the
Contract Date. A premium expense charge will be deducted from each
premium payment. All premiums are payable at Our Service Center or
to an authorized agent. We will give You a receipt upon request.
4
<PAGE>
Planned premiums are payable every 12 months, 6 months, 3 months or
monthly from the Contract Date according to the payment interval and
payment method selected in the application. The initial planned
premium is shown on the Contract Information page. You may change
the amount or interval of a planned premium at any time by Written
Request. Any change is subject to Our minimum premium requirements.
We also reserve the right to limit the amount of any increase in a
planned premium.
UNSCHEDULED PREMIUM PAYMENTS
You may make unscheduled premium payments while the contract is in
force provided:
o the payment is at least $50.00; and
o the payment will not disqualify this contract as a Life Insurance
Contract under the Internal Revenue Code as it now exists or may
later be amended.
If any unscheduled premium payment increases the Death Benefit by
more than it increases the Account Value, We will require evidence
of insurability satisfactory to Us.
While there is any Indebtedness on the contract, any payments in
excess of the total planned premiums for the contract year will be
treated as repayments of the Indebtedness and not as premiums.
PAYMENT BY PRE-AUTHORIZED CHECK (PAC)
We may be authorized, by Written Request, to draw checks against or
make electronic withdrawals from a particular bank account for the
purpose of paying premiums. While We are so authorized, premiums
will be due every contract month or at any other interval available.
You may terminate this premium payment arrangement at any time by
Written Request. We also have the right to terminate this
arrangement at any time. If it is terminated, a Premium Reminder
will be sent every 3 months subject to Our minimum premium
requirements. That interval may be changed by Written Request.
PREMIUM REMINDERS
After the first premium has been paid, We will send You a premium
reminder for each planned premium according to the payment interval
then in effect unless You have chosen to pay by Pre- Authorized
Check. We reserve the right to stop sending premium reminders if no
planned premium payments are made during 24 consecutive calendar
months. If premium payments are resumed, We will start sending
premium reminders again.
PREMIUMS PREMIUM ALLOCATION
We will allocate Your initial Net Premium, and any other Net Premium
received during the Right to Return period, to the sub-accounts in
accordance with Your written instructions. If the total portion of
such Net Premiums to be allocated to the sub-accounts exceeds the
Initial Premium Allocation Limit shown on the Contract Information
page, We may temporarily allocate the portion in excess of the
Initial Net Premium Allocation Limit to the Fixed Account until
after the end of the Right to Return Period, when We will allocate
it to the sub-accounts in accordance with Your instructions.
After the Right to Return period, Net Premiums will be allocated as
described in the Investment Allocations provision on page 11.
GRACE PERIOD
If the Guaranteed Death Benefit provision is not in effect and the
Surrender Value is insufficient to pay the Monthly Deduction, a
Grace Period of 61 days will be permitted for payment of a premium
sufficient to continue the contract in force. We will send a notice
to You at Your last known address requesting the amount due at least
30 days before the Grace Period ends. If the required amount is not
received within 61 days, the contract will terminate without value.
If the Insured dies during a Grace Period, the Death Benefit will be
reduced by any Monthly Deductions and any Loan Interest due but not
paid.
5
<PAGE>
REINSTATEMENT
This contract may be reinstated within five years of the end of the
Grace Period and prior to the Insured's Attained Age 100 if We
receive:
o Your Written Request to reinstate the contract;
o evidence of insurability satisfactory to Us; and
o a premium 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 This contract is intended to qualify for treatment as a life
QUALI- insurance contract under the Internal Revenue Code as it now exists
FICATION or may later be amended. We reserve the right to amend this 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 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 this contract from favorable tax treatment under the
Code. A premium payment will not be refused if the payment will
prevent the contract from terminating.
GENERAL YOUR CONTRACT
CONTRACT Your contract is issued in consideration of the application and the
PROVISIONS initial premium. All statements made in the application are
representations and not warranties. No statement made by or on
behalf of the Insured will be used by Us to contest this contract,
or defend a claim under it, unless it is in the application.
Any additional agreements are shown on the Contract Information
page. These agreements are attached to and made a part of this
contract. This contract, the application and any subsequent
applications contain the entire contract between You and Us.
WAIVER
Only an officer of the Company can waive or change any provision of
this contract, and only by means of a written instrument.
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 would be purchased by the most
recent Cost of Insurance Rate at the correct age and sex. Age refers
to the Insured's age last birthday on the Contract Date.
ASSIGNMENT
Your contract 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.
CONTRACT ANNIVERSARY
Contract months, years and anniversaries will be computed from the
Contract Date.
OWNER AND OWNER
BENEFICIARY The Owner is as named in the application on the Contract 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.
6
<PAGE>
During the Insured's lifetime, the rights and privileges stated in
this contract may be exercised only by the Owner.
BENEFICIARY
The Beneficiary is as named in the application on the Contract 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, this contract will be incontestable after
SUICIDE it has been in force during the Insured's lifetime;
o with respect to the Face Amount, for two years from the Contract
Date; and
o with respect to each increase in the Face Amount, 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 Contract
Date, while sane or insane, the amount payable under this contract
will be limited to the greater of the Account Value less
Indebtedness or the minimum value required by the state where this
contract was issued for delivery.
If the Insured dies by suicide within two years after the effective
date of any increase in Face Amount, while sane or insane, the
amount payable from that increase will be limited to the Monthly
Deductions made in conjunction with such increase.
CONTRACT CHANGES IN THE FACE AMOUNT
CHANGES While this contract is in force, You may request Us to increase or
decrease the Face Amount. Only one such change is allowed in a
contract year and only after the first contract year. We will send
You new Contract Information pages following each change.
Any increase in the Face Amount is subject to:
o Your written application and evidence of insurability
satisfactory to Us;
o Our issue rules and limits at the time of increase;
o the Minimum Face Amount Increase shown on the Contract
Information page;
o the Cost of Insurance for the increase; and
o a new Table of Withdrawal Charges for the amount of the increase.
An increase will take effect on the Monthly Date on or next
following the date We approve Your application.
The Face Amount may be decreased by Written Request, provided the
remaining Face Amount is not less than the Minimum Face Amount shown
on the Contract Information page. Any decrease will take effect on
the Monthly Date on or next following the date We receive Your
request. Any such decrease and any applicable withdrawal charges
will be applied in the following order:
1. against the most recent increase in the Face Amount;
7
<PAGE>
2. against the next most recent increases successively; then
3. against the Face Amount shown on the Contract Information page.
We will send You new Contract Information pages for each change.
We may decline a reduction in the Face Amount if We determine that
it would cause the contract to fail to qualify for treatment as a
Life Insurance Contract under the Internal Revenue Code.
CHANGES IN THE DEATH BENEFIT OPTION
You may change the Death Benefit Option by Written Request. Only one
such change is allowed in a contract year and only after the first
contract year. The change in Option will take effect on the Monthly
Date on or next following the date We approve Your request.
If You change from Option 1 to Option 2, the new Face Amount will be
the Option 1 Death Benefit less the Account Value as of the
effective date of the change. The new Face Amount may not be less
than the Minimum Face Amount shown on the Contract Information page.
Any such change is subject to Your written application and evidence
of insurability satisfactory to Us.
If You change from Option 2 to Option 1, the new Face Amount will be
the Option 2 Death Benefit as of the effective date of the change.
CONTRACT ACCOUNT VALUE
VALUES Your Account Value on the Contract Date is equal to the initial Net
Premium less the Monthly Deduction for the first contract 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; 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.
CASH VALUE
A Withdrawal Charge will be subtracted from the Account Value to
determine the Cash Value. The Withdrawal Charges are shown on the
Contract Information page.
SURRENDER VALUE
Your Surrender Value is equal to Your Cash Value, minus any
Indebtedness.
ACCOUNT VALUE IN FIXED ACCOUNT
The Account Value in the Fixed Account on the Contract Date is equal
to the initial Net Premium allocated to the Fixed Account less the
proportion of the Monthly Deduction allocated to the Fixed Account
for the first contract 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 any Net Premium allocated to the Fixed Account since the
preceding Monthly Date and interest from the date the Net Premium
is allocated to the Monthly Date; plus
8
<PAGE>
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 contract 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.
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
contract 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. The cost
for the Face Amount and for each increase in Face Amount is computed
separately. It is computed as follows:
o Divide the Death Benefit on the first day of the contract month
by 1 plus the Guaranteed Monthly Equivalent Interest Rate shown
on the Contract Information 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.
9
<PAGE>
COST OF INSURANCE RATE
The Cost of Insurance Rate is the rate applied to the insurance
under this 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 Maximum Monthly Cost of
Insurance Rates as shown on the Contract Information pages.
MONTHLY DEDUCTION
A Monthly Deduction is made for the Cost of Insurance, Contract Fee
and the cost of any Additional Benefit Agreements. The Monthly
Deduction for a contract month will be calculated by adding:
o the Contract Fee shown on the Contract Information page;
o the Cost of Insurance for the contract month; and
o the Monthly Deduction of any Additional Benefit Agreements.
The Monthly Deduction for a contract 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.
INTEREST RATES
The Guaranteed Interest Rate for the Fixed Account is shown on the
Contract Information 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 contract 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
contract 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 the Loan Account will be credited on each contract
anniversary. Interest on the portion of the Loan Account
attributable to Preferred Loans will be credited at the Loan
Interest Rate shown on the Contract Information page. Interest
credited on the portion of the Loan Account attributable to all
other Indebtedness will be credited at the Guaranteed Interest Rate
for the Fixed Account, as shown on the Contract Information 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 statement
of the method of computing values has been filed with the Insurance
Department of the state in which this contract was issued for
delivery. All contract 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 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
contract was issued for delivery.
10
<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.
During the Right to Return period, Net Premiums are allocated
according to the Premium Allocation provision on page 5.
Subsequently, Net Premiums will be allocated in accordance with Your
written instructions. You may change the allocation of subsequent
Net Premiums.
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 contract. No
substitution will be made without notice to You and without the
prior approval of the SEC and the state where this contract 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 premiums and the investment of future premiums.
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.
We will allow 12 transfers per contract year without imposing a
transfer charge. Transfers in excess of 12 per contract year may be
subject to a transfer charge that will not exceed $25 per transfer.
Transfers from the Fixed Account to the sub-accounts must occur
within 60 days after each contract anniversary. The largest amount
that may be transferred out in each contract year is the greater of
the amount transferred out in the prior contract 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 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 Contract Information
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 premiums paid;
o investment gain/loss;
o any Indebtedness;
o the Cost of Insurance;
o the Premium Expense Charge;
o the Contract Fees;
o the current Surrender Value; and
o any other information required by the state in which this
contract was issued for delivery.
ILLUSTRATION OF BENEFITS
During any contract 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 contract year. However, the
fee will not be greater than $25.
11
<PAGE>
CONTRACT LOANS
LOANS Your contract has a Loan Value which is equal to 90% of the Cash
Value (see page 8) as of the date of the loan. Loans must be at
least $250. You may borrow the Loan Value by assigning this contract
to Us as security for the loan. The assignment form must be
satisfactory to Us. Loans may be made at any time while this
contract is in force. We may defer the granting of a loan for up to
6 months.
You may decide the proportions in which to allocate the contract
loan among the sub-accounts of the Separate Account. If You do not
specify the allocation, then the contract 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 contract 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 contract anniversary, the contract'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.
If You have an outstanding contract loan, the Guaranteed Death
Benefit provision will not prevent Your contract from entering the
Grace Period, if the Surrender Value is insufficient to cover the
Monthly Deduction.
PREFERRED LOAN
The amount available for a Preferred Loan is 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 premiums paid;
(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 contract loans equals the Loan Interest Rate as shown on
the Contract Information page. Interest will accrue daily from the
date of the loan, and is due on each contract anniversary. Unpaid
interest will be added to existing Indebtedness, and will accrue
interest at the same rate.
REPAYMENT
While this contract 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.
CONTRACT CONTRACT WITHDRAWAL
WITHDRAWAL You may withdraw from this contract its full Surrender Value upon
Written Request at any time during the lifetime of the Insured. Upon
withdrawal of the full Surrender Value, this contract will
terminate.
You may also make a partial withdrawal under this contract. Partial
withdrawals must be at least $250. For any partial withdrawal after
the first in any contract 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.
12
<PAGE>
If Death Benefit Option 1 is in effect, both the Face Amount and the
Account Value will be reduced by the amount of the partial
withdrawal, the withdrawal charge and the partial withdrawal fee. If
Death Benefit Option 2 is in effect, the Account Value will be
reduced by the amount of the partial withdrawal, the withdrawal
charge and the partial withdrawal fee.
Each partial withdrawal is subject to the following:
o no partial withdrawal may be made in the first contract year;
o a withdrawal charge and a partial withdrawal fee will be deducted
from the partial withdrawal;
o the Surrender Value that remains must be at least $500, or the
withdrawal request will be treated as a request to withdraw the
Full Surrender Value; and
o the Face Amount that remains in force is not less than the
Minimum Face Amount shown on the Contract Information page.
WITHDRAWAL CHARGE
The withdrawal charge for a partial withdrawal is equal to a
proportion of the withdrawal charge that would apply for a full
withdrawal. The proportion will be computed as the amount of Account
Value that is withdrawn, divided by the full Account Value. Future
withdrawal charges will be reduced in this proportion. However, any
additional withdrawal charges resulting from an increase in the Face
Amount after the date of the partial withdrawal will not be reduced
in this proportion.
The withdrawal charge is shown of the Contract Information page.
We may defer the payment of Your withdrawal from the Fixed Account
for up to 6 months.
WAIVER OF WITHDRAWAL CHARGE
We will 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 contract 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 contract 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 Contract 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 contract anniversary.
Qualifying Medical Stay means: 1) confinement in a Qualifying
Institution; and 2) treatment by a Qualifying Medical Professional.
A 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).
13
<PAGE>
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.
PAYMENT OF PAYMENT
PROCEEDS The Proceeds of this 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 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 contract 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
contract owners.
PAYMENT OF PAYMENT OF PROCEEDS OPTIONS
PROCEEDS The Proceeds may be applied under one of the following Options. An
OPTIONS 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 withdrawals 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 15. 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 15.
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.
14
<PAGE>
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.
OPTION 3 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
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>
OPTION 4 TABLE
MINIMUM MONTHLY INSTALLMENT PAYMENT PER $1,000 APPLIED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MALE FEMALE
- ---------------------------------------------------------------------------------------------------------------
No Guaranteed Guaranteed Guaranteed No Guaranteed Guaranteed Guaranteed
Guaranteed Period Period Period Guaranteed Period Period Period
Age Period 10 Years 15Years 20 Years Age Period 10 Years 15Years 20Years
<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>
15
<PAGE>
LIBERTY [Liberty
MUTUAL logo]
- --------------------------------------------------------------------------------
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
A Member of the Liberty Mutual Group
- --------------------------------------------------------------------------------
CONTRACT DESCRIPTION
This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT.
The amount and frequency of payments are flexible.
The Death Benefit is payable if the Insured dies while this contract is in
force. Death Benefit and Account Value may vary with investment and earnings
experience and contract charges. This contract is non-participating.
16
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
DISABILITY
WAIVER OF
MONTHLY
DEDUCTION
BENEFIT
AGREEMENT
WAIVER BENEFIT
We will provide a waiver benefit for this contract if the Insured becomes
Disabled while this Agreement is in force. If the Insured becomes Disabled, We
will waive the Monthly Deduction as defined in the Monthly Deduction provision
of this contract. Benefits under this Agreement will begin once the conditions
set forth in the Definition of Disability provision and the Waiting Period
provision have been satisfied and will cease when the disability ends.
DEFINITION OF DISABILITY
Disability means a condition, which results from either a bodily injury or
disease, that totally and continuously prevents the Insured from performing the
material and substantial duties of an occupation. For the first 24 months of the
Disability, the term "occupation" means the Insured's regular occupation.
Thereafter, it means any occupation for compensation or profit for which the
Insured is or becomes reasonably qualified by age, education, training and
experience.
Disability also means the total and irrecoverable loss of:
o the sight of both eyes;
o the use of both hands;
o the use of both feet; or
o the use of one hand and one foot;
occurring after this Agreement takes effect, even if the Insured engages in an
occupation.
WAITING PERIOD
The Disability must exist continuously for at least 6 months before We will
provide the waiver benefit. You should pay the premiums needed to prevent this
contract from terminating during this period since We will continue to make
Monthly Deductions.
EFFECT ON CONTRACT
Once the 6 month Waiting Period has been satisfied, We will begin waiving
Monthly Deductions under this Agreement. The amounts waived will not be treated
as premiums paid with regard to the Guaranteed Death Benefit provision. You must
make any premium payments necessary to satisfy the Limited Guaranteed Coverage
Monthly Premium and the Lifetime Guaranteed Coverage Monthly Premium
requirements.
If Death Benefit Option 1 is in effect on the date We begin to waive Monthly
Deductions, We will automatically change the option to Option 2. The new Face
Amount will be the Option 1 Death Benefit less the Account Value as of the
Monthly Date on or next following the date Disability began. When Disability
ends, the Death Benefit Option will be returned to the option in effect prior to
Disability. During a period of Disability, You may not:
o change to Death Benefit Option 1; or
o increase the Face Amount of this contract except as allowed under any
Additional Benefit Agreement attached to and made a part of this contract.
NOTICE OF DISABILITY
You must give Us written notice of the Disability of the Insured at Our Service
Center:
o while the Insured is alive and Disabled; and
o no later than 1 year after this Agreement terminates.
Failure to give Us this notice will not invalidate a claim if You furnish
evidence, which satisfies Us, that notice was given as soon as reasonably
possible. In no event will We waive the Monthly Deductions made for any period
more than 1 year before notice is received at Our Service Center.
<PAGE>
PROOF OF DISABILITY
You must also furnish proof, which satisfies Us, that the Insured is Disabled
before We will waive any Monthly Deductions. We will, from time to time
thereafter, require additional proof that the Insured continues to be Disabled.
We may also require the Insured to submit to one or more physical examinations
by a physician of Our choice at Our expense. However, We will not require an
exam more often than once each year after the Disability has continued for 2
full years.
EXCLUSIONS
No Monthly Deductions will be waived if the Disability of the Insured results
directly or indirectly from:
o a bodily injury which occurred or a disease which first manifested itself
before this Agreement takes effect, unless the injury or disease was set forth
in the application;
o an intentionally self-inflicted injury or disease while sane or insane; or
o service in the armed forces of an international body or of any country at war,
declared or undeclared.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is:
o the cost of Insurance for this contract plus the cost of any other Additional
Benefit Agreements, plus the Contract Fee; times
o the Waiver of Monthly Deductions Rate (WMD Rate), shown below, based on the
Insured's Attained Age; times
o the Rating Factor for this Agreement shown on the Contract Information page of
this contract.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Attained Age Monthly WMD Rate Attained Age Monthly WMD Rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
15 .030 40 .033
16 .030 41 .034
17 .030 42 .036
18 .030 43 .038
19 .030 44 .041
20 .030 45 .043
21 .030 46 .047
22 .030 47 .052
23 .030 48 .057
24 .030 49 .064
25 .030 50 .074
26 .030 51 .084
27 .030 52 .098
28 .030 53 .114
29 .030 54 .134
30 .030 55 .158
31 .030 56 .181
32 .030 57 .196
33 .030 58 .212
34 .030 59 .231
35 .030 60 .250
36 .030 61 .276
37 .030 62 .319
38 .030 63 .379
39 .031 64 .461
</TABLE>
<PAGE>
TERMINATION
This Agreement and all benefits under this Agreement will terminate on the
earliest of:
o the contract anniversary following the 65th birthday of the Insured;
o the Monthly Date on or next following the date We receive at Our Service
Center Your Written Request to cancel this Agreement; or
o the date this contract 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. The values and benefits provided by any amount We pay
will be the same as if You had paid it.
INCONTESTABILITY
This Agreement is subject to the INCONTESTABILITY provision in this contract.
However, the contestable period for this Agreement will be measured from its
Effective Date.
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue for this Agreement shown on the
Contract Information page of this contract.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
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CHILDREN'S
PROTECTION
BENEFIT
AGREEMENT
THE BENEFIT
We will pay a Death Benefit upon the death of a Child:
o prior to the Child's 25th birthday; and
o while this Agreement is in force.
For each unit of Children's Protection shown on the Contract Information page of
this contract, the Death Benefit will be $1000.
No coverage will be effective under this Agreement until the Child has attained
the age of 15 days.
We will pay the Benefit to the contract Beneficiary if then living; otherwise,
We will pay the Benefit to You. Payment will be made only if We receive proof,
which satisfies Us, of the death of the Child.
DEFINITION OF CHILD
Child means any child, stepchild, or legally adopted child of the Insured. The
Child must be named in the application for this Agreement, and must not have
reached his or her 18th birthday on the date of the application.
Child also means any child who, after the date of the application, is born to
the Insured, becomes a stepchild of the Insured, or is legally adopted by the
Insured before the Child's 18th birthday.
The term Child does not include a person until he or she has attained the age of
15 days.
PAID-UP BENEFIT
If the Insured dies while this Agreement is in force, the Benefit will become
fully paid-up. The amount of Paid-up Benefit will be $1,000 for each unit of
Children's Protection shown on the Contract Information page of this contract.
CONVERSION BENEFIT
The insurance provided under this Agreement may be converted into a new contract
on the earlier of:
- --------------------------------------------------------------------------------
o the 25th birthday of the Child; or
o the Termination Date of this Agreement.
The conversion must be made while this Agreement is in force. We will not
require any evidence of insurability.
HOW TO EXERCISE THE CONVERSION BENEFIT
To exercise the Conversion Benefit, You must submit a written application which
satisfies Us. The application must be received within one year before the date
of conversion or within 31 days after the date of conversion.
The new contract will not take effect until its first premium is paid during the
lifetime of the Child. That premium must be paid no later than 31 days after the
date of issue of the new contract.
THE NEW CONTRACT
The date of issue of the new contract will be the date of conversion.
You may select the amount of life insurance for the new contract. It may not be
less than $10,000 nor more than 5 times the amount of insurance in effect under
this Agreement on the life of the Child.
<PAGE>
You may also select the plan of insurance for the new contract. It may be any
permanent life insurance plan then being issued by Us for the amount of
insurance selected.
The premium for the new contract will be based on Our then established rate for
the Child's attained age.
The contestable and suicide periods for the new contract will be measured from
the Effective Date of this Agreement. This will not apply to any Additional
Benefit Agreement included in the new contract. If You wish to include any
Additional Benefit Agreements in the new contract, evidence of insurability
satisfactory to Us will be required.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is shown on the
Contract Information page of this contract.
TERMINATION
This Agreement will terminate on the earliest of:
o the Monthly Date on or next following the date We receive at Our Service
Center, Your Written Request to cancel this Agreement;
o the date this contract is surrendered or terminates for any reason; or
o the Termination Date of this Agreement, shown on the Contract Information
page.
THIS AGREEMENT AND THE CONTRACT
This Agreement is made a part of Your contract if We have listed it on the
Contract Information page. The values in the contract will not be increased by
this Agreement.
INCONTESTABILITY AND SUICIDE
This Agreement is subject to the INCONTESTABILITY and SUICIDE provisions in this
contract. However, the contestable and suicide periods for this Agreement will
be measured from its Effective Date.
In addition, this Agreement will be incontestable after it has been in force
during the lifetime of each Child named in the application for this Agreement
for two years from its Effective Date.
MISSTATEMENT OF AGE
If the date of birth of a Child has been misstated, any amount payable and any
period of insurance will be determined from the correct age. Age refers to the
age nearest birthday on the Effective Date of this Agreement.
REINSTATEMENT
If You wish to reinstate this Agreement with this contract, We will require You
to submit evidence of insurability satisfactory to Us for each Child then
eligible for coverage under this Agreement. This is in addition to any
requirements for the reinstatement of the contract.
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue for this Agreement shown on the
Contract Information page of this contract. Months, years and their
anniversaries for this Agreement will be computed from its Effective Date.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
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DISABILITY
WAIVER OF
SPECIFIED
MONTHLY
PREMIUM
BENEFIT
AGREEMENT
WAIVER BENEFIT
We will provide a disability benefit for this contract if the Insured becomes
Disabled while this Agreement is in force. If the Insured becomes Disabled, We
will allocate to Your Account Value, prior to the Monthly Deduction, the
specified monthly premium amount shown for this Agreement on the Contract
Information page less the premium expense charge. The payment of this benefit
will be made once the conditions set forth in the Definition of Disability
provision and the Waiting Period provision have been satisfied and will cease
when the disability ends.
If the payment of this benefit would disqualify this contract as life insurance
under the Internal Revenue Code, We will pay directly to You, the difference
between the specified monthly premium and the maximum amount which can be
allocated to Your Account Value under the Internal Revenue Code.
DEFINITION OF DISABILITY
Disability means a condition, which results from either a bodily injury or
disease, that totally and continuously prevents the Insured from performing the
material and substantial duties of an occupation. For the first 24 months of the
Disability, the term "occupation" means the Insured's regular occupation.
Thereafter, it means any occupation for compensation or profit for which the
Insured is or becomes reasonably qualified by age, education, training and
experience.
Disability also means the total and irrecoverable loss of:
o the sight of both eyes;
o the use of both hands;
o the use of both feet; or
o the use of one hand and one foot;
occurring after this Agreement takes effect, even if the Insured engages in an
occupation.
WAITING PERIOD
The Disability must exist continuously for at least 6 months before We will
provide a benefit under this Agreement. You should pay the premiums needed to
prevent this contract from terminating during this period since We will continue
to make Monthly Deductions.
EFFECT ON CONTRACT
Once the 6 month Waiting Period has been satisfied, We will begin making benefit
payments under this Agreement. The specified premium amounts paid by Us will be
treated as premiums paid with regard to the Guaranteed Death Benefit provision.
However, You must make any premium payments necessary to satisfy the Limited and
Lifetime Guaranteed Coverage Monthly Premium requirements during the Waiting
Period.
To keep the Limited Guaranteed Coverage in effect after the Waiting Period, You
must pay the difference between the Limited Guaranteed Coverage Monthly Premium
and the specified monthly premium amount.
To keep the Lifetime Guaranteed Coverage in effect after the Waiting Period, You
must pay the difference between the Lifetime Guaranteed Coverage Monthly Premium
and the specified monthly premium amount.
While benefits are being provided under this Agreement, We will continue to make
Monthly Deductions.
<PAGE>
NOTICE OF DISABILITY
You must give Us written notice of the Disability of the Insured at Our Service
Center:
o while the Insured is alive and Disabled; and
o no later than 1 year after this Agreement terminates.
Failure to give Us this notice will not invalidate a claim if You furnish
evidence, which satisfies Us, that notice was given as soon as reasonably
possible. In no event will We pay any benefits for any period more than 1 year
before notice is received at Our Service Center.
PROOF OF DISABILITY
You must also furnish proof, which satisfies Us, that the Insured is Disabled
before We will pay any benefits. We will, from time to time thereafter, require
additional proof that the Insured continues to be Disabled. We may also require
the Insured to submit to one or more physical examinations by a physician of Our
choice at Our expense. However, We will not require an exam more often than once
each year after the Disability has continued for 2 full years.
EXCLUSIONS
No benefits will be paid if the Disability of the Insured results directly or
indirectly from:
o a bodily injury which occurred or a disease which first manifested itself
before this Agreement takes effect, unless the injury or disease was set forth
in the application;
o an intentionally self-inflicted injury or disease while sane or insane; or
o service in the armed forces of an international body or of any country at war,
declared or undeclared.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is shown on the
Contract Information paof this contract.
TERMINATION
This Agreement and all benefits under this Agreement will terminate on the
earliest of:
o the contract anniversary following the 65th birthday of the Insured;
o the Monthly Date on or next following the date We receive at Our Service
Center Your Written Request to cancel this Agreement; or
o the date this contract 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. The values and benefits provided by any amount We pay
will be the same as if You had paid it.
INCONTESTABILITY
This Agreement is subject to the INCONTESTABILITY provision in this contract.
However, the contestable period for this Agreement will be measured from its
Effective Date.
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue for this Agreement shown on the
Contract Information page of this contract.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
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PRIMARY
INSURED
TERM
INSURANCE
BENEFIT
AGREEMENT
THE BENEFIT
We will pay a Death Benefit upon receipt of proof, satisfactory to Us, of the
death of the Primary Insured while this Agreement is in force.
The Death Benefit for this Agreement will be equal to the Face Amount for the
Primary Insured shown on the Contract Information page of this Agreement.
DEFINITION OF PRIMARY INSURED
Primary Insured means the person named in the application for this Agreement and
shown on the Contract Information page of this Agreement. The Primary Insured is
the Insured named on the Application for this contract.
OWNER
The Owner of this contract will be the Owner of this Agreement.
BENEFICIARY
The Beneficiary of this contract will be the Beneficiary of this Agreement.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is computed as
follows:
o Divide the Face Amount of this Agreement, shown on the Contract Information
page, by 1 plus the Guaranteed Monthly Equivalent Interest Rate, also shown on
the Contract Information page;
o Multiply the above result by the Cost of Insurance Rate for this Benefit
Agreement for that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is based on the sex, attained age, and rating
classification of the Primary Insured. Attained age means the Primary Insured's
age last birthday on the last contract anniversary. We have the right to change
the Cost of Insurance Rates as provided in this contract. However, the rates
will not be greater than the Guaranteed Maximum Monthly Cost of Insurance Rates
shown on the Contract Information page of this Agreement.
CONVERSION BENEFIT
You may convert this Agreement into a new contract on the life of the Primary
Insured, provided:
o this Agreement is in force; and
o the Primary Insured has not attained age 75.
To exercise the Conversion Benefit, You must submit a written application which
satisfies Us and pay the first premium for the new contract. We will not require
any evidence of insurability.
You may make the conversion on any premium due date which occurs on or before
the contract anniversary following the 75th birthday of the Primary Insured. You
will be eligible for conversion credit if You make the conversion on any Monthly
Date on or after the first anniversary and on or before the fourth anniversary
of this Agreement. We will apply a credit toward the premium for the new
contract. That credit will equal 100% of this Agreement's Cost of Insurance
charges for the most recently completed contract year. If You convert only a
portion of the amount of insurance provided by this Agreement, We will prorate
the credit. Conversion must be made while this contract is in force.
<PAGE>
THE NEW CONTRACT
The Date of Issue of the new contract will be the date of conversion.
You may select the amount of life insurance for the new contract. It may not
exceed the Face Amount of this Agreement at the time of conversion.
You may also select the plan of insurance for the new contract. It may be any
permanent plan of insurance plan then being issued by Us, or an increase to the
face amount of the current contract, for the amount of insurance selected. It
will be in the same Rating Class as shown for the Primary Insured on the
Contract Information page of this Agreement. The premium for the new contract
will be based on Our then established rate for the attained age of the person to
be insured.
The contestable and suicide periods for the new contract will be measured from
the Effective Date of this Agreement. The contestable and suicide periods for
any Additional Benefit Agreement included in the new contract will be measured
from the Effective Date of the new contract. If You wish to include any
Additional Benefit Agreements in the new contract, evidence of insurability
satisfactory to Us will be required.
TERMINATION
This Agreement will terminate on the earliest of:
o the Monthly Date on or next following the date We receive Your Written Request
to cancel this Agreement;
o the date this contract matures; is surrendered; or terminates for any reason;
o the Termination Date of this Agreement, shown on the Contract Information
page; or
o the date of conversion as provided in this Agreement.
THIS AGREEMENT AND THE CONTRACT
This Agreement is made a part of Your contract if We have listed it on the
Contract Information page of this contract. All contract provisions consistent
with this Agreement will apply to this Agreement. The values in the contract
will not be increased by this Agreement.
INCONTESTABILITY AFTER TWO YEARS
This Agreement will be incontestable after it has been in force during the
Primary Insured's lifetime for two years from its Effective Date.
SUICIDE WITHIN TWO YEARS
If the Primary Insured dies by suicide, while sane or insane, within two years
from the Effective Date of this Agreement, the amount payable will be limited to
the total of the Monthly Deductions made to pay for the Primary Insured's
insurance.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Primary Insured has been misstated, any Death Benefit
will be adjusted to that amount which would be purchased by the most recent Cost
of Insurance Rate at the correct age and sex.
REINSTATEMENT
If You wish to reinstate this Agreement with this contract, We will require You
to submit evidence of insurability satisfactory to Us for the Primary Insured.
This is in addition to any requirements for the reinstatement of the contract.
<PAGE>
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue shown on the Contract
Information page of this Agreement. Months, years and their anniversaries will
be computed from the date this Agreement takes effect.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
ADDITIONAL
INSURED
TERM
INSURANCE
BENEFIT
AGREEMENT
THE BENEFIT
We will pay a Death Benefit upon receipt of proof, satisfactory to Us, of the
death of the Additional Insured while this Agreement is in force.
The Death Benefit for this Agreement will be equal to the Face Amount for the
Additional Insured shown on the Contract Information page of this Agreement.
DEFINITION OF ADDITIONAL INSURED
Additional Insured means the person named in the application for this Agreement
and shown on the Contract Information page of this Agreement.
OWNER
The Owner of this contract will be the Owner of this Agreement.
BENEFICIARY
The Beneficiary of this contract will be the Beneficiary of this Agreement.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is computed as
follows:
o Divide the Face Amount of this Agreement, shown on the Contract Information
page, by 1 plus the Guaranteed Monthly Equivalent Interest Rate, also shown on
the Contract Information page;
o Multiply the above result by the Cost of Insurance Rate for this Benefit
Agreement for that month divided by 1000.
COST OF INSURANCE RATE
The Cost of Insurance Rate is based on the sex, attained age, and rating
classification of the Additional Insured. Attained age means the Additional
Insured's age last birthday on the last contract anniversary. We have the right
to change the Cost of Insurance Rates as provided in this contract. However, the
Rates will never be greater than the Guaranteed Maximum Monthly Cost of
Insurance Rates shown on the Contract Information page for this Agreement.
CONVERSION BENEFIT
You may convert this Agreement into a new contract on the life of the Additional
Insured, provided:
o this Agreement is in force; and
o the Additional Insured has not attained age 75.
You may also convert this Agreement within 30 days after the death of the
Primary Insured if the Additional Insured has not attained age 75. The Primary
Insured is the individual insured under the base contract. If the Additional
Insured dies during this 30 day period and before a new contract is applied for,
We will pay the Death Benefit of this Agreement.
To exercise the Conversion Benefit, You must submit a written application which
satisfies Us and pay the first premium for the new contract.
If there is no Owner living, the Additional Insured may exercise this Benefit.
We will not require any evidence of insurability.
You may make the conversion on any premium due date which occurs on or before
the contract anniversary following the 75th birthday of the Additional Insured.
You will be eligible for conversion credit if You make the conversion on any
Monthly Date on or after the first anniversary and on or before the fourth
anniversary of this Agreement. We will apply a credit toward the premium for the
new contract. That credit will equal 100% of this Agreement's Cost of Insurance
charges for the most recently completed contract year. If You convert only a
portion of the amount
<PAGE>
of insurance provided by this Agreement, We will prorate the credit. Conversion
must be made while this contract is in force.
THE NEW CONTRACT
The Date of Issue of the new contract will be the date of conversion.
You may select the amount of life insurance for the new contract. It may not
exceed the Face Amount of this Agreement at the time of conversion.
You may also select the plan of insurance for the new contract. It may be any
permanent plan of insurance then being issued by Us for the amount of insurance
selected. It will be in the same Rating Class as shown for the Additional
Insured on the Contract Information page of this Agreement. The premium for the
new contract will be based on Our then established rate for the Attained Age of
the person to be insured.
The contestable and suicide periods for the new contract will be measured from
the Effective Date of this Agreement. The contestable and suicide periods for
any Additional Benefit Agreement included in the new contract will be measured
from the Effective Date of the new contract. If You wish to include any
Additional Benefit Agreements in the new contract, evidence of insurability
satisfactory to Us will be required.
TERMINATION
This Agreement will terminate on the earliest of:
o the Monthly Date on or next following the date We receive Your Written Request
to cancel this Agreement;
o the date this contract matures; is surrendered; or terminates for any reason;
o the Termination Date of this Agreement, shown on the Contract Information
page; or
o the date of conversion as provided in this Agreement.
THIS AGREEMENT AND THE CONTRACT
This Agreement is made a part of Your contract if We have listed it on the
Contract Information page of this contract. All contract provisions consistent
with this Agreement will apply to this Agreement. The values in the contract
will not be increased by this Agreement.
INCONTESTABILITY AFTER TWO YEARS
This Agreement will be incontestable after it has been in force during the
Additional Insured's lifetime for two years from its Effective Date.
SUICIDE WITHIN TWO YEARS
If the Additional Insured dies by suicide, while sane or insane, within two
years from the Effective Date of this Agreement, the amount payable will be
limited to the total of the Monthly Deductions made to pay for the Additional
Insured's insurance.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Additional Insured has been misstated, any Death
Benefit will be adjusted to that amount which would be purchased by the most
recent Cost of Insurance Rate at the correct age and sex.
REINSTATEMENT
If You wish to reinstate this Agreement with this contract, We will require You
to submit evidence of insurability satisfactory to Us for the Additional
Insured. This is in addition to any requirements for the reinstatement of the
contract.
<PAGE>
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue shown on the Contract
Information page of this Agreement. Months, years and their anniversaries will
be computed from the date this Agreement takes effect.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
ACCIDENTAL
DEATH AND
DISMEMBERMENT
BENEFIT
AGREEMENT
ACCIDENTAL DEATH BENEFIT
We will pay the amount of the Accidental Death Benefit shown on the Contract
Information page of the contract upon the Accidental Death of the Insured while
this Agreement is in force.
DEFINITION OF ACCIDENTAL DEATH
- --------------------------------------------------------------------------------
Accidental Death means that the death of the Insured results, directly and
independently of all other causes, from:
o an accidental drowning; or
o an accidental bodily injury (called "the injury")
PUBLIC CONVEYANCE BENEFIT
We will also pay an additional amount equal to the Accidental Death Benefit
shown on the Contract Information page if:
o the Accidental Death Benefit is payable by Us; and
o the Insured was riding as a fare paying passenger in a public conveyance when
the accident which caused the injury occurred.
Public conveyance means a vehicle commercially operated by a common carrier
licensed to transport passengers for hire.
PAYMENT OF DEATH BENEFITS
The Death Benefits will be paid only if We receive proof, satisfactory to Us,
that the Accidental Death of the Insured occurred not more than 90 days after
the date of the accident which caused the injury. Any days that the Insured is
hospitalized for treatment of the injury will not count as part of the 90 days.
Any Death Benefit will be reduced by any amount which is paid or payable as a
Dismemberment Benefit if the Insured sustains the dismemberment loss and dies as
a result of the same accident.
We will pay an amount equal to the Accidental Death Benefit shown on the
Contract Information page of this contract, if the Insured sustains the total
and irrecoverable:
o loss of the sight in both eyes;
o loss by severance of both hands, both feet, or one hand and one foot; or
o loss of the sight in one eye, and loss by severance of one hand or one foot;
or
o loss of the complete use of both hands, both feet, or one hand and one foot
due to paralysis from an accident.
We will pay an amount equal to one-half of the Accidental Death Benefit shown on
the Contract Information of this contract, if the Insured sustains the total and
irrecoverable:
o loss of the sight of one eye; or
o loss by severance of one hand or one foot; or
o loss of the complete use of one hand or one foot due to paralysis from an
accident.
<PAGE>
The term "loss by severance" means that a hand is physically separated, due to
an accident, at or above the wrist, or that a foot is physically separated at or
above the ankle.
In no event will the total amount of all loss payments made to You under this
Dismemberment Benefit exceed the Accidental Death Benefit amount shown on the
Contract Information page of the contract. Payment will only be made if We
receive proof, satisfactory to Us, of the loss, and that it occurred while this
Agreement is in force.
EXCLUSIONS
No Death Benefit, Public Conveyance Benefit or Dismemberment Benefit will be
paid if the death of the Insured results from:
o an intentionally self-inflicted injury or disease;
o suicide, while sane or insane;
o war or any act or war, declared or undeclared;
o service in the armed forces of an international body or any country at war,
declared or undeclared;
o operating, riding in, descending or falling from or with any kind of aircraft;
except as a passenger, without duties of any kind, on a civilian aircraft
operated by a licensed pilot;
o Insured's commission of, or attempt to commit, a crime;
o drugs, substances containing alcohol, poisons, gases or fumes, whether
accidentally, voluntarily or involuntarily taken, administered, absorbed,
inhaled, ingested or injected;
o disease or other bodily or mental infirmity, or any medical or surgical
treatment of such disease or infirmity (unless the disease or infirmity was
caused by the injury); or
o an injury which occurred or a disease which first manifested itself before
this Agreement takes effect, unless the injury or disease was set forth in the
Application.
AUTOPSY
We may have an autopsy performed at Our expense, unless prohibited by law.
COST OF THE BENEFIT
A Monthly Deduction is made from the Account Value of this contract for the cost
of this Agreement. The Monthly Deduction for this Agreement is shown on the
Contract Information page of this contract.
<PAGE>
TERMINATION
This Agreement will terminate on the earliest of:
o the date any premium due for this contract remains unpaid at the end of its
Grace Period;
o the contract anniversary following the 70th birthday of the Insured;
o the date We receive at Our Service Center Your Written Request to cancel this
Agreement; or
o the date this contract 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.
INCONTESTABILITY
This Agreement is subject to the INCONTESTABILITY provision of this contract.
However, the contestable period for this Agreement will be measured from its
Contract Date.
EFFECTIVE DATE
This Agreement takes effect on the Date of Issue for this Agreement shown on the
Contract Information page of this contract.
/s/ Edmund F. Kelly
PRESIDENT
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
- --------------------------------------------------------------------------------
ACCELERATED THE RECEIPT OF AN ACCELERATED DEATH BENEFIT MAY BE TAXABLE.
DEATH YOU SHOULD CONSULT YOUR PERSONAL TAX OR LEGAL ADVISOR
BENEFIT BEFORE APPLYING FOR THIS BENEFIT
AGREEMENT
THE DEATH BENEFIT, ACCOUNT VALUE AND LOAN VALUE WILL BE REDUCED IF AN
ACCELERATED DEATH BENEFIT IS PAID.
ACCELERATED DEATH BENEFIT
If, while this 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 the contract'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 contract.
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 contract (before subtracting any
Indebtedness).
<PAGE>
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 contract
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 contract 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 contract'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 if You ask Us to, using the process 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>
<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 if You ask Us to. 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 CONTRACT
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 new a Contract Information page
with these changes. The subsequent payment of a Death Benefit of this contract
will constitute full settlement of the obligations of this contract.
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 contract, 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 contract.
<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 contract'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.
TERMINATION
This Agreement will terminate on the earliest of:
(1) the date the Accelerated Death Benefit is paid;
(2) the date any Monthly Deduction, Cost of Insurance Charge or premium due for
the policy remains unpaid at the end of its Grace Period; or
(3) the date the policy 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:
(1) the Date of Issue shown on Contract Information page of this contract, or
(2) the date, if any, shown here.
/s/ Edmund F. Kelly
PRESIDENT
EXHIBIT 9.
ILLUSTRATIONS OF ACCOUNT VALUES,
SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under 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, sex and underwriting classification 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 illustrations assume the annual payment of a Planned Premium of
[$xxxx], which equals twelve times the Lifetime Guaranteed Coverage Monthly
Premium. Payment of this level of Premium each year would guarantee Death
Benefit coverage for the Insured's lifetime, regardless of investment
performance, assuming no loans or withdrawals are taken.
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 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 0.60% of average daily net assets to compensate Liberty Life for
its expenses incurred and for assuming mortality and expense risks under the
Contracts. The illustrations also reflect the deduction of 5.5% from each
Premium for the premium expense charge. In addition, the net investment returns
also reflect the deduction of the Portfolios' investment advisory fees and other
Portfolio expenses (x.xx%, the arithmetic average of the actual and estimated
fees and expenses, including any caps or reimbursements). The tables also
reflect applicable charges including monthly cost of insurance charges and a
Contract Fee of $9.00 per month for Contracts with Face Amounts below $100,000
and $6.00 per month for Contracts with higher Face Amounts. For each
hypothetical gross investment rate of return, tables are provided reflecting
current and guaranteed cost of insurance charges. 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 -x.xx%, x.xx% and x.xx%, respectively. Cost
of insurance rates vary by issue age (or attained age in the case of increases
in Face Amount), 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 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, a higher gross rate of return
than illustrated will be needed to produce the net after-tax returns shown in
the tables.
The tables illustrate the Account Values, Surrender Values, and Death
Benefits that would result based upon the hypothetical investment rates of
return if all Premiums are paid as indicated, if all Net Premiums are allocated
to the Variable Account, and if no Contract loans are taken. The tables also
assume that you have not requested an increase or decrease in Face Amount and no
partial withdrawals or transfers have been made.
Values are shown for Contracts 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 cost of
insurance rate structure than males.
If the Surrender Value in an illustration is zero, the Death Benefit shown
is the Guaranteed Death Benefit. If a Contract Loan is outstanding in this
situation, the Contract may lapse in accordance with the Grace period
provisions. The Contract also might lapse if you previously had partial
withdrawals and your total Premium payments, minus the amounts withdrawn, were
insufficient to keep the Guaranteed Death Benefit in effect.
Upon request, Liberty Life will furnish a comparable illustration based on
the proposed Insured's age, sex, underwriting classification, Planned Premium,
and any available Agreements requested.
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD: [$xxxx] ANNUAL PLANNED PREMIUM: ISSUE AGE [40]
$xxx,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
VALUES-CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Contract Account Surrender Death Account Surrender Death Account Surrender Death
Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
45
</TABLE>
ASSUMPTIONS:
(1) ASSUMES THE PLANNED PREMIUM SHOWN IS PAID AT THE BEGINNING OF EACH
CONTRACT YEAR.
(2) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(3) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES.
(4) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(5) THE DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
2
<PAGE>
(6) WHERE THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT IS THE GUARANTEED
DEATH BENEFIT. IF PAST PREMIUMS ARE INSUFFICIENT TO KEEP THE
GUARANTEED DEATH BENEFIT IN EFFECT OR IF INDEBTEDNESS IS OUTSTANDING,
A ZERO SURRENDER VALUE WOULD INDICATE CONTRACT LAPSE IN THE ABSENCE OF
ADDITIONAL PREMIUM PAYMENT. IF YOU TAKE A PARTIAL WITHDRAWAL, THE
AMOUNT OF THE WITHDRAWAL IS ADDED TO THE MINIMUM TOTAL PREMIUM
PAYMENTS NECESSARY TO KEEP THE GUARANTEED DEATH BENEFIT IN EFFECT.
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, TIMING OF PREMIUM PAYMENTS 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.
3
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD: $xx,xxx ANNUAL PLANNED PREMIUM: ISSUE AGE [40]
$xxx,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
VALUES-GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Contract Account Surrender Death Account Surrender Death Account Surrender Death
Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
45
</TABLE>
ASSUMPTIONS:
(1) ASSUMES THE PREMIUM SHOWN IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
(2) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(3) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(4) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(5) THE DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
4
<PAGE>
(6) WHERE THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT IS THE GUARANTEED
DEATH BENEFIT. IF PAST PREMIUMS ARE INSUFFICIENT TO KEEP THE
GUARANTEED DEATH BENEFIT IN EFFECT OR INDEBTEDNESS IS OUTSTANDING, A
ZERO SURRENDER VALUE WOULD INDICATE CONTRACT LAPSE IN THE ABSENCE OF
ADDITIONAL PREMIUM PAYMENT. IF YOU TAKE A PARTIAL WITHDRAWAL, THE
AMOUNT OF THE WITHDRAWAL IS ADDED TO THE MINIMUM TOTAL PREMIUM
PAYMENTS NECESSARY TO KEEP THE GUARANTEED DEATH BENEFIT IN EFFECT.
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, TIMING OF PREMIUM PAYMENTS, 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.
5
<PAGE>
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD: $xxx,000. ANNUAL PLANNED PREMIUM: ISSUE AGE [60]
$x,000,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
VALUES-CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Contract Account Surrender Death Account Surrender Death Account Surrender Death
Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
45
</TABLE>
ASSUMPTIONS:
(1) ASSUMES THE PREMIUM SHOWN IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
(2) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(3) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(4) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(5) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
6
<PAGE>
(6) WHERE THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT IS THE GUARANTEED
DEATH BENEFIT. IF PAST PREMIUMS ARE INSUFFICIENT TO KEEP THE
GUARANTEED DEATH BENEFIT IN EFFECT OR INDEBTEDNESS IS OUTSTANDING, A
ZERO SURRENDER VALUE WOULD INDICATE CONTRACT LAPSE IN THE ABSENCE OF
ADDITIONAL PREMIUM PAYMENT. IF YOU TAKE A PARTIAL WITHDRAWAL, THE
AMOUNT OF THE WITHDRAWAL IS ADDED TO THE MINIMUM TOTAL PREMIUM
PAYMENTS NECESSARY TO KEEP THE GUARANTEED DEATH BENEFIT IN EFFECT.
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, TIMING OF PREMIUM PAYMENTS, 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.
7
<PAGE>
LIBERTY LIFE ASSUARANCE COMPANY OF BOSTON
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
MALE STANDARD: $xxx,000 ANNUAL PLANNED PREMIUM: ISSUE AGE [60]
$x,000,000 FACE AMOUNT
DEATH BENEFIT OPTION 1
VALUES-GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
Contract Account Surrender Death Account Surrender Death Account Surrender Death
Year Value Value Benefit Value Value Benefit Value Value Benefit
---- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
45
</TABLE>
ASSUMPTIONS:
(1) ASSUMES THE PREMIUM SHOWN IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
(2) ASSUMES NO CONTRACT LOANS HAVE BEEN MADE.
(3) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES.
(4) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(5) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS
BASED ON THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST.
8
<PAGE>
(6) WHERE THE SURRENDER VALUE IS ZERO, THE DEATH BENEFIT IS THE GUARANTEED
DEATH BENEFIT. IF PREMIUMS ARE INSUFFICIENT TO KEEP THE GUARANTEED
DEATH BENEFIT IN EFFECT OR INDEBTEDNESS IS OUTSTANDING, A ZERO
SURRENDER VALUE WOULD INDICATE CONTRACT LAPSE IN THE ABSENCE OF
ADDITIONAL PREMIUM PAYMENT. IF YOU TAKE A PARTIAL WITHDRAWAL, THE
AMOUNT OF THE WITHDRAWAL IS ADDED TO THE MINIMUM TOTAL PREMIUM
PAYMENTS NECESSARY TO KEEP THE GUARANTEED DEATH BENEFIT IN EFFECT.
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, TIMING OF PREMIUM PAYMENTS, 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.
9
